Inflation is the rise in the general level of prices of goods and services over a period of time. This means that a unit of a certain currency will become less worth over time. Deflation is the exact opposite, where the general level of prices will fall, and a currency will become worth more. Both are important concepts that govern the fickle dance of the "economic market", a faceless entity to which even the mightiest politicians must bow.
In general, economists agree that a low rate of inflation is good, and preferred over zero or even negative inflation. I don't really disagree, but think some of the main points are flawed.
The main idea is that inflation encourages spending. However, it's not encouraging but rather forcing spending, which is not necessarily a good thing. You're being punished for saving money, which could have been invested later at a better opportunity. This is according to some another positive point for for inflation, as this means the market will adjust quicker.
On the other hand, deflation doesn't necessarily mean spending will be disincentivized. Although holding on to my money will make it worth more over time, it also means I might be missing opportunities.
And is incentivizing spending really always necessary? If I don't spend, I free up resources that can be used by someone else who does spend and who might make better use of it. Two quotes from HN to sum this up:
snikto: "If you want my money, make something I want to buy/invest into. Inflation forces me to spend money on things I otherwise would not buy. Thus, it promotes goods and services that are not quite as good."
enki: "using up resources is not valuable by itself. forcing someone to spend on anything, anything at all, does not lead to a good allocation of resources. it might increase GDP, but it does not create value"
I'm very curious towards a future built on different principles. With Bitcoin, we could be using a large, decentralised currency, which cannot possibly be regulated by the government or by the banks. It will be very interesting to see this play out.
Source:
1. http://news.ycombinator.com/item?id=4621043
2. http://en.wikipedia.org/wiki/Inflation
In general, economists agree that a low rate of inflation is good, and preferred over zero or even negative inflation. I don't really disagree, but think some of the main points are flawed.
The main idea is that inflation encourages spending. However, it's not encouraging but rather forcing spending, which is not necessarily a good thing. You're being punished for saving money, which could have been invested later at a better opportunity. This is according to some another positive point for for inflation, as this means the market will adjust quicker.
On the other hand, deflation doesn't necessarily mean spending will be disincentivized. Although holding on to my money will make it worth more over time, it also means I might be missing opportunities.
And is incentivizing spending really always necessary? If I don't spend, I free up resources that can be used by someone else who does spend and who might make better use of it. Two quotes from HN to sum this up:
snikto: "If you want my money, make something I want to buy/invest into. Inflation forces me to spend money on things I otherwise would not buy. Thus, it promotes goods and services that are not quite as good."
enki: "using up resources is not valuable by itself. forcing someone to spend on anything, anything at all, does not lead to a good allocation of resources. it might increase GDP, but it does not create value"
I'm very curious towards a future built on different principles. With Bitcoin, we could be using a large, decentralised currency, which cannot possibly be regulated by the government or by the banks. It will be very interesting to see this play out.
Source:
1. http://news.ycombinator.com/item?id=4621043
2. http://en.wikipedia.org/wiki/Inflation