Would widespread Bitcoin adoption reduce global economic growth?

[go1111111]

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.

I think you raise some good points. Bitcoin hoarders do send valuable signals and contribute to the growth of Bitcoin.

I disagree that theft is necessarily good for the economy. Sometimes it might be, but likely mostly it isn't. I also disagree with your last sentence, which is too absolute. Likely a lot of people will benefit much more from Bitcoin than any contribution they made to the world. It is possible to luck into Bitcoin. But like I said in my previous message, I think talking about whether early adopters deserve their future wealth is a side-issue. I mainly care about GWP. I'm curious to hear your thoughts on the issue I raised in my last post in this thread, about how Bitcoin will still discourage productive investment compared to a moderately inflationary currency, because of how the benefits of Bob's hoarding are distributed to the rest of society.

[LightRider]

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.

I think you raise some good points. Bitcoin hoarders do send valuable signals and contribute to the growth of Bitcoin.

I disagree that theft is necessarily good for the economy. Sometimes it might be, but likely mostly it isn't. I also disagree with your last sentence, which is too absolute. Likely a lot of people will benefit much more from Bitcoin than any contribution they made to the world. It is possible to luck into Bitcoin. But like I said in my previous message, I think talking about whether early adopters deserve their future wealth is a side-issue. I mainly care about GWP. I'm curious to hear your thoughts on the issue I raised in my last post in this thread, about how Bitcoin will still discourage productive investment compared to a moderately inflationary currency, because of how the benefits of Bob's hoarding are distributed to the rest of society.

Humans will always have basic needs that require being met. In a monetary system, where money and profit are desired and promoted above all else, meeting those needs demands economic activity of some kind. Humans are also natural explorers and innovators, so there will always be people trying new things, sharing their ideas and inventions and pushing society toward new frontiers. Diminished investment will not greatly slow down human productivity, mainly because human productivity is no longer as productive as machine productivity, which is the driving force behind diminishing employment. Sooner than later, we will be forced to abandon the crippling and destructive idea of money in favor of a more enlightened resource based economy or destroy ourselves in the name of profit.

[Zangelbert Bingledack]

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.

1) Bob may not be skilled enough to choose a fund. If he chooses poorly, he wastes the resources of society on failing ventures. Better for him to just save unless he knows what he's doing, letting the rest of society have access to those resources he would otherwise be using.

2) Or he may just leave the investing to others who are better at it; stock brokers or fund managers. But that again assumes he knows how to pick a good fund manager or stock broker.

So you're probably right that merely saving isn't the best thing he could theoretically do with the money, from society's point of view, but that's only true if we arbitrarily specify that he has above-average skill at investing. But then by definition half the rest of society has below-average skill at investing, meaning it was already true by hypothesis that saving is not the best course of action. That's a circular argument.

Therefore all we can say is that if Bob has any skill at investing he should invest, and if not he should save, leaving investment and resource allocation to everyone else. Or else something in between, like leaving his money for a broker to allocate.

In any case, Bitcoin presents absolutely no problem. Instead, through its disruption of just about every bastion of the establishment, it will make civilization many orders of magnitude better off by any reasonable standard, with extra perks on top of for the prescient ones. So relax, pull up of a deck chair and a margarita, and enjoy the cryptocurrency revolution

[Zangelbert Bingledack]

In a monetary system, where money and profit are desired and promoted above all else

Just because money is highly valued doesn't mean it's desired above all else. Would you give someone $1000 in exchange for them lopping off one of your limbs or taking your daughter? A million dollars?

There's nothing evil about money. Money just means an indirect medium of exchange. A bucket of oysters for your cow, so that you can get bread from a baker that wants oysters but doesn't want your cow (or doesn't want your whole cow). Those oysters are not evil.

Unless you want to make the argument that trade itself is evil or harmful.

[LightRider]

In a monetary system, where money and profit are desired and promoted above all else

Just because money is highly valued doesn't mean it's desired above all else. Would you give someone $1000 in exchange for them lopping off one of your limbs or taking your daughter? A million dollars?

There's nothing evil about money. Money just means an indirect medium of exchange. A bucket of oysters for your cow, so that you can get bread from a baker that wants oysters but doesn't want your cow (or doesn't want your whole cow). Those oysters are not evil.

Unless you want to make the argument that trade itself is evil or harmful.

Money distorts reality and the values a society holds. Even Eddie Izzard can tell you that.

[rico666]

Just because money is highly valued doesn't mean it's desired above all else. Would you give someone $1000 in exchange for them lopping off one of your limbs or taking your daughter? A million dollars?

Some people do. Most of them somewhere in between.


Rico

[go1111111]

1) Bob may not be skilled enough to choose a fund. If he chooses poorly, he wastes the resources of society on failing ventures. Better for him to just save unless he knows what he's doing, letting the rest of society have access to those resources he would otherwise be using.

2) Or he may just leave the investing to others who are better at it; stock brokers or fund managers. But that again assumes he knows how to pick a good fund manager or stock broker.

So you're probably right that merely saving isn't the best thing he could theoretically do with the money, from society's point of view, but that's only true if we arbitrarily specify that he has above-average skill at investing. But then by definition half the rest of society has below-average skill at investing, meaning it was already true by hypothesis that saving is not the best course of action. That's a circular argument.

I think you are mixing up what the best course of action is for the individual, and for society. Even if an individual trying to invest isn't the best way to maximize that individual's wealth, it can still be beneficial due to positive the externalities of more experimentation being encouraged.

Also if we look at the bulk of the money invested in the world, probably very little of it is invested in individual stocks by unsophisticated people. I imagine that at least 80% is under the management of someone relatively sophisticated. If we believe that markets are mostly efficient, this shouldn't really matter though. No matter what an unsophisticated person invests in in an efficient market, they'll be expected to get close to the return of the overall market.

In any case, Bitcoin presents absolutely no problem. Instead, through its disruption of just about every bastion of the establishment, it will make civilization many orders of magnitude better off by any reasonable standard, with extra perks on top of for the prescient ones. So relax, pull up of a deck chair and a margarita, and enjoy the cryptocurrency revolution

So you think a world with bitcoin is at least 100x better off than one without? You're claiming GWP will be 100x higher with Bitcoin than without? By when?

I agree that Bitcoin will make transactions more frictionless and efficient and has lots of value. The question is whether a version of Bitcoin where the bitcoin supply always increases at at least 3% per year would lead to more prosperity than Bitcoin as it exists now, due to this effect on investment.

[notthematrix]

Growth is not needed with bitcoin.
Its only needed to keep the fed/ecb happy , bitcoin will promote modesty in use of resources  and that wath the earth needs.

[p2pbucks]

eco growth is none of people's business , only gov like damn growth

[Etlase2]

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.

Consumerism is a byproduct primarily of technological progress, not "inflation". A deflationary side-currency will do nothing to stop this because it will be discarded if it gets in the way. Western countries benefit heavily off of the USD/EUR reserve status and take advantage of weaker economic markets (outsourcing). As bitcoin will do absolutely squat to level that playing field, it will do nothing to spur environmental conservation. When and if that playing field does become more level, it becomes a matter of directing resource consumption into knowledge consumption - education.

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 would suggest adding thoughts on the business cycle to your argument. A whole lot of human suffering is caused by the machinations of money. It is easy to point the finger at the fed or governments in fiat, and it is easy to pretend that there won't be a BitStreet in the bitcoin economy, but that is foolhardy.

[Adrian-x]

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.

The thought checks out, Etlase2 rebuttal is the textbook economic view that got us here today. More critical thought is how we progress, more of the same is potentially devastating.

[sdp]

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.

I think this is akin to the fallacy of the broken window.   Is it good to break the Window so we create jobs and give people an opportunity to work? 

I believe we agree that GDP measures spending in the system.   In a community if one day somehow all of the Windows get broken due to hail suddenly people would buy many Windows.  The spending of the community would go up, but that community wouldn't be better off. 

Some metrics for convenience lack common sense.  You must take them with a grain of salt.

[Etlase2]

The thought checks out, Etlase2 rebuttal is the textbook economic view that got us here today. More critical thought is how we progress, more of the same is potentially devastating.

There is a textbook economic response to the bullshit fabricated on this message board to make bitcoin's terrible economic principles sound more valid?

If there is anything to take away from that post, it is that bitcoin will have *zero* effect on consumerism. The consumers simply won't use it in favor of something else (likely fiat) that does not impede it.

[go1111111]

I would suggest adding thoughts on the business cycle to your argument.

I'd like to first completely understand the simpler case. I don't think anyone has yet provided a strong argument that Bitcoin wouldn't make the world poorer if it was the main global currency. There have been some hints at some possible arguments. Unless you think the business cycle is a key component of the argument either for or against?

I think this is akin to the fallacy of the broken window.   Is it good to break the Window so we create jobs and give people an opportunity to work?  

I believe we agree that GDP measures spending in the system.   In a community if one day somehow all of the Windows get broken due to hail suddenly people would buy many Windows.  The spending of the community would go up, but that community wouldn't be better off.  

GDP is supposed to measure production, which is easiest to measure by looking at spending. If you look at my examples where Bitcoin makes the world poorer, it does so by causing less goods to be produced, meaning we are genuinely poorer. It's not just some accounting trick.

If want to borrow 100 BTC from you and I can guarantee you a 1% real return which comes from real value produced, you won't make that loan because you can get a 3% real return by just holding bitcoin, and the world will have to do without that 1% of genuine value that I wanted to produce.

[Etlase2]

I'd like to first completely understand the simpler case.

I think you already understand the simpler case.

I don't think anyone has yet provided a strong argument that Bitcoin wouldn't make the world poorer if it was the main global currency. There have been some hints at some possible arguments.

The hints are inane. "I will save until I have enough, then I will consume which is an economic net zero [presuming investment of non-saved real value increases as a result of this saving], or I will invest which is usually a personal net negative." One silly side pretends that this saving will cause economic output to respond more sensibly, while the other side says economic output remains relatively unchanged because of the increasing value of the rest of the currency. These are obviously at odds. If bitcoin could somehow be the one world currency, then there is possibly an argument to be made for the former (but the counter is that it is silly that idle money earns the productivity of others). However, because of the nature of it being deflationary, it may have the exact opposite effect where all investment is high-risk and highly destructive to provide the quickest profit turnaround, regardless of other costs, and which applies to both arguments.

Unless you think the business cycle is a key component of the argument either for or against?

No, but it is the next step, I think. A lot of bitcoinomists tend to borrow heavily from Austrian ideology where the key to a happy, healthy economy is one where the business cycle's effects on productivity are as low as possible. Although these arguments haven't really started yet in this thread, they are usually the next step as to how bitcoin solves problem X after a "simple" analysis such as yours seems to show quite the flaw.

If want to borrow 100 BTC from you and I can guarantee you a 1% real return which comes from real value produced, you won't make that loan because you can get a 3% real return by just holding bitcoin, and the world will have to do without that 1% of genuine value that I wanted to produce.

Implied but not stated that you are actually losing nominal value by investing. Quite the conundrum.

Anyone who states anything about time preferences in relation to saving-but-not-investing bitcoins is quite clearly outside of any school of Austrian economic thought as saving is implied to mean investing. Hayek even wrote some very interesting stuff on what it actually means when saving means saving-but-not-investing. You may find this thread interesting: https://bitcointalk.org/index.php?topic=110708.0

[go1111111]

I think you already understand the simpler case.

I think I've 80% convinced myself that bitcoin as the global currency would lead to less investment, but I am still not certain that there could be no scheme or workaround that would cause the idle resources in this scenario to be as utilized in a situation with mildly inflationary currency. Maybe something where private institutions use 'colored coins' to say "this bitcoin represents my billion dollar basket of commodities", then these colored coins are used to invest in things with lower expected ROI. Still haven't worked it through though.

I also haven't completely convinced myself that the "economic output remains relatively unchanged because of the increasing value of the rest of the currency" argument is wrong. Any bitcoins that companies were holding grows in value as more people save. Any bitcoins that the remaining people do invest in companies/loans grows in value. The purchasing power of consumers grows in value, meaning that more command of resources is 'up for grabs' that businesses can try to capture. I'm not sure how strong these effects are, and how much of the reduction in direct investment will be canceled out by these factors.

You may find this thread interesting: https://bitcointalk.org/index.php?topic=110708.0

Looks interesting! I will add it to my huge reading list on this topic, and post again if it spawns any new thoughts. Thanks.

[go1111111]

I think I've 80% convinced myself that bitcoin as the global currency would lead to less investment, but I am still not certain that there could be no scheme or workaround that would cause the idle resources in this scenario to be as utilized in a situation with mildly inflationary currency. Maybe something where private institutions use 'colored coins' to say "this bitcoin represents my billion dollar basket of commodities", then these colored coins are used to invest in things with lower expected ROI. Still haven't worked it through though.

I made some realizations tonight that changed my thinking on this:

Premise: bitcoins will grow in value roughly as fast as GWP does. So people will be able to expect around a 3% real rate of return from hoarding bitcoins.

Claim #1: No one will loan bitcoins for less than a 3% real rate, because they could always just hold the bitcoins instead.

I think this is false now. Banks today face a similar decision. Any bank could choose to invest all its money in a global index fund, which would perform as well as hoarding bitcoins would. Banks don't do this, because there is a desire for safer, more stable investments. People's opportunity cost is roughly the same now as it would be when making loans with bitcoin, because they always have the option to invest in global index funds now. Loans could be made relative to an inflation/deflation index to reduce risk from bitcoin price fluctuation.

Fun fact: this is similar to why "people won't spend bitcoin because it's deflating" is false. People face the exact same decision today, when they consider buying anything. They have the alternative right now to put the money into a global index fund instead and get an expected 3% real return, but they generally don't.

Claim #2: People who otherwise would have invested in a global index fund will still hoard bitcoins though, to preserve their liquidity, their anonymity, and to avoid taxes that would be levied on gains from stocks.

This still seems likely to me. I've still got to think through the "increasing the value of everyone else's bitcoins is just as good as investing them" argument.

[sdp]

I think this is false now. Banks today face a similar decision. Any bank could choose to invest all its money in a global index fund, which would perform as well as hoarding bitcoins would.

As long as you keep bitcoin for years instead of weeks, it is not a problem.  Which global index fund's have gone up by factors of ten in recent history?

[Lloydie]

If want to borrow 100 BTC from you and I can guarantee you a 1% real return which comes from real value produced, you won't make that loan because you can get a 3% real return by just holding bitcoin, and the world will have to do without that 1% of genuine value that I wanted to produce.

In the world of bitcoins, a 1% real rate = 4% assuming the value of bitcoins is expanding at 3%.

The fallacy of economic growth in current environment is that credit speculation into useless assets counts as economic growth. See china as example.

If bob does nothing and the world is becoming more productive by 3%, why shouldn't he enjoy the benefits of a better world?

That wouldn't stop Jane from using her bitcoins to invest and generating a return of 1% because she would be moving forward at a rate of 4%.

In any event, bitcoins will complement fiat for the foreseeable future. I see people earning fiat, paying tax in fiat, paying expenses and wages in fiat but investing some of their savings in deflationary bitcoins.

I see bitcoins as being less wasteful than the inflationary credit/speculation asset price driven economy we have today. For example, rich people can earn more in one hour by investing in empty property than a fast food worker earns in a whole day of hard work.

[Phrenico]

If want to borrow 100 BTC from you and I can guarantee you a 1% real return which comes from real value produced, you won't make that loan because you can get a 3% real return by just holding bitcoin, and the world will have to do without that 1% of genuine value that I wanted to produce.

In the world of bitcoins, a 1% real rate = 4% assuming the value of bitcoins is expanding at 3%.

The fallacy of economic growth in current environment is that credit speculation into useless assets counts as economic growth. See china as example.

If bob does nothing and the world is becoming more productive by 3%, why shouldn't he enjoy the benefits of a better world?

That wouldn't stop Jane from using her bitcoins to invest and generating a return of 1% because she would be moving forward at a rate of 4%.

In any event, bitcoins will complement fiat for the foreseeable future. I see people earning fiat, paying tax in fiat, paying expenses and wages in fiat but investing some of their savings in deflationary bitcoins.

I see bitcoins as being less wasteful than the inflationary credit/speculation asset price driven economy we have today. For example, rich people can earn more in one hour by investing in empty property than a fast food worker earns in a whole day of hard work.

Thank you for the common-sense.

I'll try to put it another way for OP:

The only thing that influences the rate of growth of an economy is the relative proportion of investment vs. consumption. There's no reason to think that having a background deflation of e.g. 2% (equal to GWP growth) would change this proportion.

Sure, it might change the value of cash balances that people hold, but that will just affect general price levels.

In essence, you just need to keep in mind that the real rate of return is the only thing that matters. Inflation and deflation are just background.