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by cheald 4581 days ago
that's the Keynesian viewpoint. The prevailing wisdom right now is that policy-controlled inflation helps prevent a wide range of issues. Bitcoin is inherently deflationary, which scares the crap out of people with their stake in the Keynesian camp.
1 comments
NikolaTesla 4581 days ago
When you say prevailing wisdom, are you referring to the prevailing wisdom from the Keynesian viewpoint?

What would be an example of the "wide range of issues" that policy-controlled inflation helps prevent?

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cheald 4581 days ago
Well, yes -- the Keynesian school of economic thought dominates our political economics right now. The folks in charge tend to subscribe to Keynesian economic theory.

The tl;dr on "inflation is good" is that it benefits people borrowing money. If your wages keep pace with inflation, then things like your car loan and mortgage ultimately cost less, leaving you with more inflation-adjusted money to lubricate the economy with. Inflation stalling (or even receding into deflation) means that it's much more expensive in terms of wage-hours to pay back an existing debt, which discourages people from taking on new debt. http://www.nytimes.com/2013/10/27/business/economy/in-fed-an... is a decent article on the concept.

A deflationary currency, by contrast, will heavily discourage borrowing. This analogy is a little stilted by the BTC<->USD conversion, but if I agree to loan you 10 BTC to be paid back over 5 years so you can buy a $10,000 car, and over the term of the car loan, let's say that the value of BTC is going to increase from $1000 to $4000 (that is, the amount of value traded in BTC is increasing faster than the amount of BTC in the market), then you'd be a fool to take my loan, since you would effectively end up paying me $40,000 worth of BTC for a $10,000 car. This would discourage you from taking my loan and buying the car, just because of the behavior of the currency.

(That said currently, since lenders get a chunk taken out of their loan by inflation, they make it up in the interest rate. In a consistently deflationary market, it seems to my non-economist brain that the answer would be a smaller - potentially even negative - interest rate, which would be pegged at a point that the lender still makes money over the course of the loan without being overly discouraging to borrowers.)

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