Currency

On the PPNZ GoogleGroup, @hubatmcjuhes wrote:

The hype around the current versions of crypto currencies... are deflationary by design, they don't work as a sustainable value-container. Andrew McP has pointed that out already. <<

I'm not sure why either of you think this. AFAIK it's inflationary currencies which don't hold their value. This is because an increasing amount of currency is chasing the same amount of goods and services, reducing the buying power of each unit of currency. BitCoin attempts to prevents this by having a built-in limit of the number of BitCoins that exist. Deflation is the opposite - not enough currency chasing too much goods and services - which is the situation we are actually in, but the state-corporate system has various mechanisms to keep prices artificially inflated to protect corporate profits. Alvin Toffler predicted exactly this situation in his book 'The Third Wave', calling it "stagflation".

You're right though that BitCoin is not a solution to the problems of fiat currency. I don't know much about any of the newer cryptocurencies, but BitCoin is in every practical sense a fiat currency. It's value is not tied to any real asset, and is set by ebbs and flows of the currency market, just like the $NZ, the $US, and other fiat currency.

I am pretty fascinated and excited about the Land Dollar as suggested by the New Economics Party, though. <<

For those who haven't head of it, the NEP's proposal is explained in this paper
http://neweconomics.net.nz/index.php/2012/04/a-land-backed-currency-issued-by-local-authorities/

I'm still not sure exactly how it's supposed to work, but my understanding is that it's meant to be complementary to country currencies like the $NZ, and global currencies like BitCoin, not an alternative to them.

As "Yourself" points out, what makes a the $NZ a "national currency" or "legal tender" is that you can pay taxes due to the NZ state in them, and the NZ state's laws obliges to accept them in settlement of all debts. In the NEP's model, the Land Dollar would be used to pay Land Taxes (and maybe other resources taxes?) which replace existing council rates.

Nobody is obliged to accept BitCoins in payment of anything, and like shares in a company, they're only worth what people are willing to pay for them at any given time. If we can earn them though, we can effectively pay our taxes with them by selling them for $NZ, and paying our taxes with those.

I’m not sure why either of you think this. AFAIK it’s inflationary currencies which don’t hold their value.

This.

Plus deflation in itself isn't as inherently bad as people here seem to think it is.

BitCoin is deflationary by design because in the beginning there is two ways to gather bitcoins: firstly by mining them, secondary by buying them. In the beginning, mining is cheap, quickly becoming more and more expensive. So over time, buying becomes more economical that mining. The more mining grows more and more expensive, the more attractive it becomes to buy bitcoins rather than mining them, raising the price rate. As bitcoins are limited in numbers this mechanism is transparent to all participants in the market. The vaue of bitcoins raises by design for no other reason as design principles. Once you have bitcoins, the best you can do is stick with them and not give them away as the will rise in value continuously. This is Deflation by sesign. And it works reliably to the point people stop believing in the currency. And this is so with each and every currency in the world.

David "Plus deflation in itself isn’t as inherently bad as people here seem to think it is"

Can you please explain this statement.
Krugman makes the case that deflation will lead to a depressed economy, increase the burden on debtors and squeeze profit margins
http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/?_php=true&_type=blogs&_r=0

1. Ok, I'll repeat myself from facebook... "The trouble with libertarian views on economics is that it is completely unrealistic to base your political views on a failure to understand basic economics." If deflation is such a wonderful thing for an economy, then please explain what good is it for that economy to have consumers hold off consumption of goods and services beyond the short-term ? I know @davidpeterson probably regards the 70s as the dark ages, but the crap economics of deflation is why the 70s were so bad economically.

1. Having a local government currency would be a step backwards of a few hundred years, and not in a good way.

Even though I live in Wellington, arguably the best region in the country for parochial councils, I would not want to be locked into only being able to trade property in Wellington City with a land currency issued by WCC.
What happens if I decide I want to buy my family friend's home in the middle of a forest when he dies ?
What do I do if my partner wants to move to Kapiti ?
Under the Land Dollar system, I lose a lot of mobility between councils, as it does not allow me to repurchase homes which my parents or her parents have sold.
Instead, these houses will be offered to current locals before people who have previous connections to the property.

@strypey where this is relevant is that it is essentially a repeat of the 1840 land claims, whereby any family who has lived continuously at one location since an arbitary date is considered native to that location.
So basically, we'd be setting in stone a preference for living in one local government area by forced economics.

In conclusion, the land tax is not a viable method for a currency, as it's effects will be to restrict trade in property to a set of locals, and will only cause massive problems for kiwis returning home to NZ in buying housing.
@andrewreitemeyer may have something to say about affordable housing for returned expats.

There is a very good reason why I am living in Pongaroa and not Auckland or Wellington. House prices are in a bubble driven by the government and the markets.

There used to be a commons and New Zealand has an abundant supply of land. There is a possibility of establishing a property right for all New Zealand permanent residents to be granted land or the equivalent (e.g. an apartment) of a predetermined value that can be traded on an open market. The land could be allocated by lottery, possibly, on reaching majority or on immigration.

The land allocation would not be heritable and like in ancient Rome it would return to the pool on death. However improvement made might well be.

The land tax would then not need to be regional and moving around would be possible,.

@hubatmcjuhes this doesn’t actually fit with what we observe with BitCoin, and other floating currencies, where the values rises and falls over time relative to each other, but generally tend to be inflationary. Your analysis also leaves out that there is a third way to obtain BitCoin other than mining, or buying: earning them in exchange for goods or services (or being gifted them if you are the FSF, EFF or some other non-profit beloved by geeks). When the value is higher you pay a smaller fraction of a coin for the same thing, when it’s lower, you pay a larger fraction.

The only thing stopping them becoming the standard coin of the internet is the speculation bubbles that make the value rise and fall heavily in a short time. I assume as more BitCoins are mined and more people are trading them more regularly, increasing the total size of the BitCoin economy, the outlier effect of that speculation will be smoothed out.

@andrewmcpherson it might help to actually read the proposal for the Land Dollar, rather than just inventing your own proposal based on the name, and then arguing against it. Same with the IP’s proposed currency, when their full manifesto comes out. Until then:
http://yourlogicalfallacyis.com/strawman

@strypey Well, seeing as all the assumptions used except (8) are following the rule about "when you assume, you make an ass out of u and me", I consider it consistent to reject the entire land tax proposal on the basis that it has no relation to economic reality.

1. And while we are on the topic of rhetoric, I do not care to construct artificial arguments for the sake of meeting mere philosophical convention, as that indicates subservience to convention rather than substance of thought. Your logical fallacy is rigidity of thought. :p