And yet inflation is as low or lower than it has been in the past 30 years. Not to mention compared to the high inflation of the '70s.

The problem with this statement is that 'inflation', as a measurement, has changed greatly over 30 years. To use a technical analogy comparing inflation in the 70s is like comparing "lines of code to implement a function" in a RISC assembly language and python. The only thing that is comparable is that they are both programming languages.

There is a particularly telling comment that came out of the fiscal cliff negotiations, where the Senate asked for a change in the way 'inflation' was computed to avoid a big hit with respect to government programs tied to the CPI. (search for "chained CPI fiscal cliff" for various examples). This very explicit mention of managing the CPI to avoid increases aside, my father who is on a military pension (also indexed to the official government "inflation" rate) has a pretty good history of expenses, and their rise, during his retirement which does not correlate at all with the government rate.

There are some pretty tin foil like sites like www.shadowstats.com but you can also use various search metrics to create a 'bundle' of expenses (housing, food, clothing, gas, taxes, and utilities) and create your own view of what the cost of living has done over the last 20 years. Add in the effects of 'unit deflation' where a 16 oz box of breakfast cereal is now 11.2oz and you realize that the cost of living is going up more than your government is sharing with you, even informally. Their motive is pretty simple, they want to avoid killing the budget with huge increases in indexed aid and indexed treasuries (called inflation protected securities).

But it is interesting that you mentioned the 70's because that is where this started. No one except economists and policy wonks "cared" about inflation until it became an election issue. Then voters started "caring" a lot so the congress has helped "clarify" what it means more and more. Its one of the things I would do if elected to congress (not that I'm running) is I would create a steel wall between economic statistics and legislators. Government manipulation of them does more harm than good unfortunately, but nearly every government manipulates them to some extent.

The current method which is often used to adjust nominal expenditures into current dollars is calculated using a Laspeyres index which, year-over-year, does not account for the fact that when prices change people shift their patterns of consumption.

A Paasche index is somewhat the reverse of this in that it assumes that what you purchased last year was the same as what you purchased this year.

The Fisher index is the geometric mean of the two and if you've had a chance to study some of the methods and difficulties of constructing price indexes, it does offer a plausible compromise between the two, allowing for substition but giving some weight to both indices.

However that it accomodates changes in consumption or "substitution" lets lobbies like the AARP exclaim that it hides the case that retirees have to switch from beef tenderloin to cat food when prices rise.

But in actuality it's both a pretty minor change and the better measure of price changes (if the underlying data can be trusted).

Yes, by selectively looking at one category of good while ignoring other you can create your own special index such that inflation looks like it's high, but that's always true except in a static economy.

As to people worrying too much about inflation, well, I agree in general. But please read the Wikipedia page on inflation to see the reason why politicians might want to care about inflation even if the voters don't.

http://en.wikipedia.org/wiki/Inflation

Look at asset prices, they are going up very fast (historically). Or healthcare or higher education, they have been growing faster than CPI for decades with fiat money. You have to look at who has the newly created currency, and where they spend to see the inflation (gov't, high wealth, and upper middle).

The fiscal policy is controlled by two numbers which are chosen by 'consensus' among bitcoin users: The reward for mining a block, and the 'difficulty' of mining a block. You can always mine blocks in violation this consensus (eg reward yourself too much), it's just that no one will listen to you, and no one will accept the bitcoins you 'mined'. However, If everyone agreed to change how we choose these numbers, we could change the policy.

I'm pretty sure you could set up a 'bitcoin-2' network which would honor transactions from the original bitcoin network into the new network, yet have different algorithms for reward and difficulty. For now though, it doesn't matter since the current 'fiscal policy' is quite expansionary.

Moreover, there is a strong argument that deflationary currencies are morally wrong because of their effect on generational wealth inequality. In a society with a deflationary currency, nearly all wealth will be held by older people, simply because they got there first.

You don't even have to look very far to see what a society with deflationary currency would look like. There is a market that has many of the same properties as a deflationary currency, and that's real estate in places like SF and NYC. In Manhattan, there are a ton of older people who purchased real estate in say the UWS in the 1980's and 1990's. Property values have skyrocketed since then, to levels that these people never could have afforded at the time they bought their property. Their kids, now the same age/of the same relative financial standing as they were when they bought the property, are totally priced out of the market.

Sorry for the stupid question, but isn't this morally equivalent to being old and had more time for your direct or indirect investments to grow (pension funds, ...). I mean in the current system old people which weren't stupid/unlucky to throw all the money away usually do have more money than their children (in fact in Italy where I lived, the young generation regularly needs help from parents for buying a house, a car etc).

I believe that you argue that since in a deflationary system "being old" per-se grants you wealth, this is unfair because you didn't earn it, it just happens. However you can still throw all your money in booze and games when you are young, not unlikely the current situation.

But probably I don't get the magnitude of the bitcoin deflation. Wonder what is the predicted deflation in 30 years (assuming an optimistic widespread usage, not the real case)

The GFC was a similar crisis, but the Fed was able to quantitatively ease the US out of it. OK, things were still pretty dire, but given how much debt there was (as a result of the debt bubble which had kept the economy going gangbusters for so long) it wasn't as bad as it could have been.

Austrians (Ron Paul) say things like "that's bad - the Fed shouldn't be able to rescue the economy, because that will force the bankers to act like grown-ups". Unfortunately, it doesn't work that way. The bankers will still take massive risks, and crash the economy every now and then, and the Fed won't be able to help.

Of course, there's reasons to be concerned about the US economy. IIRC, real median wages haven't grown much since the 80s. Basically all the growth has been the rich getting richer. But I don't think that's because of inflation, so much as general policies which favor GPD growth over raising median wages. The US is not a country which cares about the poor, and outsourcing has weakened poor Americans' bargaining power. With the rise of China, that might change (Chinese wages are rising quite quickly, which will make US workers more competitive, which will allow them to demand higher wages). Whatever the case, I don't think it's all the fault of inflationary monetary policy.

And no, I don't blame robots. If robots were taking all the jobs, they wouldn't be going to China. Maybe they will take all the jobs one day, but currently more robots means cheaper products, which means more jobs. Also, before anyone says "the jobs will just go to Africa", they better consider the challenges in building infrastructure there, the fact that Africa is quite diverse (there won't be 200 million peasants all swarming to special economic zones within a decade), and the added demand from all the newly wealthy (or at least, not piss-poor) Chinese.

Source? I'm curious to read about that.

It's controversial though.

Austrians have a similar theory - that malinvestment in the boom (rather than a lack of investment in the bust) is the problem.

And then there's the mainstream neo-classicals, who say it must have been the government because the private sector can't make mistakes.

There are reasons aside from "fiat money sucks". The big ones I encounter seem to be "this is interesting", "this has interest, maybe I can make money in it", and "this can do X".