Post
Topic
Board Economics
Re: Some dilemma regarding investments and social welfare in an all bitcoin economy
by
jerye
on 23/05/2013, 07:53:32 UTC
This is the fatal flaw in the model. In any real economy, not all participants have access to the same information. People with access to good information can profit at the expense of those who don't, by buying undervalued investments and selling overvalued ones.

The point, my dear Watson, is that either way you are more profitable by doing nothing.
Huh No I'm not. If I have information that nobody else has, I am more profitable using that information to make better investment decisions than everybody else. Everyone else is losing money by lacking this information, so it is more profitable for them to try to acquire this information, assuming it is not too expensive (the cost of information is the main reason (and if you assume everyone acts rationally, the only reason) for the market being a game of imperfect information in the first place). Either way, it is most certainly not profitable to do nothing.

This model also neglects the changing value of money. Suppose a company invests in more efficient manufacturing technology, and can produce twice as many goods as a result. Since the money supply is constant, the same amount of money is now buying twice as many goods, or in other words, each unit of currency is worth twice as much in terms of goods. So even if the company has not gained any money in nominal terms by its investment, in real terms, it has doubled its wealth (along with the wealth of everyone else using the currency).

Perfect information and perfect competition are unlikely to economic situations though is a benchmark case necessary to analyse before moving forward into imperfect markets.

I invest x today which buys one output so tomorrow I can get double the output for which the value is y. If y < x (we both agree in nominal terms we have less money), then it is certainly better I not invest x in the first place because y = 2 output and x > y, thus x > 2 output.

Consider 2 periods t=0 and t=T. Any any real positive value at time T will hold for time t=0 irregardless of the nominal value, wouldn't you say so? If I invested 10 at t=0 and get 8 at t=T and at t=T, 8 buys me 8 goods, wouldn't that 10, I spent at t=0, if saved and spent at t=T buy me 8 goods + more?