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Comment Re:Boat still hasn't left port (Score 1) 271

> Austrian religion (it's not a "school"), as usual does not make predictions. It doesn't use models so it can't do that.
Austrian approach does not view economics as science, rather as a deductive study. So it cannot make predictions. This is why it clashes with mainstream economics, which attempts to be a science. I will leave open the question whether economics can or cannot be a science, rather I'll point out that I often see ideological assumptions (in particular the belief in central planning) bundled into what purports to be science.

> According to mainstream economy, deflation happens because consumers DO NOT HAVE MONEY to spend. So the producers have to cut prices to sell at least _something_. This in turn leads to wage decreases and layoffs. And this in turn leads to consumers having less money. Rinse, wash, repeat.
You probably wanted to say "recessions happen because customers do not have money". Deflations (in the sense of falling price levels) occur in other situations too (for example increases in productivity that outpace the increase in the money supply) and don't necessarily have the effects associated with recession.

The Austrian approach (see ) to the business cycle is based on three issues: cluster of entrepreneurial errors, capital goods prices fluctuating more than those of consumer goods, and why the cycle tends to happen around changes in the money supply.

Let's take your argument, the customers losing money. Why are there whole sectors of economy that are unable to foresee this? If they foresaw it, they would have adjusted their production structure to the falling price level. But it comes unexpected to whole sectors rather than merely individual businesses. Your proposition does not explain why. The Austrians argue that this is due to faulty price signals caused by the changes in the money supply.

> Reality is often a little bit messier - wages rarely fall in nominal values, they tend to stick at zero growth. So nominal deflation doesn't appear, instead no-flation (1% inflation) happens. See: "European Union", "Japan".
This does not explain, among other things, why:
1. There are situations where a falling price level does not cause a recession (say in the consumer electronics sector, or the examples from the Atkeson/Kehoe paper I linked)?
2. Whole sectors cannot foresee this and adjust in advance?

Comment Re:Boat still hasn't left port (Score 3, Interesting) 271

This post mixes several phenomena and omits other factors relevant for the positions. For example, "Once people start to understand what's happening, they stop buying things.". There are situations where a falling price level and a drop in consumer expenditures correlated positively, but there are also situations where they correlate negatively. I for example tend to behave exactly the opposite way as you describe: when the price of bitcoin is falling, I tend to cut my expenditures, and when it's rising, I tend to increase the expenditures. It's not the only factor influencing my decisions of course.

A while ago, two economists working at the Minneapolis Fed published a paper: where they analyse the empirical link between deflation (i.e. a falling price level) and depression, and find that outside of the Great Depression in the 1930s they can't find such a connection. They write: "A broad historical look finds many more periods of deflation with reasonable growth than with depression and many more periods of depression with inflation than with deflation."

As the Austrian school explains, the business cycle is caused by fractional reserve banking, and the recession is a necessary consequence of the misallocations that happen during the boom preceding the recession. But since mainstream economic schools lack a theory of capital, instead they view the business cycle through aggregate values, they can't assess the argument this way.

Comment Re:Monero (Score 3, Interesting) 271

Well I'm a different guy but I also mostly live on crypto.

> Where do you spend your bitcoin for day to day living kind of stuff?
If I need to pay for something and the recipient doesn't have a facility to process bitcoins, I use one of the payment processors to do the transaction on my behalf or trade bitcoins for fiat myself and then pay with fiat.

> How do you avoid problems with significant value swings that the market experiences since almost no one denominates their goods in bitcoins as the primary price.
I don't care about the fluctuations. I view bitcoin as a superiour source of liquidity and that's more important to me than day-to-day pricing accuracy.

Comment Re:At the end of the day (Score 1) 387

Whether they copied (i.e. if there was a causal link between Apple's and Samsung's products) is irrelevant from the point of view of patent law. Patent law does not provide the defense of "independent discovery". No matter how much evidence of Samsung's knowing about the features of iphone/ipad was provided, the patent law provides no reason to consider it in the trial.

Your reaction is yet another demonstration how patent law is misunderstood.

Comment Re:What is currency? (Score 1) 152

The reason why Bitcoin might attract illicit activities is because the state penalises the use of banking system for those, and thereby increases transaction costs for the participants in those activities. If the demand for those activities is inelastic, the participants would logically be more motivated to switch to a payment method with lower transaction costs (i.e. the network effect of the national currency is weaker for those people and easier to overcome). It's a result of contradictory goals pursued by the state, irrespective of whether one finds it agreeable or not.

Comment Re:What is currency? (Score 2) 152

Claiming that national currencies are "backed" by the state is one of the more popular economic fallacies. Currencies work due to the network effect, not due to "backing". If the parameters of the network negatively change (e.g. the critical mass increases or people leave because there is a sufficiently good substitute), the currency will collapse. No amount of "backing" by the state can avert that. The maximum it can do is to attempt to prevent people from leaving, but that might not be enough. All the countries that suffered from currency collapses had armies. North Korea and Russia rank at place 4 and 5 of active military personnel in the world, for example (and Soviet Union was probably even higher).

On the other hand, situations where only the state collapses do not lead to dramatic changes in the use of currency. In Somalia and Iraq, people continued using the local currency even after the collapse of the state. At best they amend their activities with foreign currencies (e.g. neighbouring countries or the currencies with the largest markets, such as the USD and EUR).

Both of these are consistent with the use of network effect as an explanation: currency collapsing does not correlate with the power of the state, but with the empirical features of the currency (e.g. hyperinflation).

This is not specific to currencies. Plenty of other things work like this as well, such as languages, operating systems, the internet or operating systems.

Bitcoin provides a system with lower transaction costs and a predictable inelastic supply, compared to our current system that combines a monetary base and other forms of money, whether they are created by the state or commercially. Transaction costs provide a reason to switch. Of course, there's still the network effect, which hinders migration. The BitInstant Debit Card is a type of a multi-homing solution, i.e. something that provides a way of bridging the two networks. This decreases the critical mass for the Bitcoin network.

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