The thing that attracted me the most to Cardano was the focus on academy and peer-reviewed research, but then I saw Charles Hoskinson presentation at LSE and several points got my attention, like credit, emerging economies, central banks, QE, price volatility and inflation, and it got my attention because some of the opinions expressed there are either not backed by academic research or have been proven false by facts. So I decided to write a post and focus in one of then: Inflation.
Inflation is a complex matter, and since the becoming of Crypto, it has been promised as a panacea against the evils of inflation but it’s far from clear how. Here is where it comes my first confusion because ‘inflation’ and ‘devaluation’ seems to be used Interchangeably, and this is a big issue, first because devaluation is a feature of the currency and inflation one of the economy, then they’re not just the same, you can have devaluation without inflation (QE for example) and vice versa. And this matters a lot because it’s clear how cryptocurrencies can help with the issue of devaluation but it’s not clear how it can help with the “issue” of inflation, since competition, taxes, bad crops, political instability and poorly implemented macro-economic policies are beyond the scope of what can be fixed by implementing a cryptocurrency. So, I’m not sure why they’d say this, especially in a room full of economists, sounds more like a trivial political statement than a fact-backed assertion.
Then there’s the value judgment about inflation, it’s pictured as something bad or evil, so I wonder compared to what? Do they mean that deflation is good? Is zero-inflation good? what’s exactly the target inflation of a crypto-based economy? Under the current framework of growth there’s strong evidence that deflation is a bad thing, so is it inside the scope to change the global economy status-quo to zero-growth? How is “inflation is bad” backed by academic research?
I firmly believe in the transformative power of DLTs and I’m sure Cardano’s approach makes a lot of sense, but I also think that it perhaps is only focusing on the very technical matters and is not being consistent from the economics side of the equation and I think this is a conversation worth having.