Can someone explain how deflation wouldn't negatively effect productivity?

[Lloydie]

Maybe.

I can also remember my parents being unable to buy a house despite earning good money in the 1980s because home loans were very hard to get.  Houses were more affordable back then but few could pay cash

And it's this sort of effect that will slow down the economy.

So we need to add debt, so people can buy houses? Well, where are all those extra houses coming from? Was there extra land?

If debt solved the problem then how come houses are so unaffordable nowadays? So now we have the same land scarcity but now houses are even more expensive because debt has driven up prices.

Now you create even more inequality. You have people who own houses with rising asset prices doing nothing but sit on rising asset prices. You have the poor who are even more marginalised. You create cost push inflation because rents must go up to support the interest on debt. This hurts the poor even more.

The 99% most of whom are not on the asset ladder are forever oppressed. That is a good thing to generate "economic activity"? When ordinary people can work a whole day and not earn as much as one hour's worth of capital gains? No, fuck that.

Compared to all that I'll take a temporary slowdown in spending anytime.

[Lloydie]

That is not something we need to worry about. In a debt free society there will be less speculation, which is the activity which is lifting house prices out of the reach of ordinary people. Picture a flatter wealth society. Houses will be much more affordable under such a system because rich people can't afford to hold multiple assets using cheap debt. There will certainly be less empty houses, apartments and buildings in every city.

If no one can get a loan, houses will be cheap because it is debt that is driving up the price of houses. It's a sick system that we currently have.

But that's not economically feasible in a growing debt based society. It would be perfectly fine in a bitcoin debt free society.

Ftfy

[Zarathustra]

Real productivity will rise because we won't have to contend with the destabilising forces of debt resulting in financial crises.

People who live beyond the state and beyond debt (in a community with humans instead of a society with citizens) do have neither an economy nor productivity rise. They are self-sufficient and do not need to grow rampant. They live nearly the same way as thousands of years ago.
A growing economy is the result of debt, and debt is the result of the tax (tribute), which had been institutionalized about 10'000 years ago.

[ak84]

If bitcoin continues its rise it will exist alongside fiat currencies. I highly doubt we'll have an deflationary economy because dollars will still be loaned out, I can safely say, for the next 50 years at least. A world in which bitcoin takes over, all fiat currencies die, and our economy is deflationary will never happen.

[thinkloop]

World GDP grows at about 3% per year. When Bitcoin becomes pervasive and stabilizes, its value will increase by about that amount every year. That means that by simply holding Bitcoin, one would make the equivalent of about 3% interest on their money yearly. It also means that one would be motivated to seek out investments that yield higher returns. I can think of many possible loan scenarios that fit that criteria, not to mention stock investments, realestate, bonds, commodities, etc. These will all continue to be actively invested in and speculated on. If Bitcoin wins all it's battles, it will still just be another asset class that a responsible investor can put a portion of their wealth in.

[Xav]

I can't remember the thread I read it in (it was very recent) but someone explained how deflation would reduce productivity because only businesses that could generate extremely large returns could ever afford a loan to get started.

The only way I could see a deflationary currency working is in the very long term.

Let's imagine Bitcoin is eventually the only currency in use and after some time, 1 yottaBitcoin is worth 1USD in today's money.

At this point I see deflation being close to 0% - people can now freely spend their Bitcoin because there's little value in hoarding and waiting for increased future spending potential.

Now people can take out affordable loans.

At what point in time can we see Bitcoin loans being affordable? 10 years? 100?

My prophecy states that at the time the world's currency runs on satoshiBTCs there will be a technology to resurrect dead money, which renders this whole "deflationary economy thought-experiment" academic. Yet, I'm aware my prophecies are worth less than 2 cents.

[pening]

Deflation is bad for productivity because there's less incentive to invest.  My money today will be worth more tomorrow, so why spend or invest them in anything other than that which is absolutely necessary.  I can buy the same tomorrow for less money.  Some would argue this is a good thing, and it isn't with out merit, but you'd see a poorer productivity as a result.

[teukon]

If bitcoin continues its rise it will exist alongside fiat currencies. I highly doubt we'll have an deflationary economy because dollars will still be loaned out, I can safely say, for the next 50 years at least. A world in which bitcoin takes over, all fiat currencies die, and our economy is deflationary will never happen.

In a world where anyone could trade fiat for bitcoin quickly and cheaply, a loan in fiat would be just as impractical/expensive as a loan in bitcoin.  The interest rates would be different but the expected values of repayments would be the same.

[teukon]

Deflation is bad for productivity because there's less incentive to invest.  My money today will be worth more tomorrow, so why spend or invest them in anything other than that which is absolutely necessary.  I can buy the same tomorrow for less money.  Some would argue this is a good thing, and it isn't with out merit, but you'd see a poorer productivity as a result.

I'm not sure about this.  Certainly, restricted access to deflationary assets will push more savings into investments.  However, greater investment doesn't necessarily lead to greater productivity.  Bad investments squander resources, resources which would otherwise have been put to more productive use.  In such an environment, we incentivise bad investments so long as they are not as bad as holding money directly.

[jdough]

As far as I understand, bitcoin doesn't eliminate the ability to use debt.

What I don't understand is why bitcoin is inherently deflationary. Wouldn't it depends on the economy / GDP? If the economy is growing, bitcoin acts in a deflationary manner, but if the economy shrinks, bitcoin will be inflationary. Right?

Is there an assumption that the economy will always grow, or always be desired to grow? More of a philosophical question, but is a continuously growing economy feasible (or desirable) in the long run on a planet with finite resources?

[Lloydie]

As far as I understand, bitcoin doesn't eliminate the ability to use debt.

What I don't understand is why bitcoin is inherently deflationary. Wouldn't it depends on the economy / GDP? If the economy is growing, bitcoin acts in a deflationary manner, but if the economy shrinks, bitcoin will be inflationary. Right?

Is there an assumption that the economy will always grow, or always be desired to grow? More of a philosophical question, but is a continuously growing economy feasible (or desirable) in the long run on a planet with finite resources?

The global economy is growing due to population growth plus productivity growth plus inflation.

The bitcoin economy is growing as more users join the bitcoin monetary system, at roughly 30% per month.

Both growth rates far outstrip bitcoin's issue rate. Therefore, bitcoin is deflationary even before hitting max caps.

[Inedible]

Maybe.

I can also remember my parents being unable to buy a house despite earning good money in the 1980s because home loans were very hard to get.  Houses were more affordable back then but few could pay cash

And it's this sort of effect that will slow down the economy.

So we need to add debt, so people can buy houses? Well, where are all those extra houses coming from? Was there extra land?

If debt solved the problem then how come houses are so unaffordable nowadays? So now we have the same land scarcity but now houses are even more expensive because debt has driven up prices.

Now you create even more inequality. You have people who own houses with rising asset prices doing nothing but sit on rising asset prices. You have the poor who are even more marginalised. You create cost push inflation because rents must go up to support the interest on debt. This hurts the poor even more.

The 99% most of whom are not on the asset ladder are forever oppressed. That is a good thing to generate "economic activity"? When ordinary people can work a whole day and not earn as much as one hour's worth of capital gains? No, fuck that.

Compared to all that I'll take a temporary slowdown in spending anytime.

Let's imagine Bitcoin takes over the world today and it's the only available currency.

Are you saying it's a better world where we have people who can't afford to buy houses?

A better world where if I have a fantastic business idea I shouldn't be allowed to build that business until I've gathered all the resources required first?

I can see an option to approach the rich to fund my idea but this seems to me that all the worlds finance would eventually concentrate at the top because they're the only ones that can afford to build big projects.

[Inedible]

Real productivity will rise because we won't have to contend with the destabilising forces of debt resulting in financial crises.

People who live beyond the state and beyond debt (in a community with humans instead of a society with citizens) do have neither an economy nor productivity rise. They are self-sufficient and do not need to grow rampant. They live nearly the same way as thousands of years ago.
A growing economy is the result of debt, and debt is the result of the tax (tribute), which had been institutionalized about 10'000 years ago.

Are they advanced or do they live in underdeveloped areas?

[Inedible]

If bitcoin continues its rise it will exist alongside fiat currencies. I highly doubt we'll have an deflationary economy because dollars will still be loaned out, I can safely say, for the next 50 years at least. A world in which bitcoin takes over, all fiat currencies die, and our economy is deflationary will never happen.

I can see Bitcoin co-existing with fiat. In that world, I don't see the world changing much though.

The same things that happen today will also happen in that world but they might be on a smaller magnitude.

[Inedible]

World GDP grows at about 3% per year. When Bitcoin becomes pervasive and stabilizes, its value will increase by about that amount every year. That means that by simply holding Bitcoin, one would make the equivalent of about 3% interest on their money yearly. It also means that one would be motivated to seek out investments that yield higher returns. I can think of many possible loan scenarios that fit that criteria, not to mention stock investments, realestate, bonds, commodities, etc. These will all continue to be actively invested in and speculated on. If Bitcoin wins all it's battles, it will still just be another asset class that a responsible investor can put a portion of their wealth in.

That's the end game I hope for.

Can you explain more about how those investments would work in a 3% deflationary world?

[Inedible]

I can't remember the thread I read it in (it was very recent) but someone explained how deflation would reduce productivity because only businesses that could generate extremely large returns could ever afford a loan to get started.

The only way I could see a deflationary currency working is in the very long term.

Let's imagine Bitcoin is eventually the only currency in use and after some time, 1 yottaBitcoin is worth 1USD in today's money.

At this point I see deflation being close to 0% - people can now freely spend their Bitcoin because there's little value in hoarding and waiting for increased future spending potential.

Now people can take out affordable loans.

At what point in time can we see Bitcoin loans being affordable? 10 years? 100?

My prophecy states that at the time the world's currency runs on satoshiBTCs there will be a technology to resurrect dead money, which renders this whole "deflationary economy thought-experiment" academic. Yet, I'm aware my prophecies are worth less than 2 cents.

What's 'dead money'? Do you mean lost Bitcoins?

The day you can do that is the day you can take anybody's/everybody's Bitcoins.

[Inedible]

Deflation is bad for productivity because there's less incentive to invest.  My money today will be worth more tomorrow, so why spend or invest them in anything other than that which is absolutely necessary.  I can buy the same tomorrow for less money.  Some would argue this is a good thing, and it isn't with out merit, but you'd see a poorer productivity as a result.

This we already understand but once the world has stabilised on Bitcoin and the economy is growing at 3% (this is an unfounded assumption), it'll be possible to make loans at say, 0%. This would be the equivalent of a 3% loan.

As has been repeated a million times before, even in a deflationary world, you'll have to buy food. You'll have to buy a car for work so you're still going to spend what you have to to survive.

[Inedible]

World GDP grows at about 3% per year. When Bitcoin becomes pervasive and stabilizes, its value will increase by about that amount every year. That means that by simply holding Bitcoin, one would make the equivalent of about 3% interest on their money yearly. It also means that one would be motivated to seek out investments that yield higher returns. I can think of many possible loan scenarios that fit that criteria, not to mention stock investments, realestate, bonds, commodities, etc. These will all continue to be actively invested in and speculated on. If Bitcoin wins all it's battles, it will still just be another asset class that a responsible investor can put a portion of their wealth in.

What happens if there is no growth because Bitcoin never gets to that stage due to its deflationary nature?

By assuming 3% growth (in your example) you've assumed we overcome the initial stages of Bitcoin adoption which may never happen due to it's deflationary nature.

[jdough]

As far as I understand, bitcoin doesn't eliminate the ability to use debt.

What I don't understand is why bitcoin is inherently deflationary. Wouldn't it depends on the economy / GDP? If the economy is growing, bitcoin acts in a deflationary manner, but if the economy shrinks, bitcoin will be inflationary. Right?

Is there an assumption that the economy will always grow, or always be desired to grow? More of a philosophical question, but is a continuously growing economy feasible (or desirable) in the long run on a planet with finite resources?

The global economy is growing due to population growth plus productivity growth plus inflation.

The bitcoin economy is growing as more users join the bitcoin monetary system, at roughly 30% per month.

Both growth rates far outstrip bitcoin's issue rate. Therefore, bitcoin is deflationary even before hitting max caps.

I agree, but what about in the long term, that is when (if) bitcoin reaches global acceptance? Then, no more users are joining and inflation is presumably not controlled by a central agency. (Also in a longer term, there will be a point when the population is no longer growing either due to lack of space or resources or naturally, for whatever reason, as is occurring today in Japan and many European countries.)

[zachcope]

I can't remember the thread I read it in (it was very recent) but someone explained how deflation would reduce productivity because only businesses that could generate extremely large returns could ever afford a loan to get started.

The only way I could see a deflationary currency working is in the very long term.

Let's imagine Bitcoin is eventually the only currency in use and after some time, 1 yottaBitcoin is worth 1USD in today's money.

At this point I see deflation being close to 0% - people can now freely spend their Bitcoin because there's little value in hoarding and waiting for increased future spending potential.

Now people can take out affordable loans.

At what point in time can we see Bitcoin loans being affordable? 10 years? 100?

Deflation would reduce consumption and encourage saving as you say.
This is desirable as we are destroying the world through artificially pumped consumption, and failing to save for our long lives. Thus deflation would incentivise us to lead a life reflecting the underlying fundamentals of our world, not the fundamentals that suit the political and bankster masters.