Re:The Bit Short: Inside Crypto’s Doomsday Machine
by microtherion on Friday January 15, 2021 @06:55PM
(#25798277)
> 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.
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.