Topic: Why is deflation bad? NYTimes link (Read 4882 times)

Slight nuance. Asymptotic means tends towards the asymptote. It doesn't mean it will achieve asymptote value.

That's what asymptotic means... the increase decreases over time down to zero.

Anyone can modify the code, but no one has the guaranty that the user base will update to their modified code. And what concurrence does Bitcoin have? A rule cannot exist without force to apply it. Policy makers hold that authority over their respective currency and economy because they have the full force of their government to back their decisions. Bitcoin is impervious to these forces, so how are they to be considered exactly?


That pattern is finite. At 21 million coins, no more minting.

It's deflationary if the rate of currency increase is less than the rate of increase in productivity which makes use of that currency.

That's basically why bitcoin is in a deflationary period now. There are millions of libertarians in the world, plus non-libertarians who consider libertarian money to be just as green and will happily relieve them of some of it if they are so eager to do so. Bitcoin has barely reached 1% of its potential market.

I assume this question is hypothetical, because Bitcoin will never be in deflation. It's programmed to continually increase in an asymptotic pattern. Unless someone destroys a vast amount of Bitcoins by dropping their wallet file in the ocean, Bitcoins will increase in quantity each day.

No decrease in the money supply = no deflation. And people saving or "hoarding" as some like to call it does not reduce the money supply, the money is still available to the market it's merely a question of at what interest rate holders of the money will be willing to part with it. The price of money changes, but it isn't "deflating."

Our society has been trained that deflation=prices falling, but that is confusing a cause and a symptom. One symptom of a decrease in money supply is falling prices, but that does not mean falling prices = deflation.

And yes we can thank Krugman for perpetuating such absurd notion... for goodness sake I read one of his pieces arguing against the privatization of airports because planes would be crashing into each other without Government oversight. The man is a fool with a very loud microphone.

Guarded by whom and what measures?
My point is that you are debating on whether inflation is worth for quick boosts of ailing economies or whether it undermines long-term growth prospect without including the larger context of a world economy with many different policy-makers and their instruments. You do not have any level-playing field and Bitcoin users may well not have the field (mostly) for themselves. Competition does not only affect the players' strategies but the rules of the (policy-ruled) system as well.

How would they do so? In order for the block subsidy to stay 50 BTC forever (the simplest way of making Bitcoin permanently inflationary), a majority of users must adopt the client with the updated rules. There's easy way for a single or small group of individuals to change the rules at their discretion. In the future, this might be possible with the prevalence of headers only or even thinner client software, but I believe such drastic unilateral changes can be guarded against.

Good evening, everyone, a genuine constructivist here.
In my eyes, this debate is misleading, in fact occurs in the first place due to a lack of reflectivism on the liberal paradigm both Krugman and you implicitly employ.
What the proponents of deflation do not consider and the apologists of inflation may have stopped to point out is that the basic issue at hand is not financial regulation, prudent economic policy or the liberal axiom of constant growth in the first place, but the very same problem most other fields in social science face: (constructed) moral hazard in an anarchic international system.
Hence, inflation will always exist - whether you think it's good or not - as long as there are countries with autonomous monetary and fiscal policy that do not only trade with each other (liberal view), but actually try to gain an edge over each other by seeking rents on costs of other economies (realist view). This trend has become well apparent in the era of European absolutism and the collapse of the gold standard in the last century is a paragon of reminding us that free trade is just as much an illusion as free markets or communist economies alike.

In short, instead of discussing what impact inflation and deflation have on a domestic economy, we should become aware that this is no policy governments could deliberately decide about but the domestic impact of anarchic competition of rent-seeking economic systems in times of globalisation.

In this view, the Bitcoin economy may well face pressure to initiate policies towards inflation if the founders (or a yet to form powerful organisation) comes to face pressure from specific interest groups to develop an edge over other currencies. The simplest scenario would be the good suppliers (which grant value to the currency in the first place) would pick up other, cheaper electronic currencies and force Bitcoin to devalue.

Krugman et al pick and choose which parts of Keynesian economics they want to follow.  Keynes said that Government spending during a downturn is definitely a good thing, but only if the Government is spending the surpluses that it has built up during the good times. They choose to ignore the second part but still call it Keynesian. A little unfair on the guy.

Structural deflation has existed for much of the U.S economic history,and certainly I have seen 20 years of it in Japan. There is nothing wrong with deflation per se, it just favors savers rather than borrowers. It also lowers the velocity of money. Governments like the U.S govt want inflation so that they can borrow massively and pay it off in a devalued currency.

The problem it will have in Bitcoin is that it causes hoarding.

A most agreeable comment.

A lot of people don't understand Marx either.  But it's not a problem because they aren't on the news or in government advising politicians that we should all live in communes.  The problem is that Keynesians who don't understand Keynes have a lot of undue influence these days, since misunderstanding Keynes is an easy way to advocate bloated government in a not-yet-totally-discredited way.

I agree with this. I think the Depression was caused by a booming industrialized world trying desperately to hold onto a gold standard that was no longer fit for purpose. A golden straight-jacket as it were, and deflationary atrophy followed.

That is not to say deflation cannot be a good thing, life has different modes for different times. Ideologues usually fail to grasp the basics of multivalent truth as they tend to preffer a simpler manichean world view.

Your rebuttal was interesting until this statement. A lot of people don't really understand Keynes, you can tell who they are by their sneers.

He's not retarded, just crippled.

That would have been off the wall hilarious if the original comparison had been the Special Olympics.  :-)

" and tonight, in what is considered to be the Special Olympics of the Nobel Peace Prize, New York Times writer Paul Krugman wins for his understanding of economics."

Paralympics, not Special Olympics.  You just angered Mark Zupan.

Haha...So the Nobel Prize in Economics is the paralympics of the Nobel Prizes. No wonder why a retard like Krugman won. Stiglitz too.

It looks like the association has gotten tighter over the years.  It does have a separate name compared to the others due to that origin, but it appears you are correct it's under closer control.

The name for the prize is actually something like "The Swedish Riksbank's economic prize in the memory of Alfred Nobel" roughly translated. The swedish central bank created the prize by donating a bunch of money to the Nobel committee on their 300 years jubilee. I'm not sure on who is actually choosing the winner, but the prize is a disgrace to Nobel's will regardless of who it is.

All I'm saying is that according to the Nobel site, that does not seem like the case. Do you have a citation for that claim?