Topic: Economic Devastation - page 126. (Read 504811 times)

Good points all around!

I wonder if a decentralized fiat system can serve as a complementary form of money in the future.
In current fiat system money is created out of thin air, but only a few have the right to do it. What would be the decentralized version of it? Well, I guess, "likes" on popular social networks is a good example. People create their "likes" out of thin air, but you can only "like" a particular thing once from a verified account. I wonder if this would help to coordinate knowledge creation in the future. There is no debt involved, and there is no repercussions in case of failure.

Very good analysis, thanks!

To the question of who is going to provide the safety net, I guess some form of government or big businesses, which think that it's simply the "right thing to do", like Google . But the minimum provided should be barely comfortable, otherwise people will just get lazy.

Reminder for readers to digest the entire thread and the essays in the OP.

Particularly remember to go back to the following point in the thread and re-read:

https://bitcointalksearch.org/topic/m.10017628

Nobody earns 1% on an investment that isn't usury. Investments have a high fail risk, thus no one attempts an investment with such low potential ROI, because the ROI has to compensate for the failure risk.

We need to end all this usury (bonds, banksters) crap. That precisely is the drag on the economy and the corruption of the Iron Law of Political Economics. I had explained upthread why guaranteed ROI is the antithesis of development, i.e. it is anti-development and megadeath directed. Evidence the coming global Sovereign Debt collapse. So just forget saving money in a bank with a fixed rate of ROI. That is part of the problem of society, not a solution to any thing.

Any way, holding a basket of stock invesments has always delivered much higher average ROI over the long-term. That is Warren Buffett's main point.

And yes humanity needs to transition to the Knowledge Age, because automation will replace all the other jobs. Evolution at work. Sorry.

I don't know what is the correct level of debasement. But I doubt it is 2 - 3%. It is probably 5+%, which btw is the historical level of debasement of the dollar. That will provide much funding for mining security. Also you assume the GDP growth rate drives the optimum rate, but it may be synergistic where the rate of debasement drives the GDP growth rate.

The key improvement of crypto-currency is that the debasement in theory doesn't end up in the hands of the banksters, which they can then use to capture the government.

Also I have an idea of how it doesn't end up in the hands of a few rich ASIC owners too. That is one of my altcoin design secrets.

Yes savings is power law distributed but that does not alter the game theory. All investors must include the debasement of the currency into their calculations even those targeting high ROI investments.

This becomes more clear with an example. Lets examine an economy that is growing at 5%.
In this environment compare two investors 1) a manual laborer capable of obtaining a 1% ROI on his investment, and 2) an IT worker who is capable of a 20% ROI.

If the currency is debased at 5% per year both the laborer and the IT worker have a positive incentive to invest as they will achieve a return that is better than immediate consumption. However, if the debasement is raised to 10% the laborer no longer has an incentive to invest nor does he have any incentive to defer immediate consumption/spending as each day his purchasing power declines.

You can make the case that the wealthy in a knowledge age are capable of higher ROI investments and we should push debasement up in this way because it will cause wealth to further accumulate in the hands of those who can achieve a higher ROI with it. However, this is a very dangerous argument because you are essentially arguing that we should create an economic system that does not provide optimal incentives for the majority of humanity in the hopes that the gains created by the upper crust will offset whatever damage is done to the lower classes. To do so implies a great social debt to those on the tail end of the pareto distribution as they are essentially being thrown under the bus in the name of growth. That is the path to socialism and redistribution.
 
Edit: By growth of 5% above I mean the aggregate growth in the value of the goods, services, and knowledge produced by the economy.

I don't think the game theory works that way in reality.

Savings is power law distributed.

Non-bond investors don't change their timing based on the ratio of debasement to average economic growth rate. They are targeting investments with much greater ROI, so that ratio is much less relevant than the timing of their investment.

Actually rather then being utopian I believe that something like this is the only way to optimize long term adaptability and growth. A basic social safety net smooths the fitness curve and thus facilitates long term long term optimization and adaptation. Such a safety net helps ensure trailblazers survive long enough to eliminate economic frictions.

https://bitcointalksearch.org/topic/m.4916516

The challenges is how to fund it and most critically how to ensure the curve is only smoothed never inverted.

There are two different types of incentives in the economy.

1st is to minimize fear of ending up homeless on the street without food - the survival mode.
2nd is to maximize joy by creating more ways to generate knowledge (VR, video games, space exploration) - entertainment.

I'm sure that the Knowledge Age can only begin when the survival mode is mostly over and some basic human needs can be fulfilled on the uncoditional basis. Basically a small shelter and some form of syntethic food produced by machines with minimal resources would suffice to end poverty and violence. Anything better than that needs to be earned by developing skills and creating knowledge and fun. But maybe this view is somewhat utopian and the traditional ways of incentivizing people through having to compete for survival works better? Time will tell.

Just noticed, that there is another 40-page-long thread on the topic of "technological unemployement":
https://bitcointalksearch.org/topic/technological-unemployment-is-almost-here-318001
So I have some more catching up to do .

Agreed it varies for each individual. That does not mean an overall aggregate does not exist. I do not see why it would be impossible to estimate said aggregate.


So we must ask what level of debasement best serves society as a whole. Lets look at this from the prospective of the individual who wants to own apples. Assume an economy is growing at 5% and by random chance the efficiency of apple production also happens to exactly match that 5% growth.  

Examine the game theory behind an individual's decision to buy an apple now or later if debasement is equal to growth:

If he chooses to buy an apple now he gets 1 apple.

If he waits and chooses to buy an apple next year he still gets 1 apple.
(The individual does not lose his apple for failing to consume immediately. This limits the incentive for sub-optimal and indiscriminate consumption. Money maintains its purchasing power relative to the time it was saved and thus functions as an acceptable store of value.)

If he invests the money for a year and manages to match the rate of economic growth he gets 1.05 apples.
(The individual gets to partake in the efficiency gain in the overall economy which is fair because he participated in said growth).

In a real economy things are obviously more complex and an investor who chooses to defer claims on real capital now will likely lose purchasing power in some areas and gain it in others. However, if the debasement of the currency matches the overall aggregate economic growth then purchasing power will be protected relative to the time it was earned. By this I mean that a saver will be able to purchase a basket of goods and services that is comparable in quality and quantity to what he could have purchased when he deferred his initial claim. Money serves both as an acceptable store of value and the incentive remains to invest and not horde.

I am presenting logic for why currency debasement greater than the average aggregate growth rate is not optimal for it encourages excess spending/investment. Above I presented logic for why currency debasement less then the average aggregate growth rate is not optimal for it encourages excess savings/divestiture.

I maintain my claim that the equilibrium point between the competing inefficiencies is a debasement rate that equals the rate of aggregate economic growth. This is the level that provides the optimal incentives for society.

Ok, got it.

I meant "because otherwise no loans means the economy dies" is the political justification for bailing the banks out. I wasn't saying it is the truth. Politics is almost never about the truth.

Yes, as I have pointed out some debasement might occur through the addition of competing crypto-currencies.


Also the "economy dying without loans" is an exaggeration, as crowd-funding is likely to replace the old coercive form of financing. So instead of taking a loan and then getting punished for not being able to repay it, companies will turn to the internet crowd with their prospects and business plans, and then decentralized community will assess the risks and proceed with funding. How to handle failure to deliver and various scams is still an open question though.

Any way the entire discussion about debasement is irrelevant, because there will be competing crypto-currencies and the one that wins will be the one that the most users want to use as a currency and/or store-of-value.

I believe the winner be the one that most users want to use as a currency, because I believe even Bitcoin is a not a store-of-value, rather it is a speculation and also will be any altcoin that aspires to be more used as a currency.

So I think the 0% debasement debate is really delusional noise.

So that shows how having a delusional goldbug demographic causes Bitcoin to pitch features which are really irrelevant. Thus it shows that if you want to do something big with an altcoin, you need to change the demographic you are targeting.

And thus I think I will stop this discussion and focus on things which really matter.

That's because we are still using inflationary fiat system, and taking loans is the only way to get money in circulation and pay back old debts. On the other hand, it makes money much more available than in case of any rigidly pre-programmed system. So fiat might be a better system for "developing countries" in general as they experience a lot of growth and need money readily available to make their economy fluid. However for stabilized "developed countries" something like Bitcoin will be more suitable as the need for economic growth isn't as acute.

So, I agree, that there might not be economic growth in the case of zero debasement money system (not that it needs any), but that is only true if the only incentive is profit, which is not always the case.

  There is no real economic growth now for example in Europe, yet the banks and bond holders still collect interest payments.

Perhaps your point is that in a debt-based economy where all activity is debt-financed then to pay compounded interest, the supply of money must also have compounded growth. While that is true, then lender makes no inflation-adjusted gains.

And if the debasement is decentralized in crypto-currency, then the banksters in theory can't capture it as they do now.

Whereas if you try to limit the debasement to 0, then the banksters will still make their loans and when the economy collapses because the interest payment can't be paid, then they get bailed out by the government, because otherwise no loans means the economy dies.

I apologize. I don't know how I so utterly failed to read your post. I must very exhausted.

But in the case of zero debasement, economic growth does not translate into increasing monetary base, that in turn prevents getting interest on the loans. It simply means that everyone will be getting the products of the economy as an additional benefit, not via monetary means, but as an increasing quality of services.

Also as technological unemployment increases, should machines begin to provide food and shelter (3D printed) for humans free of charge or should humans still pay for it?

That is why he needs to plant some children (if he can't earn enough to be wealthy enough). Sorry but math and government planning can't replace a strong family.

http://armstrongeconomics.com/2013/10/01/what-socialism-destroyed-govt-shutdown/


"The rate of economic growth" does not exist. There is no way to calculate it. It is a relative thing that varies for each person and each weighting basket.


There is no one level where that happens in all cases. It is ladder. The higher you climb, the more higher ROI activities get prioritized and lower ROI get discouraged, but indiscriminate spending also has some effects which are not all positive. I would need to think about how to model this mathematically.

Your analysis is short-sighted. With 0% debasement, the rich can loan money at the rate of growth of the economy and parasite the economic growth from the masses in the form of interest payments. With higher levels of debasement, the banksters can't make a positive real (real = inflation adjusted) return whereas the nimble, smaller-capitalized entrepreneur or investor can generate ROI that exceeds the broad level of economic growth and can thus make real gains.

The point of higher debasement is it rewards hands-on knowledge and penalizes parasitic usury.

Very interesting discussion.
I still have some catching up to do, but can post a few points of the top of my head.

I am not against perpetual pre-programmed debasement in general, but taking into consideration the transition from current inflationary fiat system, having a limited supply might be a good selling point to bolster adoption of the new distributed consensus mechanism. Changing this aspect (the debasement) of the money system later might become problematic as it ruins the original promise and might shatter confidence.

The argument that purchasing power of money increases in the case of economic growth and zero debasement cannot be viewed so negatively as it works equally well for all participants. The economic growth in this case simply translates into higher standard of living instead of being eaten by debasement. In fact poor will enjoy the increasing purchasing power of money much more than the rich ever would, because it makes a bigger difference for them.

Also if society stays robust in general, then having a lot of purchasing power won't get you everything you want, because some things might simply be not for sale. If I don't want to sell my house at the beach, there is no amount of money in the world that could take it away from me. That of course implies integrity of the whole system and society in general.

Since use of crypto-currencies is voluntary the natural debasement might occur through addition of new systems and competition between them. However, due to the fact that network effects work very well with money, this kind of debasement is likely to saturate at some acceptable level. This is in fact another aspect of decentralization in crypto-currencies. It will be interesting to see how it plays out.