Interesting video discussion on bitcoin (youtube)

[kwukduck]

Starts at about 8 minutes in.
https://www.youtube.com/watch?v=IGpaFuGBJYE

Not sure if this is in the right section


Basicaly the guy against bitcoin is talking about how bad deflation is and how it will stop economic activity because money will be worth more the next day. I tried to understand this point but to me it just doesn't do it... If people will think twice before spending money, it forces other people to innovate more and keep the prices sharp so that people will want to buy again... I think this will balance out just fine over time.

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[justusranvier]

Deflation is terrible - that's why the computer (and consumer industry in general) is doing so badly compared to the rest of the economy because of the enormous deflation in electronics.

Nobody buys anything because there will always be something better in six months and it's impossible for any company in the sector to make a profit.

Deflation is a nightmare. Consumers and produders alike are much better served by constant price inflation. The healthcare and higher education industries understand this which is why people are so much more satisfied with the products of those industries than they are with electronics.

[Etlase2]

I am so sick of hearing the electronics industry being used as an argument for deflation. You fail to remember that their prices deflate while the CURRENCY STILL INFLATES IN GENERAL. It is the dumbest, most misrepresented argument ever.

[justusranvier]

"I'm so sick of evidence constantly contradicting my beliefs. Can't you people stop replying on empericism and just believe me in spite of all proof to the contrary?"

[Piper67]

I am so sick of hearing the electronics industry being used as an argument for deflation. You fail to remember that their prices deflate while the CURRENCY STILL INFLATES IN GENERAL. It is the dumbest, most misrepresented argument ever.

Are you seriously suggesting that the magnitude of deflation for electronics industry prices is equal to the inflation of the currency in general?

[ElectricMucus]

Fixed amount of currency + demurrage is the best of both worlds.

[Etlase2]

Are you seriously suggesting that the magnitude of deflation for electronics industry prices is equal to the inflation of the currency in general?

I don't know how you could possibly infer that.

http://wiki.mises.org/wiki/Deflation - here's your homeboy's site gentlemen

The effects of price deflation differ depending on the cause(s), and on the state of the economy.

Falling prices caused by increased production do not reduce the general or average rate of profit in the economic system and do not make debt repayment more difficult. For example, if falling prices result from the fact that while the quantity of money and volume of spending in the economic system are rising at a two percent annual rate, production and supply are rising at a three percent annual rate, the average seller in the economic system is in the position of having three percent more goods to sell at prices that are only one percent lower. His sales revenues will be two percent higher, and that is what counts for his nominal profits and his ability to repay debts. His profits will be higher and his ability to repay debt will be greater. There are lower prices, but no deflation.

http://austrianeconomics.wikia.com/wiki/Deflation

Deflation can cause a fall in prices. But calling falling prices "deflation" is a profound confusion between prosperity and depression. There are two distinct causes of generally falling prices. The leading cause of falling prices is economic progress, whose essential feature is an increasing production and supply of goods and services, which operates to make prices fall. The other is a decrease in the quantity of money and or volume of spending in the economic system. Falling prices is the only effect that they have in common. They differ profoundly with respect to their other effects.

"I'm so sick of evidence constantly contradicting my beliefs. Can't you people stop replying on empericism and just believe me in spite of all proof to the contrary?"

Learn some semblance of what causes prices and get back to me. Until then, consider yourself owned.

[justusranvier]

http://austrianeconomics.wikia.com/wiki/Deflation

Deflation can cause a fall in prices. But calling falling prices "deflation" is a profound confusion between prosperity and depression. There are two distinct causes of generally falling prices. The leading cause of falling prices is economic progress, whose essential feature is an increasing production and supply of goods and services, which operates to make prices fall. The other is a decrease in the quantity of money and or volume of spending in the economic system. Falling prices is the only effect that they have in common. They differ profoundly with respect to their other effects.

"I'm so sick of evidence constantly contradicting my beliefs. Can't you people stop replying on empericism and just believe me in spite of all proof to the contrary?"

Learn some semblance of what causes prices and get back to me. Until then, consider yourself owned.

Since you're such an expert on these things perhaps you can explain why prices would fall in a Bitcoin economy and whether this would more closely resemble the prosperity situation or the depression situation? While you're at it, can you explain the mechanism that makes falling prices good in some situations and bad in other situations?

[Etlase2]

There is no simple or correct answer to whether or not it would resemble prosperity or depression. The "Equation of Exchange" partially developed by Mises would say that if the price level drops (assuming a constant supply in circulation) either the velocity of money and the real value of expenditures has slowed (depression), or the velocity of money stays about the same and the real value of expenditures has increased (prosperity).

But in the case of Bitcoin, it is unlikely that the real value of expenditure being slowed equals depression as it probably just means that it's being used as a commodity rather than a currency, since everyone has plenty of fiat lying around that they will spend instead. If this is the case, as it seems to be when speculation makes up the vast majority of all services available to the economy, then you have to ask if bitcoin is actually successful as a currency. On the surface it may seem useful as a payment processor, but when you factor in all of the fees involved in converting currencies and the overall extreme volatility, there is probably not much of a benefit for anything other than black/gray market goods.

As far as the "mechanism" that makes falling prices good or bad, this is basically the same question reworded. If gains in efficiency result in lower prices, everyone wins (though arguably perhaps not the Earth, but that is a different subject). If heightened scarcity in currency causes lower prices, those with lots currency win, those in debt lose, and those without currency, debt, or jobs are at pretty much the same spot.

[justusranvier]

One relevant fact that is missing from most analyses of inflation and deflation is the fact that for spending purposes currency and credit are fungible.

The US experienced severe periodic inflation and deflation on the gold standard because while the gold supply was relatively stable, the credit supply was alternatively expanded and contacted by the banking system.

Depressions are normally associated with depression because they are always preceded by a collapse of the credit markets. The question that we should be asking is, "Why does the credit supply keep getting so large compared to the currency supply, and why is it always allocated in such a way that it periodically collapses and causes a depression?"

Saying that we need inflation to avoid a depression is like saying we need to keep drinking to avoid a hangover. The right solution is to stop getting drunk on cheap credit in the first place so that we don't need to worry about currency appreciation caused by increased productivity.

[waspoza]

One relevant fact that is missing from most analyses of inflation and deflation is the fact that for spending purposes currency and credit are fungible.

The US experienced severe periodic inflation and deflation on the gold standard because while the gold supply was relatively stable, the credit supply was alternatively expanded and contacted by the banking system.

Depressions are normally associated with depression because they are always preceded by a collapse of the credit markets. The question that we should be asking is, "Why does the credit supply keep getting so large compared to the currency supply, and why is it always allocated in such a way that it periodically collapses and causes a depression?"

Saying that we need inflation to avoid a depression is like saying we need to keep drinking to avoid a hangover. The right solution is to stop getting drunk on cheap credit in the first place so that we don't need to worry about currency appreciation caused by increased productivity.

+1 This post should be made sticky. Best answer to inflationists.

[Etlase2]

One relevant fact that is missing from most analyses of inflation and deflation is the fact that for spending purposes currency and credit are fungible.

No, it is not missing. http://en.wikipedia.org/wiki/Money_supply - People spend lots of time trying to figure out exactly how much money there is because of credit.

The US experienced severe periodic inflation and deflation on the gold standard because while the gold supply was relatively stable, the credit supply was alternatively expanded and contacted by the banking system.

And this is a problem with the government-given gift of central banks, not a locked or unlocked supply of money.

Depressions are normally associated with depression because they are always preceded by a collapse of the credit markets. The question that we should be asking is, "Why does the credit supply keep getting so large compared to the currency supply, and why is it always allocated in such a way that it periodically collapses and causes a depression?"

Chicken and egg solved? I don't think so. The credit markets collapse because credit is overextended, overproduction and overconsumption are rewarded, and banks always win. The "banks always win" part is by far the most important, because no matter what happens they will fuck society in the ass without lube.

Saying that we need inflation to avoid a depression is like saying we need to keep drinking to avoid a hangover. The right solution is to stop getting drunk on cheap credit in the first place so that we don't need to worry about currency appreciation caused by increased productivity.

Saying that we need deflation to avoid prosperity...

http://hayekcenter.org/?p=5401

FA Hayek: “I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy.  I am not only against inflation but I am also against deflation.  So, once again, a badly programmed monetary policy prolonged the depression.”

And increased productivity does not cause currency appreciation, it causes lower prices. There is a difference. There isn't more demand for the currency when prices go down; that would be silly.

I am not a keynesian, and I have never said we need inflation to avoid a depression, so please don't put words in my mouth or create a strawman. But then again, you may have not been responding to me since you just went off on a typical bitcoin diatribe after you realized you lost the argument. So, if that's the case, carry on.