Would widespread Bitcoin adoption reduce global economic growth?

[go1111111]

The problem: suppose all global transactions are done using bitcoins. Then the value of a bitcoin should grow at the rate of GWP. This means that instead of investing in the stock market, I can just hold bitcoins and expect similar growth. I get the advantages of: liquidity, no fees, and maybe no taxes on gains. The more people do this, the less resources are invested in productive endeavors, and the lower GWP is. Unfortunately, it's in any individual's interest to hold bitcoins rather than invest them in an index fund. Maybe as a result GWP grows at 2% instead of 4%, and the world is worse off.

One might argue that the value of bitcoins would be bid up so that the expected rate of return would be closer to other extremely safe assets. Suppose at year t, each bitcoin is bid up to $X. Then at year t+1 bitcoins have gained less value than a share of GWP, as expected. The total value held in bitcoins has decreased in relation to GWP. But if rational people were OK with this new ratio of bitcoin price to GWP, why did they bid it up higher than this in the first place? And shouldn't that same reason apply at t+1, causing them to bid up the price again so that bitcoins do in fact grow in value at the rate of GWP?

NOTE: I am not claiming that individuals will not spend enough bitcoins. My argument is only about what happens to bitcoins that a person decides to save/invest.

[1714133198]

1714133198

[tutkarz]

population of the planet is increasing and resources are limited. I would worry more about this instead of what you are asking, especially that bitcoin to become worldwide currency is a matter of many years which means we could not live long enough to experience this.

[gannicus]

actually if bitcoin is used by everyone we would see no growth at all. The world GDP would be forever no bigger than 21 million BTC, which would mean no wealth can be produced anymore and everytime you try to do some work some magic force will forbid you to do it because simply no wealth can be ever produced anymore

you would see in newspapers "china gdp decrease 0.1%, usa 0.3% - we are in the worst crisis after 1929 and 2008 combined"

hehehehe

[LiteCoinGuy]

actually if bitcoin is used by everyone we would see no growth at all. The world GDP would be forever no bigger than 21 million BTC, which would mean no wealth can be produced anymore and everytime you try to do some work some magic force will forbid you to do it because simply no wealth can be ever produced anymore

you would see in newspapers "china gdp decrease 0.1%, usa 0.3% - we are in the worst crisis after 1929 and 2008 combined"

hehehehe

the only thing that grows endless is cancer.

[atlosas]

Bitcoin is in long term deflationary and that means people will tend to hoard it and not spend it. And that is bad for the economy.

[kriwest]

It depends. I would argue that even if people hoard 90% of their bitcoin holding until a large enough percentage of the world adopts it to increase the velocity and stabilize the price, if bitcoin enables countries without banking infrastructure to compete globally; it would actually increase economic growth. In other words; Bitcoin the enabler.

I may hold more BTC than I spend, but you bet your ass if bitcoin enables a farmer in Africa to sell me cheaper goods than I can find at home, I will spend bitcoin to import it.

[alexeft]

actually if bitcoin is used by everyone we would see no growth at all. The world GDP would be forever no bigger than 21 million BTC, which would mean no wealth can be produced anymore and everytime you try to do some work some magic force will forbid you to do it because simply no wealth can be ever produced anymore

you would see in newspapers "china gdp decrease 0.1%, usa 0.3% - we are in the worst crisis after 1929 and 2008 combined"

hehehehe

the only thing that grows endless is cancer.

Exactly!

[go1111111]

population of the planet is increasing and resources are limited.

You could have said the exact same thing at any point in human history, yet we continue to get richer and richer. Don't worry about it.

Bitcoin is in long term deflationary and that means people will tend to hoard it and not spend it. And that is bad for the economy.

I don't think personal hoarding is an issue for the following reason. Suppose I am thinking of buying a jacket from you for 1 BTC. But I think the price of BTC will rise in the future, so I have an impulse to hold onto it. The solution is simple: I decide I'm willing to pay 0.5 BTC for the jacket, to make up for the expected rise in BTC value. There is always some price at which people will spend their BTC. Think about if someone offered you a new Ferarri for 1 Satoshi. Even if you're very bullish on Bitcoin, you'd do it immediately. Spending BTC will only not happen if people fundamentally disagree about the value of BTC.

It depends. I would argue that even if people hoard 90% of their bitcoin holding until a large enough percentage of the world adopts it to increase the velocity and stabilize the price, if bitcoin enables countries without banking infrastructure to compete globally; it would actually increase economic growth. In other words; Bitcoin the enabler.

I agree that making transactions easier in the 3rd world will tend to increase GWP, all else being equal. But it would still be the case that in the long term Bitcoin would be worse for the economy than an alternative concurrency (probably based on Bitcoin) which was not deflationary.

[go1111111]

Bad news guys: I emailed Scott Sumner about this. For anyone who doesn't follow economics, Scott has been the one of the most influential economists in the world over the past several years. His thought was that "Your analysis sounds reasonably good" (referring to the exact analysis at the top of this post). I was hoping he'd find a problem with my reasoning, but now it's looking more likely that Bitcoin would be fairly destructive if it ever became the main world currency.

IMO there is a big opportunity to come up with a cryptocurrency similar to Bitcoin (maybe built on top of Bitcoin) which solves this problem.

[p2pbucks]

traditional fiat only made rich richer , no economy growth 

[go1111111]

traditional fiat only made rich richer , no economy growth 

[balanghai]

traditional fiat only made rich richer , no economy growth 

Yeah but its almost flat line because of the inflation that they did. $1,000 way back in 1920 right now would be $100,000 worth. So you can use the graph for paper, but what sucks the cash are the huge corporations having the proportion of the entire money pie a chunk bigger each year.

[vokain]

What if we didn't need to keep growing but rather, become more efficient and start cutting costs?

[LightRider]

I hope so! "Economic growth" is a distracting and distorting metric that says nothing of the health of society nor its environment. In fact, the greater economic growth, the worse off the world is, because the system rewards inefficiency, overconsumption and severe deprivation and inequality. Bitcoin seems to discourage frivolous spending and since it's immune to inflation, can't encourage or create world economy destroying bubbles.

[go1111111]

Yeah but its almost flat line because of the inflation that they did. $1,000 way back in 1920 right now would be $100,000 worth. So you can use the graph for paper, but what sucks the cash are the huge corporations having the proportion of the entire money pie a chunk bigger each year.

$1000 in 1920 has the buying power of $11,707 today. http://data.bls.gov/cgi-bin/cpicalc.pl

If you invested $1000 in the stock market in 1920, it would be worth $130,412. Even if you think the government's inflation stats are not accurate, there's no way that inflation has been anywhere close to stock market returns. http://stockcharts.com/freecharts/historical/djia1900.html

What if we didn't need to keep growing but rather, become more efficient and start cutting costs?

Then we'd be poorer, would have to work more, and could do less of what we wanted to do. We would also be more diseased and unhealthy and would die earlier. No thanks.



Anyone have thoughts on ways to mitigate the issue mentioned in the original post?

[Lethn]

actually if bitcoin is used by everyone we would see no growth at all. The world GDP would be forever no bigger than 21 million BTC, which would mean no wealth can be produced anymore and everytime you try to do some work some magic force will forbid you to do it because simply no wealth can be ever produced anymore

you would see in newspapers "china gdp decrease 0.1%, usa 0.3% - we are in the worst crisis after 1929 and 2008 combined"

hehehehe

Yep that sounds about right, pro-inflation economists and newspapers would be up in arms going "It's a disaster" meanwhile people will be able to afford houses for a couple of hundred Bitcoins and people would have to work less in order to afford what they want because the living standards would be so good since all the prices would be low. If you look at what we're trading in most like Electronics and Gold/Silver etc. you can already easily see the benefits, currently you can get a 1kg gold Bar for only 210BTC whereas with 'proper' money you need to have around £30,000 or so and then with electronics you could get a good computer easily for around 5BTC, in paper terms it would cost hundreds so that's taking out a big chunk of your cash but in Bitcoin it's barely anything.

I can't wait to see when we stop using paper currency for pricing because then we can finally start seeing the proper affects of a deflationary economy.

[go1111111]

people will be able to afford houses for a couple of hundred Bitcoins and people would have to work less in order to afford what they want because the living standards would be so good since all the prices would be low. If you look at what we're trading in most like Electronics and Gold/Silver etc. you can already easily see the benefits, currently you can get a 1kg gold Bar for only 210BTC whereas with 'proper' money you need to have around £30,000 or so and then with electronics you could get a good computer easily for around 5BTC, in paper terms it would cost hundreds so that's taking out a big chunk of your cash but in Bitcoin it's barely anything.

It looks like you are confusing money with value. Money is just a unit of account. If everyone's amount of USD doubled or was cut in half tomorrow, it would make no difference.

A trend that I see here: people expect to become rich and basically get value just from holding bitcoin. With an inflationary currency, to get value you have to earn it -- you have to produce something. With a deflationary currency, you can get value by free riding on people who actually create things if you start out with a decent amount of money.

[Miz4r]

I hope so! "Economic growth" is a distracting and distorting metric that says nothing of the health of society nor its environment. In fact, the greater economic growth, the worse off the world is, because the system rewards inefficiency, overconsumption and severe deprivation and inequality. Bitcoin seems to discourage frivolous spending and since it's immune to inflation, can't encourage or create world economy destroying bubbles.

+1

Economic growth is a farce, we need a steady state economy where we live in balance with our surroundings. We only push for constant growth because governments have buried themselves so deep in debt that they need growth to be able to keep them and the entire system afloat. Very unhealthy situation and the sooner we get rid of that the better.

[go1111111]

Wow, I continue to be amazed by all the Bitcoiners who don't like economic growth. I guess you did pick the right currency to discourage growth though, so props for that.

I am curious though, if growth is so bad, do you want to stay at the steady state of how we live in 2013? Or maybe go back to 1950? (No personal computers), or maybe 1450? What is the ideal amount of wealth for you guys?

[Miz4r]

I'm not really against growth if the growth is natural and not forced. Technology is the main thing that makes our lives better and easier and I'm sure we will continue to make advancements in that area even with bitcoin as a main currency. GDP growth right now is only making the banks and big corporations wealthier, not the middle class.