People also don’t realize that moderate inflation is a good thing. You want a gentle inbuilt mechanism to encourage consumption. And we have good tools to combat inflation whereas we don’t really have any tools to combat deflation.
There’s a reason nobody spends Bitcoin and it’s mostly not about fees or block size.
> People also don’t realize that moderate inflation is a good thing.
Price stability is a good thing, and moderate deflation (which discourages productive investment) is worse than moderate inflation, so policy targeting moderate inflation is a good thing. This isn’t because moderate inflation is a good thing in and of itself, its because you can’t perfectly target price level outcomes with policy, so you want to bias missing on the less harmful side.
> You want a gentle inbuilt mechanism to encourage consumption.
The utility of consumption encourages consumption. To the extent that inflation is good its more as gentle inbuilt mechanism to discourage nonproductive saving of cash in favor of productive investment.
> There’s a reason nobody spends Bitcoin
Right. You definitely don’t want deflation, which encourages hoarding currency that is surplus to immediate consumption desires and thereby sucks money out of productive investment.
> Price stability is a good thing, and moderate deflation (which discourages productive investment) is worse than moderate inflation, so policy targeting moderate inflation is a good thing.
That is one of the reasons. But arguably, even if a central bank could be 100% sure of hitting their inflation target exactly, they might still prefer moderate inflation to absolute price stability, because (a) it encourages productive investment and (b) it gives a simple mechanism for downward adjustment of sticky nominal prices/wages.
Because if you made a better return by hoarding cash then by investing -- holding bonds, buying apartment buildings-- investment would stop and people would stuff cash into mattresses.
Is that necessarily a bad thing? Growth at the cost of everything doesn't seem to bode well long term. What would the potential consequences of an economy not based on continuous growth? Genuine question, not trying to be inflammatory.
The proceeds from whatever growth there is should go to the people involved in growing it, not uninvolved previously-wealthy bystanders. With deflationary currencies, any growth in the total amount of stuff leads to one dollar corresponding to more stuff, which is like a tax on all of the people making stuff paid to the people holding mattress money. That's the most powerful argument against the gold standard, for example. People who spend gold to do actually useful things are punished and people who pile it up are rewarded.
This is the primary mechanism that has stagnated Japan's economy since their asset bubble burst in the 80's.
If you want to start a business you need investment and customers. You will get neither if everyone is hoarding cash. Investors will not stomach your risk when they can just safely sit on their balance. Customers will hesitate to buy your product because they will always expect your prices to go down the longer they wait.
And in turn pollution might decrease, frivolous consumer waste might decrease, frivolous ad waste might decrease, people might turn to crafting and making their own home goods, and feel more pride and accomplishment, and the standard of return on investment to actually draw cash out of the mattresses would be higher, rather than building in a mechanism that stresses people into giving their cash over for hollow waste, and entrenching false “market demand” narratives around the whole destructive charade.
There’s a reason nobody spends Bitcoin and it’s mostly not about fees or block size.