General Bitcoin discussion thread (June 2011)

In practice, that is not happening right now, because the market for interest-rate-determining instruments (like Treasury bonds) is saturated by people who by and large don't care about making up for inflation in the return: the Federal Reserve, exchange-rate-manipulating foreign central banks (like China), and insurance companies.

You're missing my point. What you're saying translates to: "In theory, real interest rates are positive, but in reality they've been driven to negative levels because savings are so high." But nothing in theory stops real rates from being negative at any point in time.

By the way, your list of actors seems misguided: (1) The Fed buys Treasury bills when they issue cash, which is basically exchanging one government liability for another: it doesn't change aggregate saving. (2) Insurance companies invest money on behalf of people who buy long-term instruments such as life policies and annuities. (3) China does manipulate exchange rates, but the only reason they are able to buy so many Treasuries is Chinese workers saving large portions of their income and depositing them in the local bank. AFAICT, there is no case for giving any less consideration to Chinese workers than to US-based savers.

My understanding is that one good wouldn't do it, but persistent, overall deflation would in fact devastate the economy.

Sure, right now you can stick money under a mattress for 6 months and buy more Core 2 laptops than you could today. But that doesn't seem the same as "getting richer".

Where's the line? Good question. Obviously if you could buy more of anything that would be getting richer without investing the money. Or if you could buy more (houses or food or cars or Internet access or electricity or sex or drugs or rock n' roll).

you hate rich people

I do, and this probably clouds my judgement.

Now to get to the actual economics:

Investing in the productive economy hasn't yielded a positive return for the last ten years

Given stock price trends I can't see how this is true. Can you elaborate? Even Treasuries are yielding 3-odd percent in the face of 2-odd percent inflation.

unless you want all behavior to shift toward consuming all real resources immediately, including "seed corn", you have just as much an interest in seeing an economy strike a balance between present an future consumption

The wealth of a nation is not some fixed quantity; it's its aggregate production of goods and services. There's not anything we can "run out of" that's required for people to trade, barter, etc. Am I missing something?

Sure, there are finite resources we could run out of, like oil. But attempting to restrict the total size of the economy in an effort to conserve those particular resources seems awfully suboptimal. (It also seems doomed to fail in an economy consisting of humans). Better to attack those particular resource usages through taxation, policy, subsidizing alternatives, etc.

Try to bear with me; and I will try to remember where I am. This is the first time I've met a hard-money advocate on the Internet who also [presumably, given our venue] cares about map-territory correspondence.

Investing in the productive economy hasn't yielded a positive return for the last ten years,

It depends on what you measure. Risk-free returns, maybe. Risky investments tend to do very well in expectation.

and yes, it's fair to expect the market to compensate you for deferring consumption because society is decidedly not indifferent between whether you consume resources now or later.

It would be nice to see an argument for this.

([U]nless you want all behavior to shift toward consuming all real resources immediately, including "seed corn", you have just as much an interest in seeing an economy strike a balance between present an future consumptio[n])

It seems that the economy is striking a sensible balance right now, with risk-free assets yielding about zero return and risky assets possibly yielding more. You'll not see any consumption/depreciation of capital, because if willingness to save falls then rates of returns will rise.

And getting people to invest in productive enterprises under threat of their money withering away is pure Machiavellianism

It's not. Currency "withers away" because it is effectively a risk-free asset which can be exchanged on demand for real resources (i.e. it has zero maturity) and its returns are standardized over large time-spans, including episodes of distress such as financial crises (whereas other assets are priced by the market and their returns might fall in such circumstances). This is pretty much the highest possible quality you could ask of any asset, and returns are adjusted accordingly. Bank accounts and money-market funds also have some of these qualities, but they have countervailing issues, and the interest they pay is meagre anyway.

if you want to paint me as a racist

I apologize; that was not my intent. Even here one must be very careful about any statements involving race, and I was not nearly careful enough.

The entire concept I was trying to get at is one I think worthy of discussion. Let's see if I can unpack it non-offensively:

1) [Economic] conservatives generally consider poor people an out-group (often even when accountancy would consider said person poor) 2) Said conservatives are almost universally white 3) Everybody on Earth considers people of other races an out-group 4) Everyone on Earth wishes to help their in-group before their out-group, if they wish to help out-groups at all 5) In the USA, poverty is highly correlated with being black and/or Hispanic, for a variety of reasons, including failure to choose the proper parents

As far as I can tell none of those statements are controversial, or paint you (or any other) individual person in a negative light. Please correct me if I am wrong about that.

It seems to me that #2-5 could have a large influence on the apparent paradox in #1 (the "why do poor white folks often favor upwards redistribution?" problem).

Edit: Upon reflection, I'll withdraw the entire sub-topic as "too mind-killing". Besides that property, it's orthogonal to the question under discussion: "Is a hard quantity limit on a medium of exchange a feature or a bug?"

Saying something is retarded does not fall into some inherently different reference class with respect to "being about". The significant feature here is that it is easier to sneer at than sentences that use politically incorrect language.

(What he said was still stupid.)

Not necessarily (though I'm no doubt being too snarky).

It's common for goldbugs to compare stashing gold under a mattress with stashing green pieces of paper under a mattress, and note that the former has better investment return. When there's no economic reason that simply sitting on wealth (without loaning it out to some productive use) should make one wealthier.

The expectation that money should be a long-term store of value is, in fact, misguided.

Here's another, hop to it...

Belief that there's some Platonic ideal of "value" against which currencies should be measured

I find it funny how fans of mainstream economics mock goldbugs about this, while at the same time basing a large part of their own theories on a far more extreme Platonic concept of "real" values calculated using price indexes.

None of the attributions to me sound like anything I've said, and your counterarguments are just parroting the mainstream view that I'm well aware of and criticized very specifically.