how can it be a hidden bias if you just called it out?
385 karma · joined February 11, 2014
I agree with your arguments about why some inflation is desired, it incentivizes people into spending their money, this makes it so that people engage in trade more often and, when voluntarily made on the basis of sound information, trade is beneficial to both parties. The net positive done in the world increases, at the small cost of some inflation, that is, the loss of some of your net worth if you rest on your laurels keeping your cash.
All this being said, for me there is a great asymmetry in the demonstrable harm done by inflation vs deflation. The list of people who have suffered the consequences of irresponsible governments is just too large, with you and me being at risk of suffering from them during our lifetime. The temptation is just too large to mishandle currency. While deflation is something that we will very hardly experience in our lifetime, barring some massive technological breakthrough that changes the means of production forever.
Moreover, there's no reason to believe that an economy can't work with deflation. Believe me, it CAN work with extreme inflation where calculation into the future is made very hard, it can surely work with deflation. Yes, some psychological aspects will be new, like people holding off purchases because their money will be worth more in the future, but that will not necessarily translate into a wide-scale halt in purchases. People will still want things more right now than the equivalent of their increasingly valuable currency. This new modality will introduce problems, no doubt, but these will be overcome by new adaptations. There is simply not enough evidence to ensure that a system like this can't work.
I agree that one ought to proceed with care in these matters because a system that seems to work in the beginning might fail catastrophically later on. However, as any change, one ought to weigh the negative risks against the benefits. With the promise of cryptocurrency we're entering a new world. One in which each individual will be more empowered and global commerce will be facilitated. The complexity of the world shows us that no matter how much optimism or pessimism you bake into your decisions, for some things, you will just never know for sure.
Lastly, another problem with inflation is that it favors the elites. Possibly, this is one of the biggest reasons why it's so widely disseminated. Those close to the central banks, those that understand about finance, those that seek power for themselves at the expense of others, among others. This kind of centralization of power motivates individuals at the top to sell the idea to the masses as if it's for their own good, and sometimes it is, but you can't deny that the incentives do not point to this being something that overwhelmingly favors the disenfranchised and the ignorant.
I'm not intending to bait. Really I find the arguments against deflation insufficient. I get the picture that some inflation is good to keep the system running smoothly, however, the description of why inflation is desirable is lacking when explaining why deflation is necessarily bad, all things considered. I don't see a first principles argument against deflation, neither do I see a thorough comparative analysis between deflationary and inflationary economies. The only example given is Japan, which, as I said before, doesn't seem to have fared too badly. Moreover, the list of countries that have had problems with runaway inflation is very long. Inflation is a well established economic malaise. In fact, it is almost a maxim that all states are destined to at some point or another, debase their currency.
I think one has to weigh the economic arguments, whatever they may be, against the fact that humanity has never had sound money that can't be debased, and that isn't at the whims of some elite, however well intentioned and wise they may be -- which more often than not, they aren't.
Cryptocurrencies will continue being developed, the flaws will be solved, and the wrinkles ironed. We will have something that may work as sound money. And I say we let it compete fairly against fiat money, put our theories to the test, and see what kind of money if preferred by the people. If it turns out that sound money is finally achieved, I'm sure it'll be a momentous time in human history, and could very well become a new human right: the right to own and use sound money.
> With a deflationary currency, the incentive is to put off purchases as long as possible as your currency will buy more tomorrow than it does today.
What I hear from this is that people think twice before making a purchase, that is, they use their money more wisely. Seems like a bonus to me. Regardless of this, people will still need to buy things to conduct their lives, and there will still be people who are reckless with their money. So this seems like a non-issue.
> Deflation ends up being economically disastrous, as Japan’s battles with deflation over most of the twenty-first century have shown.
Any other example or it's only Japan? Because honestly it's not the country one associates with economic disaster, on the contrary, they were for quite a long time the 2nd world's economy, and if you visit it's a lovely place all around.
On the other hand, the list of countries that have had to contend with inflation is much much longer, as far as I can tell, and the problems stemming from inflationary currencies orders of magnitude more severe. If you put both prospects on a balance and weighing the evidence, deflation seems like a much better problem to have.
> This is why, aside from speculation, purchase of illicit goods and ransom payments, Bitcoin has had little traction as a currency.
It has had little traction as a currency because it's unusable. You have to pay exorbitant fees to move it around and it takes way too long to work for every day transactions. Not to mention another host of problems, which other cryptocurrencies fix, by the way.
A Chinese company coming up with a cheaper alternative to a cutting-edge technology out of nowhere, is an outcome that is hard to predict.
In hindsight, betting on Nvidia maintaining its monopoly on a resource crucial for such an important technology as AI, might not be the best of ideas, but then again, who knows.
Imagine an organization on the scale of Google, with everything in it’s favor, being outmaneuvered by a much smaller one in such a transcendental endeavor. It’s like to a small country in Central America, coming up with some weapon to rival the US’s army.