[twblalock]

The cap on mining is actually a good example of an inflexible technical solution for a problem that is better solved through flexible governance. There are several problems with it:

Inflation can be a good thing. It can be used to combat deflation, and the absence of inflation can lead to stagnation via the paradox of thrift. There are certain central bank policies that encourage inflation and are known to work pretty well, including QE, which was demonized by a lot of people but has now been proven an effective aid in the recovery from the 2008 crash.

The bitcoin approach focuses on the money supply only, but there are other factors to inflation. There is general agreement among economists that the money supply is the key driver of inflation in the long term, but in the short term, other factors can be involved.

Inflation is possible with a static supply of money, because the amount of money in circulation (versus the amount of money in savings accounts or bonds, or otherwise locked up) can change.

Inflation can also happen even with a static supply of money and no changes in the amount of money in circulation. An example is an oil price shock, caused by an embargo: oil is an input into many manufacturing processes, as well as people's cars, so a general increase in the prices of goods and services can be expected.

So, the bitcoin approach takes away some valuable monetary policy tools and it doesn't actually prevent inflation in the short term. People shouldn't believe that their bitcoins are protected from inflation.

[elmar]

I have replied to a similar thread on HN recently here is the link.

Inflation the Hidden Tax

https://news.ycombinator.com/item?id=14828655

[mikeash]

I don't understand what the big deal is there. I can understand it in a hyperinflation situation, but when inflation is ~2%, surely this hidden tax is insignificant compared to the more visible, explicit taxes?

[zo1]

That 2% may seem little compared to your yearly income-tax. However, it's a tax on all your capital that you own, and it gets applied every year. So it's a tax on all amassed wealth, not earnings. It implies that you can't just keep what you've earned, and that if you were to put it away for your children/grandchildren, it'll magically get eaten away slowly until it is practically nothing.

In addition to that, it makes it painfully obvious that someone out there, is through some means, conjuring money out of thin air. The thing each of us sweats and toils every day to earn? Someone gets the privilege of printing it and injecting it into the economy. I simplify it a bit, but that's essentially the gist of the criticism.

[mikeash]

It's a tax on all your cash that you own. There are lots of other places to keep wealth. For example, a lot of people own a mortgaged house, and inflation makes them wealthier every year because it increases the value of their house without increasing the associated debt.

That last part sounds like an appeal to emotion. Being able to do things the rest of us aren't allowed to do is pretty much the whole point of having a government. They get to create money, levy taxes, imprison people, wage war, etc. Looking at all the special privileges the government has, the privilege to create new money doesn't seem particularly special.

[elmar]

let's do some assumptions:

- the 2% inflation number is completely wrong and real inflation is around 5%~10%

- with no government monetary intervention we should have deflation let's assume around 5%

the delta is now 10%~15% looks less insignificant.

[mikeash]

How long does it take for new money to get into the hands of the average person? I'd think a couple of months. A 15% inflation delta then means an "invisible tax" of maybe 3%. Not very important. And that's ignoring the highly questionable nature of those stated assumptions.

[elmar]

I have seen studies where it could take up to 2 years for the new money to completely penetrate the economic system.

Unfortunately currently don't have the links, I will try to post it later.

[twblalock]

> the 2% inflation number is completely wrong and real inflation is around 5%~10%

I can't find any evidence-based reason to believe that.

[elmar]

Alternate Inflation Charts

http://www.shadowstats.com/alternate_data/inflation-charts

[brightball]

Inflation is one of those issues that nobody ever seems to see eye to eye on. The best example IMO, is that if those policies were actually effective then you wouldn't see this nationwide desire to increase the minimum wage. That happens because the wage people were previously earning buys less...which creates a cycle of more policy, more inflation, etc.

[trophycase]

These solutions can literally all be programmed. There is almost no way Bitcoin maintains the 21 million static cap by the time the mining reward is gone