Steemonomics: fear of inflation, incentives, and the meaning of scarcity
This recent video by @andrarchy provoked me to think about the economics of Steem.
Fear of Inflation
He raised some good points in response to those who fear Steemflation, because there is no limit on the amount of Steem that can be created. What he said really got me to thinking about economic ideas, mostly from Thomas Sowell and the Austrian school of economics.
Although I myself am quite wary of inflationary money printing, and I don't quite buy everything he said dismissing those inflationary fears, I'm not worried about Steemflation.
First, as he clearly spelled out, the built-in incentive to hold Steem power seems to make it unlikely that 'whales' (those with lots of Steem or Steem Power) will convert most of their holdings to other currencies.
Incentives
I think that incentives is the key word. Thomas Sowell makes clear how important incentives are in his masterful book Knowledge and Decisions. (It is long, and packed full of great thoughts and examples.) One major theme is that the incentives facing individuals largely determine their behaviour, much more so than do the stated goals of any organisation, even if that organisation pays their salaries.
The incentive to hold Steem power is like a high interest rate in a typical economy, in that it encourages saving. The massive money printing so typical of modern central banks effectively lowers interest rates, which changes the incentives of individuals, making them more likely to spend too much and invest in risky ventures. As long as the incentive to hold Steem Power remains, I don't think that will happen in the Steem economy. Here it's perhaps even more useful to hold Steem Power than to hold cash in a regular bank, even when interest rates are high.
Of course, a massive sell-off could happen, if the perceived incentives change. For example if some shocking event causes many Steem holders to lose confidence in Steem relative to other currencies. However, given that most (all?) major central banks are printing money with reckless abandon, that seems unlikely. Steem looks better than the major currencies, which are battling it out in a worldwide Ugly Contest. Other crypto currencies have had their scandals and problems too. Hopefully that won't happen with Steem.
Scarcity
I don't think that an increasing total amount of Steem + Steem Power negates scarcity. If the vast majority of that ever-increasing total amount is held by a minority of 'whales', most participants will still sense scarcity. Even the whales could, because depending on what they want to do, they may need much more Steem Power than others (just as it takes a great deal more capital to build a large factory than, say, to build a typical residential house). This leads to the important point that @andrarchy raised in his video about the subjectivity of value.
Subjectivity of Value
This was an insight that came at around the beginning of the Austrian school of economic thought, in the late 1800s. Its discovery, independently by three people, brought such an important change in economic thought that it's been called the Marginalist Revolution. In this video Joe Salerno gives a brief history of the idea and explains it quite clearly.
It's worth noting that Karl Menger came to this insight without using complicated mathematical models, and that most Austrian economists still don't use very much math.
My view is that nothing is risk free, and therefore it's always wise to proceed with some caution. Still, I think Steemit has great potential!