Would widespread Bitcoin adoption reduce global economic growth?

[DigitalHermit]

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?

Development of new technologies is not the same as economic growth and it is not at all proven that one requires the other. Consequently you should avoid equating the two.

Since your understanding of steady state economics (organizing an economy to be stable or mildly fluctuating in size) seems to be lacking perhaps you should do some more research starting here before you write the idea off:

http://en.wikipedia.org/wiki/Steady_state_economics
http://steadystate.org/

Some basic principles for achieving a steady state economy are:

(1) Maintain the health of ecosystems and the life-support services they provide.
(2) Extract renewable resources like fish and timber at a rate no faster than they can be regenerated.
(3) Consume non-renewable resources like fossil fuels and minerals at a rate no faster than they can be replaced by the discovery of renewable substitutes.
(4) Deposit wastes in the environment at a rate no faster than they can be safely assimilated

Perpetual economic growth in an environment with limited/scarce resources stands at odds to these principles.

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[tutkarz]

in your calculation's you should also include technologies which in not that distant future will allow us to send robots that will work for us, so we don't have to. This alone will change all currently known world order and our conceptions about economy growth with it.

[Lethn]

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.

That's absolute nonsense, when did I ever talk about money and value? Have you ever looked up a word in a dictionary before? Inflationary currencies are ridiculous, they don't benefit people for their work in the slightest, in fact, because inflationary currencies always push prices up higher and higher they actually force people to work more for less. Deflationary currencies are the opposite because the prices are so low it's easier to buy things and you can work less and still live comfortable.

Are you going to tell us now that having stupidly high mortgage payments and debt that you can never pay off is a good thing because they have something to work for? Fuck that, that's neo-keynesian logic, the sort that Ben Bernanke tries to use in order to get poor countries to do all their work for them. The problem with this logic is that eventually people are going to wake up and realise they're getting conned out of their money.

[hunnaryb]

in your calculation's you should also include technologies which in not that distant future will allow us to send robots that will work for us, so we don't have to. This alone will change all currently known world order and our conceptions about economy growth with it.

Robots are already used in manufacture process, I doubt about change of currently known world order

[giantdragon]

Achieving GDP growth "at any price" as many governments do it now is full insanity - it destroys ecology, depletes non-renewable fossils, makes capital owners richer and 99% people poorer. I would be extremely happy if/when Bitcoin will halt this growth. Technological progress will definitely win from the Bitcoin as reserve currency because corporations must offer revolutionary new products or services to motivate consumers spend their continuously appreciating Bitcoins.

[subcoin]

Would widespread Bitcoin adoption reduce global economic growth?

The problem with this question is that nobody knows what the "economic growth" is.
If it is the increase of GDP, then it is manipulated by:
- value of currency
- the calculation of exports, imports and government spending
Basically, whatever the "economic growth" is - it is calculated by some government agency.
I would not trust it at all. Because they need to have GDP as high as possible to make
sure that interest rates on bonds stay low.

Perhaps, you really wanted to ask this:
Would widespread Bitcoin adoption reduce investments into new business?

My answer is "I don't know", but I am leaning towards "Yes".
BTC is what would be considered "hard money" in today's economy.
"Hard money" thinks twice before investing into anything.
After "widespread adoption" the "easy money" would be harder to come by.

[Erdogan]

What we want is maximizing wealth, that is we want to have lots of goods and services. The wants and needs are unlimited, but the resources are scarce. We want high productivity to make as much value as we can. Only each individual can decide what is valuable.

Saving defined: Keep some money (bitcoins) in reserve.
Investment defined: Buy capital goods with the intention to produce something for a profit.

The problem: suppose all global transactions are done using bitcoins. Then the value of a bitcoin should grow at the rate of GWP.

The value of bitcoin is defined by supply and demand. Supply is predefined and inelastic. Demand is the individuals' wish to have a certain real value (measured in other goods) in reserve. All individual's demands are summed to get an overall demand. Therefore the most important parameter for bitcoin's value is the number of users.

GWP (GDP) is a made up number that does not say anything really. Look up how it is computed. It include lots of waste and wealth destruction.

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.

Money has minimal use value, and the only effect on saving on the total economy is that the remaining money units appreciates in value. This is the same as saying that the saver refrains from consumption or investment, the others can consume or invest what the saver does not consume or invest. There should be no direct consequence for the total investment.

Unfortunately, it's in any individual's interest to hold bitcoins

Correct, but it is not unfortunate. Saving is the precursor to any investment. It is not possible to invest before saving. Saving and investment does not have to be done by the same person.

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.

No, others will consume or invest, see above

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?

Didn't understand, except ditch this GWP concept.

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.

Saving increases the value of each remaining bitcoin.
Investing, if succesful, increases the productivity for the benefit of everyone.

[Adrian-x]

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.

FTFU

it's not a problem but a feature.
Word Economy Grows, = Bitcoin's Purchasing power increases (price deflation)
World Economy Shrinks = Bitcoin's Purchasing power deceases (price inflation)

Result is:
Hold, invest in savings when the economy is growing - benefit by deferred consumption.
(no need for CB to raise interest rates to cool off)

Spend Savings or earnings - invest in new businesses when the economy is shrinking - prompt spending preserves your wealth by avoiding inflation.
(no need for CB to lower interest rates or QE)

The overall new benefit is inflation doesn't rob the poor, and Environmental exploitation is held in check by lust for greed or more.

Anyone investing in Bitcoin wouldn't want it any other way.

GWP grows at 2% or 4% is an arbitrary target, GWP is a measurement not a target and should be determined by the market and number of participants in the market. Continues GWP with an increase of 2% per year will consume the planet as it grows exponentially.

[Phrenico]

A lot of nonsense in this thread. Saved bitcoins only increase the purchasing power of bitcoins being spent/invested. Bitcoins can only gain in real value (assuming no changes to adoption) at the rate of global economic growth. Unless literally no bitcoins are being spent, they will gain real value at a rate less than the rate of return on investment.

Deflationary currency vs. a (predictable) inflationary one is simply immaterial with respect to real macro factors. If you disagree and think that eg. nobody will spend their bitcoin, think about how you would respond to this argument: "With an inflationary currency, the interest rate is going to be about equal to the sum of the inflation rate and the real interest rate. Why would anybody spend their money if they can just save it and collect a xx% return to buy more next year?"

The answer, of course, is that investment vs. consumption is a dynamic process. If more people want to consume, the real interest rate will be higher until there is an equilibrium.

[Erdogan]

A lot of nonsense in this thread. Saved bitcoins only increase the purchasing power of bitcoins being spent/invested. Bitcoins can only gain in real value (assuming no changes to adoption) at the rate of global economic growth. Unless literally no bitcoins are being spent, they will gain real value at a rate less than the rate of return on investment.

Deflationary currency vs. a (predictable) inflationary one is simply immaterial with respect to real macro factors. If you disagree and think that eg. nobody will spend their bitcoin, think about how you would respond to this argument: "With an inflationary currency, the interest rate is going to be about equal to the sum of the inflation rate and the real interest rate. Why would anybody spend their money if they can just save it and collect a xx% return to buy more next year?"

The answer, of course, is that investment vs. consumption is a dynamic process. If more people want to consume, the real interest rate will be higher until there is an equilibrium.

Fully agree. Another point that is not often mentioned: Whenever you make a decision to purchase something, the new demand marginally increase the price of that something and everything like it. But at the same time, since you supply money, the value of the money marginally decreases. The reason is that a trade always is composed of two things, money and goods. You buy the thing and sell the money, the other party sells the thing and buys the money.

[go1111111]

This thread is getting unfocused, so I'll only reply directly to people who make some attempt to address the argument in the OP.

To everyone else arguing against GWP as a measure of wealth, I suggest reading up on how it's calculated and how much disagreement there is among economists about GWP. To those saying only the rich are getting richer, the poor are getting poorer, I'll leave you guys with an image showing the poorest people in the world have seen their lives improve vastly over the past 40 years. This is the graph of extreme poverty over time from the wikipedia article on poverty.

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.

Money has minimal use value, and the only effect on saving on the total economy is that the remaining money units appreciates in value. This is the same as saying that the saver refrains from consumption or investment, the others can consume or invest what the saver does not consume or invest. There should be no direct consequence for the total investment.

In another thread (https://bitcointalk.org/index.php?topic=322619.0), I suggest that the price of a bitcoin must obey this inequality:

(price of 1 BTC) >= [(World GDP in dollars)*(fraction of economic transactions using bitcoin)]/[(supply of bitcoins)*(fraction of bitcoins used in transactions)*(bitcoin velocity)]

Do you agree?

I agree with you that if people attempt to save half of the total bitcoins, the unsaved bitcoins will go up in value.  Are you sure they will go up 2x though? People will know that the people who are saving bitcoins could decide to re-introduce them into the market at any time, so I'd expect the remaining bitcoins to have less than 2x the value as if no one saved any bitcoins. If the remaining bitcoins did go up 2x in value, then any investments that those people make with the remaining bitcoins will have 2x the impact, and the command of resources being controlled by people needing investment would be the same as if everyone invested directly (although maybe there are some bad effects of investment decisions being concentrated into too few people).

Unfortunately, it's in any individual's interest to hold bitcoins

Correct, but it is not unfortunate. Saving is the precursor to any investment. It is not possible to invest before saving. Saving and investment does not have to be done by the same person.

Here is the puzzle though: Bob decides to save all his bitcoins in his basement. So the value of all other bitcoins adjusts upward. Bob's bitcoins grow in value if everyone else does something productive with the other bitcoins. After a few years, Bob sells all his bitcoins and makes a profit because the economy grew as a whole. The question is: what real value did Bob provide to society, which allowed him to capture this extra value which he did not have before? Bob is apparently being paid for not doing anything. Call what I just described Scenario A. We can imagine a situation of 0 inflation where Bob doesn't profit from holding onto money and doing nothing. After years of hoarding, Bob sells his bitcoins and made no profit. Call this Scenario B. Exactly the same amount of goods and services were produced in the non-Bob part of economy in both scenario A and B. In scenario A, Bob gets more command over resources, and everyone else (people who actually created wealth) gets slightly less. The rest of the world is basically paying Bob for not having spent his bitcoins. It seems like Bob is free riding on the productivity of others.

If Bob does nothing but sit and home and check the price of his bitcoins on Mt.Gox during all this time, then neither situation is better/worse for total wealth. But suppose in Scenario B, bob knows that his bitcoins are not gaining in value, so he goes out to produce something of value in his spare time so that he can support himself. In Scenario A, he knows his livings expenses will be paid by the appreciation in value of his bitcoins, so he doesn't create anything. Won't having a money supply like in scenario B result in more wealth in the world?

Btw, you've made me start thinking of the problem in a new way, thank you.

Bitcoins can only gain in real value (assuming no changes to adoption) at the rate of global economic growth. Unless literally no bitcoins are being spent, they will gain real value at a rate less than the rate of return on investment.

Can you explain this? What would make bitcoins grow at a rate less than the ROI on investment? Are you claiming above that the ROI on investment (on average I assume) is larger than the rate of GWP increase?

Deflationary currency vs. a (predictable) inflationary one is simply immaterial with respect to real macro factors.

I have a strong intuition saying that this should be the case. I just haven't been able to find an error in my argument yet. I think Erdogan might have pointed me to the flaw though... gotta think about it more.

I think it's clear that from the POV of an individual, inflation/deflation makes no difference. Arguments that people won't spend money when there is deflation seem bad, because there will always be some price where the consumer will buy. That argument assumes that the seller values bitcoins less than the buyer.

I agree with you about the investment vs. consumption equilibrium. My concern is about the choice to "passively invest" via holding onto bitcoins, vs. actively invest by buying equity in companies or lending. I thought the passive investment strategy was free riding on the productivity of others and would lead to less productive behavior across the economy if lots of people did that, but after Erdogan's comments I have to think about it more.

[Erdogan]

This thread is getting unfocused, so I'll only reply directly to people who make some attempt to address the argument in the OP.

I will comment only on "my" parts of this message.

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.

Money has minimal use value, and the only effect on saving on the total economy is that the remaining money units appreciates in value. This is the same as saying that the saver refrains from consumption or investment, the others can consume or invest what the saver does not consume or invest. There should be no direct consequence for the total investment.

In another thread (https://bitcointalk.org/index.php?topic=322619.0), I suggest that the price of a bitcoin must obey this inequality:

(price of 1 BTC) >= [(World GDP in dollars)*(fraction of economic transactions using bitcoin)]/[(supply of bitcoins)*(fraction of bitcoins used in transactions)*(bitcoin velocity)]

Do you agree?

No

I agree with you that if people attempt to save half of the total bitcoins, the unsaved bitcoins will go up in value.  Are you sure they will go up 2x though? People will know that the people who are saving bitcoins could decide to re-introduce them into the market at any time, so I'd expect the remaining bitcoins to have less than 2x the value as if no one saved any bitcoins.

I agree on this.

If the remaining bitcoins did go up 2x in value, then any investments that those people make with the remaining bitcoins will have 2x the impact, and the command of resources being controlled by people needing investment would be the same as if everyone invested directly (although maybe there are some bad effects of investment decisions being concentrated into too few people).

Unfortunately, it's in any individual's interest to hold bitcoins

Correct, but it is not unfortunate. Saving is the precursor to any investment. It is not possible to invest before saving. Saving and investment does not have to be done by the same person.

Here is the puzzle though: Bob decides to save all his bitcoins in his basement. So the value of all other bitcoins adjusts upward. Bob's bitcoins grow in value if everyone else does something productive with the other bitcoins. After a few years, Bob sells all his bitcoins and makes a profit because the economy grew as a whole. The question is: what real value did Bob provide to society, which allowed him to capture this extra value which he did not have before?

He forgoes immediate consumption or investment, allowing others to do that first. This is the reason he is awarded. He has a different time preference for his consumption.

When he finally decides to use his money, the opposite takes place, now he consumes, and the others will have to consume less. But remember, it is like he is getting out of the queue for resources and places himself at the tail of the queue.

Btw, you've made me start thinking of the problem in a new way, thank you.

Finally someone listens  I am not used to it!

[LightRider]

Here is the puzzle though: Bob decides to save all his bitcoins in his basement. So the value of all other bitcoins adjusts upward. Bob's bitcoins grow in value if everyone else does something productive with the other bitcoins. After a few years, Bob sells all his bitcoins and makes a profit because the economy grew as a whole. The question is: what real value did Bob provide to society, which allowed him to capture this extra value which he did not have before? Bob is apparently being paid for not doing anything. Call what I just described Scenario A. We can imagine a situation of 0 inflation where Bob doesn't profit from holding onto money and doing nothing. After years of hoarding, Bob sells his bitcoins and made no profit. Call this Scenario B. Exactly the same amount of goods and services were produced in the non-Bob part of economy in both scenario A and B. In scenario A, Bob gets more command over resources, and everyone else (people who actually created wealth) gets slightly less. The rest of the world is basically paying Bob for not having spent his bitcoins. It seems like Bob is free riding on the productivity of others.

If Bob does nothing but sit and home and check the price of his bitcoins on Mt.Gox during all this time, then neither situation is better/worse for total wealth. But suppose in Scenario B, bob knows that his bitcoins are not gaining in value, so he goes out to produce something of value in his spare time so that he can support himself. In Scenario A, he knows his livings expenses will be paid by the appreciation in value of his bitcoins, so he doesn't create anything. Won't having a money supply like in scenario B result in more wealth in the world?

You started the scenario at the wrong point in time. What did Bob do to acquire these bitcoin? Mining? Then he contributed to the network and was rewarded. Buying? Then he contributed to the overall bitcoin economy. Gift? Then someone else had to have acquired them and did the work/transactions necessary to acquire them. Offering product/service? Then he contributed to the economy in some way. Stealing? Then he contributed to the economy in a non-standard way and maybe spurred an increased sense of security awareness for others.

You miss the most fundamental fact about bitcoin. It cannot be acquired with zero effort.

[antimattercrusader]

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.

Is it really? I realize that consumption/consumerism is good for business for the moment, but its not sustainable long term - especially when you throw population growth into the mix. Total collapse and/or destruction of our entire society is worse for the economy, perhaps a deflationary currency will encourage sustainability and discourage people from consuming for the sake of consuming and encourage them to consume when actually relevant and needed, while otherwise being more fiscally - and thus environmentally/socially - conservative.

Just a thought.

[Adrian-x]

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.

Is it really? I realize that consumption/consumerism is good for business for the moment, but its not sustainable long term - especially when you throw population growth into the mix. Total collapse and/or destruction of our entire society is worse for the economy, perhaps a deflationary currency will encourage sustainability and discourage people from consuming for the sake of consuming and encourage them to consume when actually relevant and needed, while otherwise being more fiscally - and thus environmentally/socially - conservative.

Just a thought.

/\ this, can't be repeated enough,  once I got it my conventional view of the conflicting economic growth and environmental sustainability and economic prosperity changed and all aligned and Bitcoin became a solution not an unsustainable crazy economic experiment.

 

[Zarathustra]

Only debt-based (= state based) economies grow. No debt - no growth. Or has anyone seen the selfsufficient, untaxed, stateless communities in the rain forests or in the arctic tundras growing rampant? Without debt, there is simply no need to grow (rampant).

[Erdogan]

Only debt-based (= state based) economies grow. No debt - no growth. Or has anyone seen the selfsufficient, untaxed, stateless communities in the rain forests or in the arctic tundras growing rampant? Without debt, there is simply no need to grow (rampant).

Is your assertion based only on this eminent statistics, or do you have something else?

[Adrian-x]

Just thinking about this in another context, prompted me to post here.

Would widespread Bitcoin adoption reduce global economic growth?

If growth is defined as more: then yes most defiantly Bitcoin will reduce global economic growth.

If growth is defined as better: then no Bitcoin will not reduce global economic growth.

[aminorex]

Well said.  Unsustainable growth, low-quality growth, is a recipe for disaster.  Bitcoin is anti-fragility incarnate.

Well, it would be if it had a body.

Okay, it's the *avatar* of anti-fragility.

[go1111111]

He forgoes immediate consumption or investment, allowing others to do that first. This is the reason he is awarded. He has a different time preference for his consumption.

When he finally decides to use his money, the opposite takes place, now he consumes, and the others will have to consume less. But remember, it is like he is getting out of the queue for resources and places himself at the tail of the queue.

I've still been thinking about this issue now and then, though haven't satisfied myself that I've found the answer. I agree that when people save in normal circumstances, what you describe is the root of the reason for their reward in the form of interest. In the situation with Bitcoin, anyone with more than 10-100 bitcoin now will never have to work again if it really takes off. I suppose one could argue that they deserve this huge windfall because they supported the price in the early days by sending a signal to miners and other people that they should help Bitcoin along. It may also be true that the loss of productivity from everyone suddely rich due to their Bitcoin holdings would be more than made up for by greater payment efficiency in the global economy. I think the main issue really has nothing to do with deservedness though, so I'll drop that and get to the main issue:

It is true that when Bob saves his bitcoins, the value of everyone else's bitcoins rises. However if he does this, he is only helping people working on long term investment to the degree that they are already holding bitcoins. If Bob had invested his bitcoins in an index fund, then almost all of the direct benefit would be to those trying to increase our productive capabilities. So while the total benefit to the rest of the world at the moment might be the same in either case, it does seem like hoarding bitcoins will still lead to reduced investment, because it puts less resources in the hands of businesses in general.

One could also argue that in making all other consumers more wealthy (by hoarding Bitcoins), businessmen will have a greater incentive to create products and services which capture this wealth for themselves. It seems hard to analyze whether this will offset the effect in the previous paragraph. Anyone have thoughts on this?