This can make the 'rate of deflation' that occurs worse:
* https://en.bitcoin.it/wiki/Deflationary_spiral
* https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoi...
* https://crypto.bi/deflationary/
† I am aware of satoshis.
Considering this, while it is true that all this makes deflation worse, I’d assume most bitcoin hodlers would not mind this.
Which can limit economic growth. When money was based the amount of gold available, there were long periods of economic stagnation because of liquidity issues:
* https://en.wikipedia.org/wiki/Long_Depression
* https://en.wikipedia.org/wiki/Great_Bullion_Famine
The stagnation only ended when new sources of shiny rocks were found (California; New World).
I find it a dumb idea what whether or not people can get credit to start/expand businesses would be dependent of solving math problems. Yes, credit creation can be "too easy" and become a problem, but making it "too hard" (or physically/mathematically impossible) is even more dumb.
During the "long depression" GDP was still growing at 3-4% so it was hardly stagnation.
So the finite amount of base money would just mean that derivative products would be used as practical money.
I don't know of many things that are viewed positively that have been given a label with "depression" in it.
> Figures from Milton Friedman and Anna Schwartz show net national product increased 3 percent per year from 1869 to 1879 and real national product grew at 6.8 percent per year during that time frame.[32] However, since between 1869 and 1879 the population of the United States increased by over 17.5 percent,[33] per capita NNP growth was lower. Following the end of the episode in 1879, the U.S. economy would remain unstable, experiencing recessions for 114 of the 253 months until January 1901.[34]
> The dramatic shift in prices mauled nominal wages – in the United States, nominal wages declined by one-quarter during the 1870s,[14] and as much as one-half in some places, such as Pennsylvania.[35] Although real wages had enjoyed robust growth in the aftermath of the American Civil War, increasing by nearly a quarter between 1865 and 1873, they stagnated until the 1880s, posting no real growth, before resuming their robust rate of expansion in the later 1880s.[36] The collapse of cotton prices devastated the already war-ravaged economy of the southern United States.[17]
> Thousands of American businesses failed, defaulting on more than a billion dollars of debt.[35] One in four laborers in New York were out of work in the winter of 1873–1874[35] and, nationally, a million became unemployed.[35]
* https://en.wikipedia.org/wiki/Long_Depression#United_States
Seems like a grand-ol time.
That’s quite a mischaracterization. We can at least agree that Bitcoin’s supply is set up to increase at a pre-set rate over time. The math problems are the means to enforce that rate. Not the controlling factor.
Look at it this way. If your money (in money form) is worth less tomorrow than today, you are incentivised to spend it, thus fueling economic activity of all sorts (from going out and buying a drink to buying a car, traveling, investing). If your money is worth more tomorrow, then you are incentivised to tighten your belt and not spend for as long as you can. At scale, this negatively affects production, economic mobility, and so forth; the rich get richer and hoard the money. I do not believe any of today’s economies can be healthy and competitive (or even functional) with a deflationary currency.
I disagree that it is the cause.
The mechanism does not distinguish between “bad economic activity” and “good economic activity”. I.e., the same mechanism applies to positive progress (carbon dioxide sequestration, more expensive technology and techniques reducing environmental impact, etc.), it just requires proper incentive alignment and accounting for bad faith actors via regulation.
A deflationary system with limited supply makes kings and ultimately defeats itself, as your money is decreasingly evidence of your effort and work and increasingly evidence of you having held to it for a while. (It is also a quality of the current system, but less so, and it should be even less so, not more so.)
The same goes for technology. We all know next year’s iPhone will be better than this year but we still buy them…because we need them now.
I’d argue inflation’s incentives are worse - the constant need to invest/spend so that your money doesn’t lose value. It means money flows into anything and everything like zombie companies, over consumption, property. Those on the poorest end are just trapped because as soon as they get any money it starts depreciating.
Next year’s iPhone will not only be better, but also (even with the same price tag) cost more, inflation-adjusted. That factors into the decision to buy now.
> I’d argue inflation’s incentives are worse - the constant need to invest/spend so that your money doesn’t lose value.
It is a problem when it is at extreme, like in unstable countries where money can be a liability to unhealthy degree. However, I’d argue it should be a liability to a smaller degree.
What you highlight is the ever-present conflict between personal benefit and societal benefit. Obviously for an individual it is more preferable that the value of their money increases; I would never argue that. However, for society as a whole it is more preferable if the value of money decreases at a stable rate.
Perhaps this is why all major economies settled on the idea that an amount inflation is crucial to have.
We’ve already seen the negative side of fiat currencies in how they eventually collapse (Zimbabwe, Venezuela, Argentina) and even in more developed countries wages have not kept up with inflation. Money is trending to zero People are trending to destitution.
We saw it recently in the UK - where public sector workers were not given pay rises because the government argued it would fuel inflation. So how does that even make sense.
By your logic, bonds are bad for the economy.
The only reason you can provide examples of failed states with inflationary currencies is because all currencies are inflationary. This is not a coincidence, perhaps because deflation does not correlate with things going well. For some famous examples of deflations, read on The Great Depression in US and Lost Decades in Japan.
In the US it was nothing good either after a few years since WWI: manufacturing fell, unemployment rose[0], etc. I guess it did not help that Britain ended the gold standard which helped their exports, and US adopted protectionist policy which tanked its trade. I don’t need to retell this all but basically the depression ended with the US abandoning the gold standard and entering controlled inflation.
Perhaps the reason for these rosy takes on deflationary currencies in the US is that not many people are still alive who lived through the depression…
By the way, the US did suspend the gold standard during WWI. Why, you ask? Well, it so happened that some debt was due, plus people from across the pond were selling stocks in US companies, and so what happens at that point (when you don’t have much monetary control) is ships full of US gold floating off into the misty ocean.
Correct me if I am wrong, of course.
[0] “Did you know that every 1% the unemployment goes up, 40 000 people die?” — The Big Short.