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Learning About Real-World Economies Through Game Economies

Soulskill posted more than 4 years ago | from the chinese-imports dept.

The Almighty Buck 178

Reuters has a report about research being done on the in-game economies of MMOs like EverQuest II and World of Warcraft to better understand much larger economic situations in the real world. The games are used as case studies where researchers can do controlled experiments that they couldn't necessarily attempt if real money or goods were involved. "After studying 314 million transactions within the fantasy world of Norrath in EverQuest II, including trading in-game goods like armor, shields, leather, herbs and food, the researchers were able to calculate the GDP of one of the game servers (the back-end computer that hosts thousands of players in one world). As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months. 'We have seen that kind of volatility during times of war and in developing nations in the real world,' said [Dmitri Williams, assistant professor at the USC Annenberg School for Communication]. 'Our own economy has turned out to be less stable than we'd all assumed.'"

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178 comments

I for one... (0, Funny)

Anonymous Coward | more than 4 years ago | (#29635735)

wholeheartedly welcome our new nerd overlords.

Re:I for one... (3, Funny)

Anonymous Coward | more than 4 years ago | (#29635843)

Right... as if someone with knowledge of real world economics could actually be put in a place of authority.

Re:I for one... (3, Insightful)

causality (777677) | more than 4 years ago | (#29636081)

Right... as if someone with knowledge of real world economics could actually be put in a place of authority.

My thought was something like this. Specifically, from the summary:

Our own economy has turned out to be less stable than we'd all assumed.

Well let's see now. We have fiat currency instead of representative currency (an example of which is the gold standard). Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?

The real joke, though it's not a funny joke, is that this system as we know it came from the Great Depression. Its purpose was to ensure that such depressions would not happen again. By that I mean, this is how it was sold to the public. Isn't this typical, that an undesirable system that would not otherwise be accepted is proposed during a time of crisis and becomes entrenched? It's not like we have never seen that pattern before...

Re:I for one... (3, Insightful)

blahplusplus (757119) | more than 4 years ago | (#29636255)

"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"

The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT. Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.

The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.

Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.

Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.

Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.

Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.

Re:I for one... (3, Insightful)

Curunir_wolf (588405) | more than 4 years ago | (#29636555)

"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"

The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT.

Lol! I guess you know better, and we should trust you instead? As well as all the people claiming they know how to "run" an economy but somehow keep getting proven wrong.

Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.

Not sure what "ideology" you think the "austiran"[sic] economists are espousing. More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.

The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.

Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.

Interesting theory. Should I subscribe to your newsletter?

I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better? Even if what you say is true, it doesn't explain why at times (like today, and the Great Depression) nearly all industries are faced with contraction at the same time, and all of them shed jobs, instead of just one or a few sectors. Austrian theory explains this very well.

Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.

But it's exactly the Fed and central banking policies that interferes with that process. By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.

Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.

Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.

I don't know where you got this idea. Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining. And all this mis-allocation of resources is caused by central planners like the Fed sending the wrong signals to investors and consumers.

Re:I for one... (3, Insightful)

Vintermann (400722) | more than 4 years ago | (#29636851)

More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.

Somehow, I feel like I look at a post that was written three years ago.

Re:I for one... (1)

Nathrael (1251426) | more than 4 years ago | (#29637057)

Now, whatever one may think about the post you are quoting...he certainly is right in saying that Austrian economists are *very* dogmatic people. Austria is a deeply "social-capitalist" (read: Socialism Light) country, we have no political or otherwise opposition (all our parties are either socialist or nationalsocialist, with the exception of the Young Liberals which only ran for the EU elections and got almost no votes because they couldn't afford an election campaign) to that dogma here, and it likely will stay in place for a long time.

Re:I for one... (1)

Curunir_wolf (588405) | more than 4 years ago | (#29637209)

Um, well, the "Austrian School of Economics" [mises.org] has its origins with St. Thomas Aquinas in Spain, and doesn't really have anything to do with Austria and its government or politics.

Re:I for one... (1, Insightful)

blahplusplus (757119) | more than 4 years ago | (#29637255)

Interesting theory. Should I subscribe to your newsletter? I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better?

The problem is that money as a store of value is problematicc because people can't just wait forever for food/electricity/clothes/housing, an austrian run economy would quickly devolve into one where there would revolution I have no doubt, because they'd be forced to realize the world is a physical place and their theories of human action break under constraints of physics and physical systems and their transformation.

Any theory that does not account for how the world actually is physically integrated into the economy is laughably naive.

But it's exactly the Fed and central banking policies that interferes with that process.

But you're missing my point, the instability would not go away! You're missing the physical aspects of the economy, if x amount of people are umemployed for Y time and their money is quickly depleting, you can't have that happen to a huge population without huge political discontent and in the worse case scenario revolution.

Everyone (anyone who is anti-fed) assumes that moving back to a gold standard or some other currency is going to fix thing - it is not, you're just trading one set of policies for another, the fundamental problem of specialized society connected by interlocking and highly unstable trade networks, and technological displacement is still there.

By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.

Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not. People are the cause of bubbles not anything else, and because we live in a specialized society the effects of too many people failing at once is transmitted through the whole system and that means I get fucked for someone elses stupid economic decisions, austrians take a hyper individualistic view of the economy that is simply not real. Group of persons actions A far away from me can economically have negative effects on me without my consent.

Theit whole big push of "no initiation of force" is a farce, since monetary systems require the initiation of force else you would have rampant counterfeiting.

I don't know where you got this idea. Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining. And all this mis-allocation of resources is caused by central planners like the Fed sending the wrong signals to investors and consumers.

No there are different kinds of inflation, this is the whole problem to begin with. Once someone is taught somethign about economics by people they admire, or they are ideas they fancy. They are usually never willing to question it because that's what they've been taught. Inflation occurs for many reasons.

I'm not a big believer in economists understanding of inflation because the physics of how economies physically work. Once you stop thinking in terms of theory and in temrs of observable physical systems you come to understand money is a political conveneience to distribute debt and obligation, since money itself is a double edged sword as a medium of exchange.

Now I'm not saying I have all the answers, but I do know that the way we currently think about money and how we calculate the allocation of resources and obligations in society has fundamental flaws that keep the whole system in a state of constant instability that need serious examination that is simply not coming from economists because they are ill equipped conceptually and ideologically in terms of multidiscplinary education to challenge the status quo.

Currently, the quantity theory of money is mroe or less widely accepted as an accurate model of inflation in the long run. Consequently, some economists agree that is what causes inflation in the long run, they say the inflation rate is essentially dependent on the growth rate of money supply.

However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates. The question of whether the short-term effects last long enough to be important are key pieces of the puzzle that most economists don't understand and many flatly refuse to understand.

I look at systems and how systems physically function, I do not start from theoretical propositions I will sit around and observe how people and systems behave and imagine an invisible line of monetary values flowing around like electricity around society, to understand how money acts as a kind of matter and energy accounting system that has properties similar to thermodynamic systems. I've done a lot of my own original research into this topic because it interests me and I know economists simply are not technically sophisticated enough in other sciences to see their own errors since it requires cross discplinary understanding to even begin to approach some of the things I've observed and have been working on in my spare time.

Most people are way too narrowminded to entertain thoughts that don't speak their language or to mater conceptions or theories they fancy, thats what I hate about not just austrians, but all economists.

Re:I for one... (3, Interesting)

Curunir_wolf (588405) | more than 4 years ago | (#29637497)

That's a pretty long-winded way of saying you don't understand economics. But at least it's a good starting point.

You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now. Maybe some day we could transition to something like the "reputation system" envisioned in Accelerando, but we have to work with what we have to work with now.

The arguments you make point to Austrian economics working better than anything out of Keynesian, as it is closer to following physical assets than the artificially controlled fiat money that Keynesians prefer. Yes, even with real assets being used as a medium of exchange, there will be bubbles and busts, but they will be very much limited to specific industries or companies, rather than across the entire economy like happens now. But that's because entrepreneurs have to make guesses about the future - it can't be predicted in any deterministic way, since it involves human behavior. But it's a better system than letting a few central planners make those guesses for everyone, because they can never be as accurate as millions of people making their own guesses based on experience and self-interest.

Re:I for one... (2, Informative)

Nefarious Wheel (628136) | more than 4 years ago | (#29638057)

You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now

All tangential discussions of the value of money aside, I believe the studies will point out two things:

(1) That it's quite possible to get a grant to play computer games (disclosure: level 80 characters here, plural, think it's a good idea ;P);

(2) People may become aware that money exists primarily as numbers registered in one of a number of accounting systems, and nowhere else. If you think about it, most MMORPG's have a hierarchical system of banks and a means for transferring numbers (call it "gold pieces" or "plat" or "lindens", it's still decimal currency) from one account to another.

(3) Most game EULA's specifically forbid trading in-game items for real-world (!) valuta, presumably to make it more attractive and to keep the tax people away;

(4) ...???

Re:I for one... (1)

blahplusplus (757119) | more than 4 years ago | (#29638647)

"That's a pretty long-winded way of saying you don't understand economics. But at least it's a good starting point."

This is exactly why I don't talk about economics, you exemplify my point:

"Most people are way too narrowminded to entertain thoughts that don't speak their language or to their master conceptions or theories they fancy, thats what I hate about not just austrians, but all economists."

You think I don't understand but that's simply not the case. No man has a monopoly on the truth and there are many different paths to it and ways it is expressed, you dislike the way I express my factual observations so you accuse me of not understanding economics. This is EXACTLY why I often avoid such discussions. People tend to pre-decide their positions and then look for reasons to support those positions, and if someone disagree's the accuse that person of not understanding economics, it's 100% bs though I'm sorry to say.

This is exactly why debate is most fruitless since it has been precided by the a group of persons what is or is not, so there is no room for discourse.

Re:I for one... (1)

Curunir_wolf (588405) | more than 4 years ago | (#29638843)

No man has a monopoly on the truth and there are many different paths to it and ways it is expressed, you dislike the way I express my factual observations so you accuse me of not understanding economics.

I didn't accuse you of that, you stated it yourself. And I pointed out that it's a good starting point, because no one person or small group can understand macro economics well enough to be able to plan and manage it. Which is the point.

If I didn't response to some of your points that you felt were relevant, it's because I didn't understand your basis or point you were trying to make. Yes, there are many "ways it may be expressed", etc., but you have to find some common ground that allows you to communicate with someone else. That's great that you have some unique "view of truth" and "way of expressing" it, but the hard part is finding a way to communicate it with someone else.

Re:I for one... (1)

blahplusplus (757119) | more than 4 years ago | (#29638875)

No doubt about it. I may have misconstrued your post and I apologize for that but I've had discussions with people with such people directly and they are often very immune to any kind of dialogue.

Re:I for one... (2, Informative)

Vaphell (1489021) | more than 4 years ago | (#29637683)

Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not.

removing FED would work much better than what we have now. In 19th century the US economy was stable and after FED creation in 1913 we had several serious recessions.

Bubbles happen because there is fast, steady influx of new players who want to profit quickly - you only have to put some cash on the table to enter the game and 2 years later you get guaranteed +50% in return. Where do players get their money to enter from? They take loans. If there was a limited money pool and no central planning, interest rate would instantly shoot through the roof thanks to free market forces (when people compete for money from banks, interest rate raises). In such scenario the forming bubble meets its pin of doom much quicker because people are discouraged when IR starts to match projected profits. When you keep the rate of 1% for years no matter what (like the FED did), don't be surprised that everybody and his dog enters the game - after all money is almost free and almost guaranteed to pay for itself... until the supply of suckers runs out and the whole Ponzi scheme collapses.

What we had recently was a whole economic growth for a decade or even longer built upon bubbles of nasdaq, housing market and whatnot. GDP growth had nothing to do with productivity and other such worthless qualities, it was all hot air in the financial world playing with big virtual numbers. Such scenario would never happen with free market rules being the only ones defining the game.

Whole situation with central banks micromanaging the economy is like meddling with the ecosystem. You may think you can somehow make it 'better', but you just can't do it right - unintended consequences of your actions will always bite you in the ass. The system will find it's equilibrium by itself

Re:I for one... (1)

digsbo (1292334) | more than 4 years ago | (#29637481)

Right on for inflation. And the in-game inflation can be easily explained: It's too cheap to mine gold.

Re:I for one... (1)

xelah (176252) | more than 4 years ago | (#29637961)

Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining.

Prices depend on the velocity of money, too. If everyone decides to hang on to their money more tightly, so that each piece of it changes hands half as often, say, then the amount of money in the system can be increased without causing inflation. Making it impossible to adjust your money supply (which is all the gold standard really achieves) doesn't eliminate inflation and deflation, it just removes a potentially valuable policy response to changes in things like consumer confidence and the savings rate. That's why economies that took longer to leave the gold standard took longer to come out of the great depression - they couldn't respond to the fall in the velocity of money by creating more.

You also shouldn't just assume that inflation is always and necessarily evil. Especially not in the presence of price and wage stickiness - in some areas of some economies it's as near to impossible as makes no difference to reduce wages in nominal terms. A low level of inflation is quite possibly a good thing.

Re:I for one... (1)

Curunir_wolf (588405) | more than 4 years ago | (#29638425)

Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining.

Prices depend on the velocity of money, too. If everyone decides to hang on to their money more tightly, so that each piece of it changes hands half as often, say, then the amount of money in the system can be increased without causing inflation. Making it impossible to adjust your money supply (which is all the gold standard really achieves) doesn't eliminate inflation and deflation, it just removes a potentially valuable policy response to changes in things like consumer confidence and the savings rate.

Here, you are just talking about some of the mechanisms of inflation. A better way to describe it is the amount of capital in the system. If, as you suggest, the response to reduced spending is for a central planner to increase the amount of fake money, then prices are propped up when they should naturally be falling. Eventually this will catch up with you when people start spending, and you'll have to raise interest rates and inflation will take off.

This "potentially valuable policy response" that you advocate is simply a way to interfere with the ability of people to make rational decisions about spending and saving, and prevent any corrections in resource allocation from occurring where they should.

That's why economies that took longer to leave the gold standard took longer to come out of the great depression - they couldn't respond to the fall in the velocity of money by creating more.

I'm afraid you've been misinformed. The US was one of the last economies to recover from the Great Depression, precisely due to the application of the policies you favor. They didn't "go off the gold standard" at all until 1971. Rather, FDR confiscated all the gold, then decided the US dollar was worth about 1/2 of the amount of gold it was worth before. Huge inflation of the money supply. None of this worked - unemployment in the US remained about 18% until WWII.

You also shouldn't just assume that inflation is always and necessarily evil. Especially not in the presence of price and wage stickiness - in some areas of some economies it's as near to impossible as makes no difference to reduce wages in nominal terms. A low level of inflation is quite possibly a good thing.

Yes, you are correct. But inflation should be driven by the resources available, demand for various goods, and the level of labor available, not by some central planning facility trying to manage everybody's decision-making. The natural level of inflation in a gold-backed monetary system is about 3%, as that's the typical amount of gold entering the economy each year. But that's mitigated since the practice of mining, refining, and distributing gold is real work, actual effort that provides value and jobs.

Re:I for one... (0)

azgard (461476) | more than 4 years ago | (#29638203)

I don't believe in Austrian economics, I don't think they are right. The problem with monetary instability goes deeper than to FRB, it goes (I believe) as far as to lending for profit.

Steve Keen has a nice theory (developed from Minsky) about this. I don't have much time to explain, but you can find his blog at http://www.debtdeflation.com/ [debtdeflation.com]

He notes, for example, that changes in M2 are preceeding changes in M0 (which by itself invalidates Austrian theory, by the way). Which means that commercial banks increase debt first, and then come to central banks asking to cover it. If we hadn't FRB or central banks would refuse to cover this additional debt, then you would have a credit crisis. But not always the debt is unsustainable - if you have real growth, then growth in debt can be sustainable. That's the basic advantage of FRB with respect to gold standard - unlike gold standard, FRB can adapt money supply to finance real growth. With gold standard, it pays off to hold on money during real growth, because money increase value, and it means nobody wants to invest. But they are both inherently unstable, because the debts can grow even if there is no corresponding real growth.

Re:I for one... (3, Informative)

Curunir_wolf (588405) | more than 4 years ago | (#29638625)

He notes, for example, that changes in M2 are preceeding changes in M0 (which by itself invalidates Austrian theory, by the way).

No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.

But not always the debt is unsustainable - if you have real growth, then growth in debt can be sustainable. That's the basic advantage of FRB with respect to gold standard - unlike gold standard, FRB can adapt money supply to finance real growth.

And how do you determine what is "real growth"? We had lots of growth during the dot-com boom, financed by cheap debt. Yet, it couldn't be sustained. I wonder why? Keen (and Minsky) don't seem to be able to explain this. They continue to proposed the same policies that failed then, and are failing now.

With gold standard, it pays off to hold on money during real growth, because money increase value, and it means nobody wants to invest.

Actually, the opposite is true. You don't get "growth" by holding onto money, even if it's gold. Even on a gold standard some inflation occurs. The only way to increase your saving (or keep it from losing value to inflation over the long term) is to invest that money in some value-creating enterprise.

But they are both inherently unstable, because the debts can grow even if there is no corresponding real growth.

Exactly. Especially when, for instance, the Fed keeps interest rates artificially low, creates a housing bubble, and people borrow money against and artificially inflated home value. If the interest rates were allowed to go up in response to the reduced savings, the bubble would not grow so large and the adjustment would be short and easy to deal with, instead of creating a global crises like this one did.

Re:I for one... (4, Interesting)

Wildclaw (15718) | more than 4 years ago | (#29636441)

for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail?

There is nothing unsustainable about it. The X dollars in circulation just have to circulate fast enough. If fractional reserve banking has a flaw, it is the same thing that is its main advantage, and that is that it adepts to the demands of the economy. It amplifies both good and bad intentions of making use of money.

In the last 30 years there has been a lot of bad intentions going on, building on bubble after bubble. But blaming it on FRB is just plain wrong. There are real things in the economy that are unsustainable. Having the debt levels rise faster than the income levels would be one such thing. Having the lower and middle class owning a lesser and lesser percentage of the wealth would be another. And it isn't difficult to find more examples.

Having said all that, there are of course faults in how FRB is implemented in the US. There is for example no reason why a government should need to get in debt just to create money. That has nothing to do with the basic idea of FRB. Having a private institution running the money supply is another very stupid idea. Finally, you need regulators and law makers who generally aren't corrupt to ensure that the FRB system isn't abused. And that last thing is something that doesn't exist in the US right now, or most banks would have been shut down already, just by looking at their balance sheets. The only thing keeping the banks alive is corruption.

is that this system as we know it came from the Great Depression

Yes and no. The system today mostly has its origin in the 1980s. It may look similar to the old system, but all safeguards and general ideas of sanity has been removed as an ongoing process to promote "modern" capitalistic principles. The idea of balance has been totally abandoned and instead the concept that anything is right as long as it produces higher numbers has been promoted.

Re:I for one... (1)

eiMichael (1526385) | more than 4 years ago | (#29636665)

You say that it is sustainable, please elaborate. Because unless you're ignoring the presence of interest rates, the money owed will always exceed money existing. This ends with people or businesses going bankrupt unless there is perpetual growth, which is also unsustainable.

Re:I for one... (4, Interesting)

Wildclaw (15718) | more than 4 years ago | (#29637261)

You say that it is sustainable, please elaborate. Because unless you're ignoring the presence of interest rates, the money owed will always exceed money existing. This ends with people or businesses going bankrupt unless there is perpetual growth

This is basic economics, and has little to do with FRB. But anyway, the answer is that money circulates. As long as those who lent out money uses the interest they collect to buy stuff from those in debt, everything remains balanced. Theoretically I can pay back a $100 loan with a single dollar bill, as long as I pay it back $1 at a time, and the one I pay it back to keeps buying stuff from me.

Of course, the real problem here is that borrowing to consume is bad as you won't have anything that the borrower will want to buy after you consumed, so you won't be able to pay him back. Borrowing to buy something at bubble prices is also bad for the same reason. You won't be able to pay back what you borrowed.

Borrowing is best done on actual stuff that increases productivity. Specifically, when the interest on the loan is less than the productivity increase. In that case both parties of the transaction profit by getting part of the productivity increase.

Re:I for one... (1)

eiMichael (1526385) | more than 4 years ago | (#29639047)

Thank you for the interesting reply.

Re:I for one... (0)

Anonymous Coward | more than 4 years ago | (#29636879)

either way creating FED in 1913 was the beginning of the end.
There was almost no inflation in 19th century and since FED creation dolar lost 96% of its value. Why it took US economy long 100 years to fall? Gold standard was abandoned in 1971 (it kept insane ideas in check) and all that time dollar was the world's reserve currency which artificially pumped up its desirability and purchasing power and allowed the US to live on credit for decades.

Re:I for one... (0)

Anonymous Coward | more than 4 years ago | (#29636967)

Fiat currency works if you can trust the people in charge to act responsibly and in the interests of the people. Obviously, that's not the case with what we've currently been seeing. Therefore, we need a backing that these imbeciles can't screw with.

Re:I for one... (1)

Hognoxious (631665) | more than 4 years ago | (#29637421)

Unfortunately, pegging the money value to an arbitrary mineral isn't it.

Re:I for one... (1)

astar (203020) | more than 4 years ago | (#29637503)

You managed to have a bit of observational sanity. However, you would be better off rejecting monetarist theory. Try this. The physical economy is deflating, the money supply is hyper-inflating. Debt is increasing faster than money. So, big crash.

The historical analogy is to Wiemar Republic 1923. So we will have a blowout this year, perhaps as early as this month. Reasonable people differ on how bad it will be. This month I am looking at the October 19th to October 25th period specifically.

Anyway, at times I have favored Glass-Steigel approaches and I think you would have also. These would have been good say as late as 2007. Now they would be a joke.

Re:I for one... (1)

Wildclaw (15718) | more than 4 years ago | (#29638089)

the money supply is hyper-inflating

The money supply is hyper inflating? M1 yes, but not everything else that is used as money. Printed money is up a lot as the federal reserve is trying to compensate the loss in debt and asset money (which they can't without really causing hyperinflation. But that money is mainly sitting in bank vaults so far, acting as little but deleveraging money.

If it actually started getting out to the population, then we could start seeing inflation. But as companies aren't borrowing, and consumers aren't borrowing, and banks aren't lending, the only way that will happen is through the government. Well, make that the federal government, because the states are broke also.

There is simply no demand to buy anything as everyone is trying to get out of their debts at the same time. When demand is lower than supply, prices go down, not up. You can't just force people and companies to start buying stuff when they don't want to.

Re:I for one... (1)

astar (203020) | more than 4 years ago | (#29638703)

This is a good monetarist argument, but I find it hard to make predictions about reality based on something that is not real. The fundamental issue in economics is the nature of wealth. People early on tried land and gold. Here I am being a little cynical, but I think it fair to say the Soviet Union tried the sweat of the worker. Now the question is deliberately obscured as inconvenient.

I claim the monetarists says wealth is money. Gambling money, farm money, all the same. But we know the Weimar Republic had plenty of money. We have plenty of money. Sort of adapting to your view, I claim that at the present time, adding money to M1 increases non-productive sinkholes by more than the addition, thus even the hyper-inflation of M1 simply makes the matter worse. The debts cannot be paid.

   

Re:I for one... (2, Informative)

mrlibertarian (1150979) | more than 4 years ago | (#29637549)

The X dollars in circulation just have to circulate fast enough.

I think you're confusing cause and effect. For example, in hyperinflation, it's true that people will tend to spend their depreciating money very quickly. However, the currency is not losing value because people are spending their money quickly; the currency is losing value because the government is rapidly expanding the money supply.

Why do you think we had deflation during most of the 19th century? Because people spent their money slower and slower? No, it was because the money supply was relatively stable, while the number of goods rose.

...building on bubble after bubble. But blaming it on FRB is just plain wrong.

Did you ever notice that bubbles tend to grow when the fractional reserve banks are quickly expanding the money supply, and bubbles tend to pop when the rapid expansion finally slows or stops? There certainly seems to be a connection.

What blows my mind is how liberals often act like the Great Depression somehow vindicated their case against the unregulated free market. The reality is that the Austrian economists were vindicated. They said, "Don't inflate the money supply." But, of course, that's what the Fed and the FRBs did during the 1920's, and a bubble grew. The Austrians said, "Do nothing. Let the economy fix itself." But, unlike in previous panics, Hoover did not listen. He intervened, and the economy grew worse. Then Roosevelt intervened even more, and things got so bad that we now call it the Great Depression. And then there was WW2, which further devastated the economy. Finally, when the government lifted the war-time price controls, prosperity returned.

But now, Hoover is remembered as a non-interventionist, when he in fact intervened more than any president before him. Perhaps Bush will be remembered as a non-interventionist as well, because, just as Hoover did not intervene as much as Roosevelt, Bush did not intervene as much as Obama.

Here we are in the 21st century, and we still haven't learned out lessons. Look at what the Fed has done to the monetary base [stlouisfed.org] since October. That's a ticking time bomb. Also, we were told that if we didn't pass the stimulus, unemployment would go all the way to 9%. Well, we passed the stimulus, and now unemployment is 9.8% and still climbing! We've increased the minimum wage (i.e. made low-paying jobs illegal), extended unemployment insurance (i.e. took money from employers and used it to pay people to stay unemployed) and now teenage unemployment is over 20%. Isn't fucking with the economy fun?

Christ. Hopefully, when we start getting 1970's style stagflation, people will finally wake up and the pendulum will swing back towards the free market. But I'm not holding my breath.

Re:I for one... (1)

Wildclaw (15718) | more than 4 years ago | (#29638311)

I think you're confusing cause and effect. For example, in hyperinflation, it's true that people will tend to spend their depreciating money very quickly. However, the currency is not losing value because people are spending their money quickly; the currency is losing value because the government is rapidly expanding the money supply.

Inflation: Supply decrease, demand increase, money supply on main street increase
Deflation: Supply increase, demand decrease, money supply on main street decrease

Did you ever notice that bubbles tend to grow when the fractional reserve banks are quickly expanding the money supply, and bubbles tend to pop when the rapid expansion finally slows or stops? There certainly seems to be a connection.

Cause and Effect. Why is the fractional reserve banks expanding money supply. Simple, because there is demand.

They said, "Don't inflate the money supply."

The M1 supply has always lagged behind the market, not the other way around. But austrian economists are just as little interested in facts as the keynesian economists.

" But, unlike in previous panics, Hoover did not listen. He intervened, and the economy grew worse. Then Roosevelt intervened even more, and things got so bad that we now call it the Great Depression. And then there was WW2, which further devastated the economy. Finally, when the government lifted the war-time price controls, prosperity returned.

Talk about rewriting history.

But now, Hoover is remembered as a non-interventionist, when he in fact intervened more than any president before him. Perhaps Bush will be remembered as a non-interventionist as well, because, just as Hoover did not intervene as much as Roosevelt, Bush did not intervene as much as Obama.

No, Obama would be Hoover. He is intervening, but in all the wrong ways. Just like Hoover. And he probably thinks the worst is over. You can't fix the problem until you face reality. And most people haven't faced reality yet.

Here we are in the 21st century, and we still haven't learned out lessons. Look at what the Fed has done to the monetary base since October. That's a ticking time bomb.

Yeah, just like it was when Japan did the same. Or to take your favorite example, the US during the great depression. Of course, this time they have added quite a big and quite quickly. But it won't help.

Also, we were told that if we didn't pass the stimulus, unemployment would go all the way to 9%. Well, we passed the stimulus, and now unemployment is 9.8% and still climbing! We've increased the minimum wage (i.e. made low-paying jobs illegal), extended unemployment insurance (i.e. took money from employers and used it to pay people to stay unemployed) and now teenage unemployment is over 20%. Isn't fucking with the economy fun?

Fucking with the economy? During the 90s and 00s, the economy had the least regulation since the great depression. Reagan and the following presidents all saw to that. The Austrians got what they wanted. Of course, they forgot to include the corruption that comes with it. They always do, because Austrians economy is like a game economy. Totally unrealistic when actually implemented in reality.

Re:I for one... (2, Insightful)

Vaphell (1489021) | more than 4 years ago | (#29638527)

Fucking with the economy? During the 90s and 00s, the economy had the least regulation since the great depression. Reagan and the following presidents all saw to that. The Austrians got what they wanted. Of course, they forgot to include the corruption that comes with it. They always do, because Austrians economy is like a game economy. Totally unrealistic when actually implemented in reality.

No, Austrians didn't get what they wanted - interest rate was not decided by the free market forces but by arbitrary decisions of the FED. When people rapidly get loans in ridiculous amounts, it should end up quickly raising interest rate to the 2-digit range, yet it was kept near 0 because it stimulated the economy, kept that frightening R-thing at bay and produced nice GDP growth numbers - debt driven consumer spending is so good and financial institutions leveraged 50:1 have ridiculously high profits to show to their shareholders. Politicians are happy, voters are happy, disaster is around the corner. Meddling with interest rates in a way FED did is anything but Austrian economists' wish.

Re:I for one... (1)

rohan972 (880586) | more than 4 years ago | (#29638209)

There are real things in the economy that are unsustainable. Having the debt levels rise faster than the income levels would be one such thing. Having the lower and middle class owning a lesser and lesser percentage of the wealth would be another.

Fractional reserve banking by definition causes debt levels to rise faster than income levels since it is ultimately income which provides the reserve which is only a fraction of the lending. Allowing banks to create chequebook money out of nothing and lend it out at usury causes a transfer of wealth to them from the lower and middle classes. The problems you cite are intrinsic to FRB. They are features, not bugs, remember the banks came up with this fraudulent system to benefit themselves, not their customers.

Finally, you need regulators and law makers who generally aren't corrupt to ensure that the FRB system isn't abused.

Ok, let's implement fractional reserve banking AFTER you find out how to ensure a constant supply of regulators and law makers who generally aren't corrupt.

Re:I for one... (1)

Wildclaw (15718) | more than 4 years ago | (#29638417)

Fractional reserve banking by definition causes debt levels to rise faster than income levels since it is ultimately income which provides the reserve which is only a fraction of the lending. Allowing banks to create chequebook money out of nothing and lend it out at usury causes a transfer of wealth to them from the lower and middle classes.

Bullshit, bullshit and bullshit.

The reserve is a multiplier of the base money supply which varies depending on the current economy's demand for money. The multiplier also has a cap which is dependent on the reserve ratio, but it rarely comes into play, as it is the demand of the economy that dictates everything, and not the other way around. Banks can at most be more or less leisurely with how they lend out money, and as such what risks they take. But that is it.

Btw, It is only in the last 30 years with consumer borrowing that debt has gone out of control, and not in every country. And that has little to do with FRB, and more to do with insanity of everyone involved. Consumption debt is bad, plain and simply.

But they aren't creating money out of nothing. They are lending out the same money you deposited. No different than if I have borrow 100 dollars from you and lend it to my friend. Of course, I did it without keeping any reserves at all. If you deposit money into an account, then you should be aware of that. Otherwise you truly are an idiot. Because, how else did you think the banks created that interest. It wasn't by letting your money sit in the bank vault was it.

Oh, and if you think the constant inflation through the 20th century has anything to do with FRB, then you are wrong. Constant inflation is about the government using fiat money to tax people. Nothing more, nothing less. Over time 2% tax a year does add its toll, so it looks like a huge degradation of worth in money. But compared to the total tax pressure, it is actually not that big of a tax.

Re:I for one... (1)

rohan972 (880586) | more than 4 years ago | (#29638795)

The multiplier also has a cap which is dependent on the reserve ratio, but it rarely comes into play, as it is the demand of the economy that dictates everything, and not the other way around.

Control of interest rates (the price of loans) is used to influence demand up or down as seen fit by the central banks. That's the point of them and openly acknowledged so I don't see how anyone could dispute this.

But they aren't creating money out of nothing. They are lending out the same money you deposited.

If they are lending out my money, why doesn't my available balance go down when someone takes out a loan? Clearly it is not the same money, it can not simultaneously be available to me and the borrower. Think about it, many people have a mortgage on their house, very few people have enough savings to loan enough to buy a house. If they are just loaning out deposits then for every person who takes out a $250,000 loan for their house you need other people with net savings (savings - loans) of $250,000. Do you really think that for every person with a $250,000 loan there are 10 with no debt and $25,000 in savings? Where are they?

What about loan defaults causing deflation, how is that? If the loan money was existing money none of it would disappear on default (no deflation), the borrower would be bankrupt, the lender would lose money but the money itself would still be in circulation. Don't take my word for it though, check what the Federal Reserve Bank of Chicago has to say: http://www.chicagofed.org/publications/fedcentralbank/fedcentralbank.pdf [chicagofed.org]
To achieve this goal, the Fed works to control money at its source by affecting the ability of financial institutions to "create" checkbook money through loans or investments.

Re:I for one... (5, Informative)

Sapphon (214287) | more than 4 years ago | (#29636763)

[T]he way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail?

Dear Parent, I presume you understand the fractional reserve system so you can skip down to paragraph 4 whilst I provide an Economics 101 refresher for the gallery (and this really is first-semester stuff; I taught it earlier this year):

You and all your friends deposit money at the bank. The bank holds a fraction of the money in reserve (hence the name), at minimum the amount the law specifies, usually plus some amount X. We'll come back to this. The rest of the money it lends to people who want to borrow it; they pay interest, you get interest, the bank takes a cut, hooray.

These borrowers spend the money, and the people who get it stick some of it back into the bank, where the cycle starts afresh. It depends on how much money the bank holds in reserve and how much the populace deposits but, yes, usually there is more debt around than originally produced currency.

Now, you claim that this is a Bad Thing (TM). You don't state why. Presumably you are relying on the intuitive logic that having more debt than official assets can't be good. That intuition relies on the following crucial point: having more debts than assets is only a problem when people try and collect on their debts. Amazingly, this very rarely happens.

You have the absolute right to go to the bank and demand your money, in bar. All of it. Buy who does that? Practically no-one. You ask for a portion of it; some here, some there, more at Christmastime and during the holidays. So long as the banks have enough money to give everyone what they want – and this is the amount X from above – holding the rest of it would just be inefficient, since none of the depositors want it and there are plenty of borrowers who can do productive things with it. Fact: if the banks decided to hold more money in reserve, the government/central bank would simply create more 'original' dollars until the effective level of money is back where it was.

The fractional reserve system does have its problems. But the problems lie in deciding how high the reserves should be – too low, and when people do decide they want their money everything comes crashing down (e.g. AIG). Too high, and businesses can't borrow money and productive potential lies wasted (e.g. the current situation in much of Europe and the US). But the system is not inherently flawed. If the right level of reserves are held – and this is usually the case – the system provides a much more flexible and efficient supply of money than a representative currency.

Re:I for one... (1)

wellingj (1030460) | more than 4 years ago | (#29637305)

I can agree with the way fractional banking works in the private sector. I don't think a bank should be regulated on how much money it holds in reserve. Instead, it should have to tell it's customers how much is held in reserve, then let the people decide if they want this bank or that bank. If there is a run on a bank, guess you learned your lesson the hard way.

The problem I have is that the FED doubled the money supply in a year. If that gets into the economy at large you will have to pay $10 for your average McDonalds meal. Most people will be confused and start some stupid campaign to have price fixing in fast food 'for the poor folk'. The whole time very few will realize who actually stole the value of the dollar.

Re:I for one... (1)

Trepidity (597) | more than 4 years ago | (#29637403)

Is there actually a "right" level of reserves that can withstand crises, though? Crises feed on themselves, and bank runs have happened throughout history. If people are really convinced that the financial system is going down, everyone will demand all their money, so the only safe level of reserves is damn near 100%. This can be mitigated somewhat if government props up the banking system, e.g. through deposit insurance, but it doesn't fix itself.

Re:I for one... (1)

Sapphon (214287) | more than 4 years ago | (#29637611)

Is there actually a "right" level of reserves that can withstand crises, though?

There is, but unfortunately it's not the same level that's "right" for the non-crisis time. Ideally the financial sector would see the crises (or rather, the change in demand for or supply of reserves) coming and adjust, but that obviously doesn't happen when external shocks occur.

Re:I for one... (1)

Timothy Brownawell (627747) | more than 4 years ago | (#29636783)

We have fiat currency instead of representative currency (an example of which is the gold standard).

The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.

Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt.

I thought it was actually that there was X-Y debt.

The real joke, though it's not a funny joke, is that this system as we know it came from the Great Depression. Its purpose was to ensure that such depressions would not happen again. By that I mean, this is how it was sold to the public. Isn't this typical, that an undesirable system that would not otherwise be accepted is proposed during a time of crisis and becomes entrenched? It's not like we have never seen that pattern before...

Which parts exactly came from the great depression? I seem to recall fractional-reserve banking being a bit older than that.

Re:I for one... (1)

Vaphell (1489021) | more than 4 years ago | (#29637401)

The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.

people of Zimbabwe beg to differ http://www.youtube.com/watch?v=7ubJp6rmUYM [youtube.com]

Re:I for one... (1)

rohan972 (880586) | more than 4 years ago | (#29638305)

The gold standard isn't actually different in this respect, because gold has very little nutritional value and sucks for building things.

It does, however, have good decorative value with substantial social and reproductive benefits for those who bestow such decorative pieces wisely.

for every X dollars in circulation there is always X+Y debt.

I thought it was actually that there was X-Y debt.

A common misconception. Debt is the basis for most of our currency supply, that's why loan defaults cause deflation. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the money supply expands by the size of the loan. [wikipedia.org]

Re:I for one... (1)

Timothy Brownawell (627747) | more than 4 years ago | (#29638671)

for every X dollars in circulation there is always X+Y debt.

I thought it was actually that there was X-Y debt.

A common misconception. Debt is the basis for most of our currency supply, that's why loan defaults cause deflation. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the money supply expands by the size of the loan. [wikipedia.org]

But if everyone defaulted on all their loans, you're saying we'd end up with a negative money supply, rather than just a very small positive one?

Re:I for one... (2, Insightful)

rohan972 (880586) | more than 4 years ago | (#29638871)

But if everyone defaulted on all their loans, you're saying we'd end up with a negative money supply, rather than just a very small positive one?

No:
(X+Y)-Y=X
even if Y>X

For clarification on this check what the Federal Reserve Bank of Chicago has to say: http://www.chicagofed.org/publications/fedcentralbank/fedcentralbank.pdf [chicagofed.org]
To achieve this goal, the Fed works to control money at its source by affecting the ability of financial institutions to "create" checkbook money through loans or investments.

If the Fed confirms that financial institutions create money through loans can I stop having this debate with people over whether this is actually so? Here is the frightening reality: most people in our society are trading their time and services for something they have no clue as to the origin or real value - dollars. This is a site that represents a higher level of education than most and look at the threads on this topic, you will find an appalling level of ignorance regarding a good we spend a great deal of effort obtaining.

Real world? (1, Insightful)

Anonymous Coward | more than 4 years ago | (#29635761)

In the real world you don't have unlimited resources. In the real world you can't release an expansion and suddenly introduce new products to replace everything someone owns. Studying in game economics can be useful as an exercise or example of how some economic principles work, but collecting data from MMO's and then trying to use that information to explain how the real world works?

Re:Real world? (4, Insightful)

causality (777677) | more than 4 years ago | (#29636155)

In the real world you don't have unlimited resources. In the real world you can't release an expansion and suddenly introduce new products to replace everything someone owns. Studying in game economics can be useful as an exercise or example of how some economic principles work, but collecting data from MMO's and then trying to use that information to explain how the real world works?

I'll limit the scope of this comment to World of Warcraft as that's the one I have personally played. I would not be surprised if the other MMOs mentioned are similar, I just don't know for certain that they are.

I think the appeal is that it's a true laissez-faire free-market economy. Among those, it's unusual because the game rules effectively prevent any one player or group of players from forming a monopoly and locking out competitors. So I may have the market for healing potions cornered, but there is nothing I can do to prevent you from gaining crafting skills and harvesting herbs and making your own potions and competing with me. Your potions will be just as good as mine, and any herbs you harvest won't be available to me until they respawn, at which point they become available to both of us again.

I can see why this would be interesting to an economist. It incorporates a lot of our notions of what a free market is. In the real world economic freedom is generally considered a desirable thing, at least until players are so free that they can form trusts and otherwise monopolize markets. So in the real world, anti-trust laws and other government regulations provide the necessary restrictions that the game rules provide in the virtual world. If nothing else, it can provide a way to explore the degree to which such regulations are necessary and what happens when they are minimal. Perhaps this is to an economist what the computer simulations are to such scientists as physicists and astronomers. They can use it to model something based on how they think it works in order to refine their ideas of what works and what doesn't.

Re:Real world? (5, Insightful)

Admiral Ag (829695) | more than 4 years ago | (#29636395)

WoW also has a fairly large black market in the presence of illegal gold sellers.

If anything, the economics of MMOs are far less interesting than the socio-political aspects of the game. WoW is more or less set up to maximize character freedom. The police (GMs) are relatively ineffective, and apart from a few obvious things you aren't allowed to do, like call other players faggots in public chat, most anti-social behaviour is in practice insufficiently policed or not policed at all. I'm talking about things all the way from ninja looting and node stealing up to the use of illegal hacks (like the underground mining hack, for example). The small percentage of outright asshats on any server seem to be sufficient to prevent a general climate of trust from forming (even though most people are nice, and helpful).

The guild system is the only way where people can build decent trust networks, and these of course require human leadership. Even then, a good guild (meaning a guild with reasonable leadership and adequate policing) is hard to find and it can't get too large before it's too big to serve that function. But Azeroth as a whole suffers from severe social dysfunction.

I guess it just shows to go that any social environment would work just fine if only a way could be found to get rid of the 10% who are hell bent on exploitation, cheating, griefing and bending the rules to suit themselves (and these are the people who howl loudest at any attempt to fix things). WoW's economy suffers from many honest players having a disincentive to enter the market, because people who hack and cheat have an illegal competitive advantage. It's really no different from the real free market or the real world in that respect (a friend of mine who is a cop pointed out that the people who barely stay within the letter of the law are often as much of a social nuisance as genuine criminals - knowing some people I've seen in business, I am not surprised).

I think WoW stands as a living counterexample to all those who desire a lightly policed social system based entirely on consent.

Re:Real world? (1)

EpsCylonB (307640) | more than 4 years ago | (#29637397)

The difference is consequence.

Even in a lightly policed real world, the consequences of illegal actions would have a much greater effect.

Re:Real world? (1)

Kjella (173770) | more than 4 years ago | (#29638841)

It's really no different from the real free market or the real world in that respect (a friend of mine who is a cop pointed out that the people who barely stay within the letter of the law are often as much of a social nuisance as genuine criminals - knowing some people I've seen in business, I am not surprised).

Of course, it's most scammers' dream to find a scam that's legal too. For example, finding the right pyramid scheme, I'm sorry that's multi-level marketing system, that has just enough legal content that you won't go to jail. Or the people that start weird religious sects which tends to make them rich and worshiped - not even BillG gets that. Or the unserious gray market sellers that'll leave you stranded with an imported device the manufacturer won't support. Or those that fool little old ladies into investing in their high risk venture company because it's a sure-fire way to secure their inheritance. Plus even when they skirt the law a little, there's proving that they were, boyond a reasonable doubt, on the wrong side of the law. Plus, they're annoyingly visible, you don't see the thief. But you do see the sleezebag that's gotten himself a cool hangout and hot wheels.

Re:Real world? (1)

wellingj (1030460) | more than 4 years ago | (#29637357)

The FED is playing a game with unlimited resources.

Re:Real world? (1)

vxvxvxvx (745287) | more than 4 years ago | (#29637457)

They can print as much paper money as they want but that's not the same thing as unlimited resources.

Games too simple (4, Insightful)

Manip (656104) | more than 4 years ago | (#29635767)

While I myself enjoy playing the MMO economy micro-game, they are far too simple to really map anything close to the real world. Or at least I should say WoW's is. Some of the less popular MMO's have very realistic economies involving business entities, more niche goods, and even a kind of country proxy.

The examples of what the researchers have discovered also strike me as academically uninteresting (even obvious) and make me wonder if this is an excuse to play some games at work....

Re:Games too simple (1)

freak132 (812674) | more than 4 years ago | (#29635817)

It seems to me that research on MMOs usually happens the other way around. MMO economies and epidemics are noticed for their emulation of real world behaviors before the interest in MMO use as simulations comes around.

Re:Games too simple (1)

rcolbert (1631881) | more than 4 years ago | (#29635993)

I agree. I think that in games the percentage of discretionary income versus the fixed amount of income needed purely to survive are so fundamentally different from the real world that comparisons are going to be flawed at many levels. Even in the most prosperous of real world economies, much of the population is barely breaking even. What we've seen in the real world is also difficult to map to a game. Recently people have been working very hard to reduce their revolving debt, and this lack of discretionary spending has severely hammered the economy (among other factors of course). However, In games I don't feel that people really have the same fears and basic survival dynamics to motivate them. What games can show us is essentially that supply and demand is a fairly valid overarching principle. Nothing more.

Re:Games too simple (0)

Anonymous Coward | more than 4 years ago | (#29638667)

They might be simpler than the real world, but at least it is some sort of valuable empirical data. This is far better than most things in economics which are mostly based on believes and circular arguments. One of them is the famous invisible hand (A.Smith really meant gods hand by that, but nowadays it is just a mystical side effect of markets). A second is, that the egoism of everyone results in the better (= in this case it means more wealth) for all. A third is, markets stabilize on themselves (meaning they are mono stable systems). And the fourth, growth is limitless (including we need to have more traffic for growth).

MMO gaming for science? (1)

freak132 (812674) | more than 4 years ago | (#29635779)

Should we be joining MMOs like these to help science? I, for one, would join to help the research but that would probably taint the results.

No, it can't work (3, Informative)

line-bundle (235965) | more than 4 years ago | (#29635847)

The problem with that idea is that the game economy is built with assumptions in mind. These assumptions will generally be based on theoretical economic models. So generally all you achieve with such experiments is confirm your built in beliefs. Chicken, egg anyone?

A similar claim was made about SimCity when it was big, that it would teach about urban planning, but it had so many assumptions built in to be worse than useless.

Maybe not in that capacity... (4, Insightful)

Jahava (946858) | more than 4 years ago | (#29636121)

I agree with your point; on one hand, there are a lot of data that can be collected from the economies of video games. The challenge, as you mentioned, is making that data relevant outside of the realm of that video game (or of video games, in general). I agree that the games probably can't be valid models of real economies (or cities, etc.).

That said, I'd not be surprised if they could extract useful behavioral information out of the data. Not information about how the economy works, but rather how people act when faced with various economic events and circumstances. Players could probably be mapped to social and regional demographics by qualities such as their characters' net values, activity, and primary sources of income. Patches, updates, and expansions can be mapped to technological breakthroughs and innovations, and resource scarcity and overfarming can be mapped to depressions or natural disasters.

There are plenty of real-world economic events that might be mapped and studied to research how the players in various "classes" react, such as:

  • Willingness to purchase (and purchase at risk) given stable versus inflated economies
  • Price fixing behaviors between autonomous sellers
  • Purchasing behaviors of players when faced with the forced obsoleteness of their assets (*cough* Blizzard *cough)
  • General life cycles and paths that any given item takes between creation and final acquisition
  • Distribution of wealth versus playtime, and how it varies under game circumstance
  • etc.

To me, the practice seems legit (if done carefully), although I doubt any results are particularly useful by themselves.

Re:Maybe not in that capacity... (1)

Goghit (1120161) | more than 4 years ago | (#29636795)

This practice will never be legit until MMOs are programmed to debuff (starve) a character that does dumb things like dump a tonne of stuff on the auction house for considerably less than the cost of materials.

Re:Maybe not in that capacity... (2, Insightful)

line-bundle (235965) | more than 4 years ago | (#29638723)

I would think that even the behavioral information out of the data is especially tainted. People react to situations partly based on how they understand the system. The more they play with it the more they are able to game the system. It's going to take some very sophisticated analysis to be able to differentiate between gaming the system subject to the constraints they are given, and how people would otherwise react in real life.

Also, another critical problem is that the people who play these games are self selecting. I do not think you are going to find the 'movers and shakers' of industry because (even pretending to) move and shake the real world takes so damn much time. You won't have any time to actually play. More likely the people who play are naive to the way of the world.

Re:No, it can't work (1)

fermion (181285) | more than 4 years ago | (#29636475)

Absolutely, Any computer program is based on models, and those models are based on assumptions. While something like a physics engine can work because the assumptions in physics preclude most superstitions, the same cannot be said for economics.

Economics often, for instance, still talks about the invisible hand and the rational deterministic consumer. Economics still insists that there is one or a very small number of persons that can be successful, and therefore this one or very small number of people deserve huge compensation. We see these models fail regularly. People are not rational. The money multiplier is just an approximation. Banks do not lend equally to equally qualified applicants, people do not spend and save rationally.

While I agree that models can be learned through game economies, the damage occurs when people see these simulated economies in full simulation and begin to believe them. As it is, a rational person understands that economics is a very limited approximation, and real wold experience keeps it in check. But if they see it a computer, more people may believe the approximations are more valid than they are. It is like sports. People play the relatively insignificant game, with relatively simple and evenly applied rules, and then go out and believe that is the way the world actually works. They get upset when rules are not followed in the rule world. They get upset when adjustments need to made to allow for real world variation. Because in a game a winner or loser does not matter, but in the real world. sometimes a winner has be chosen not on arbitrary rules but for the needs on the public.

Re:No, it can't work (1)

JackPepper (1603563) | more than 4 years ago | (#29637407)

The biggest problem with SimCity (the first one I'm not sure about the latter ones) is the zoning model. I could not build a city block that was half commercial and half residential. And a whole block for one police station is ridiculous.

People wonder why a person cannot walk to a grocery store in their neighborhood. It's because the neighborhood: gas station, bar, convenient, et cetera have been zoned out of existence.

Re:No, it can't work (0)

Anonymous Coward | more than 4 years ago | (#29638737)

Trading is not limited in some form in these MMOs so you could observe classic economic processes. However, there are two biases. First, people sell and buy in-game valuable on eBay and other trading platforms. This changes the possession of resources, but the prices in-game are abnormal. Second, the in-game resources are limitless therefore they cannot model real economics. And third, I do not know any MMO where people trade derivates of in-game valuables, and even derivates of derivates.
 

Limited Use (5, Interesting)

Laminan (1625947) | more than 4 years ago | (#29635933)

These experiments are not as useful nor controlled as you may think. Let me break down into some experiment design principles here:

#1 You can only generalize to the population studied

--Thus your demographics will be that of a more computer savvy user, with leisure time. This is NOT a representative sample of a normal population. When using regression methods you will get a homogenous result only from 'game performers'. These experiments are not valid unless you can prove that there is no purposeful difference between this population and the general population.

--It still can provide interesting insights, but any quantified data must be taken with a grain of salt

--The population may have one net effect, but perhaps a different type of agent/actor would have an OPPOSITE or equalizing effect (games are an artificial setting)

#2 Process defined by agency

--Here the markets are designed by an all-seeing game developer. I don't know about you, but many MMO's I have participated in had lackluster markets due to poor UI or the mere fact that it is a new market.

--Product innovations are limited or non existent, and users cannot refine markets based on their experiences. These days the most interesting economic studies are looking at PROCESS which is understood much less than outcome. Neo-classical economic theory does a great job at explaining outcome, but is horrid at process. That is why many market failures are not forecasted, but instead studied post-mortem.

Re:Limited Use (1)

routerl (976394) | more than 4 years ago | (#29636287)

Good points, though I doubt those issues would escape people whose day-job involves economic analysis. To me, this entire trend of studying MMO economies to somehow derive real-world conclusions smells of professional self-doubt regarding the status of economics as a science.

I know that some economists have, over the past decade or so, started performing little experiments, in the hope that this would lend more empirical credibility to their field. Of course, the main problem is scale, since getting a few million people to participate in an experiment is just a tad inconvenient. It seems that some researchers expect to overcome the problem of experimental scale by turning an eye towards already existing, large-ish, and confined economies (i.e. MMOs), although this endeavor is faced with far too many problems to be taken seriously. Which is why it seems desperate.

This self-consciousness if, of course, thrown into high gear given the utter failure of economics (qua predictive science) that we're all quite familiar with at this point.

Re:Limited Use (2, Insightful)

dusqi (933717) | more than 4 years ago | (#29636491)

#1 You can only generalize to the population studied

Is there any reason why a computer savvy person will act so differently than someone who does not use a computer? We're talking about making decisions based on many fundamental human drives such as self-interest, reciprocity, emotions, etc. These go all the way back through evolution.

Anyway, currently economics spends most of its time making sweeping assumptions about the whole of humanity based on the most simple theories about what drives behaviour - so any attempt to study real people is a step in the right direction. The current economic crisis was all about perceptions of risk, short-term interest, misunderstanding, and eventually panic - all experienced and acted on by real people.

Re:Limited Use (1)

lawpoop (604919) | more than 4 years ago | (#29637263)

Is there any reason why a computer savvy person will act so differently than someone who does not use a computer?

Asperger's syndrome and the Autism spectrum.

Re:Limited Use (1)

dusqi (933717) | more than 4 years ago | (#29638929)

Is there any reason why a computer savvy person will act so differently than someone who does not use a computer?

Asperger's syndrome and the Autism spectrum.

It's likely that there are differences between people who play MMOs and people who do not, and the average position on the autism spectrum might be one of them. But MMO players aren't some tiny specialised group (since millions of people play). So despite the evidence from this website, most geeks are probably close enough to being human to usefully examine what decisions they make.

Re:Limited Use (1)

Sapphon (214287) | more than 4 years ago | (#29636793)

Mod parent up! He's like some academic type or something.. with understanding of statistics, economics and stuff.

Re:Limited Use (1)

Ambiguous Puzuma (1134017) | more than 4 years ago | (#29636969)

While you raise some good points, I think you overestimate the need to be computer savvy to play MMO games. I've met a number of people that use their computers almost exclusively to play EverQuest--I had to walk one through the process of copying and pasting text in Notepad, for example.

Re:Limited Use (1)

ukyoCE (106879) | more than 4 years ago | (#29637197)

many MMO's I have participated in had lackluster markets due to poor UI

It's funny you say that -- I would actually say the opposite from playing WOW. The auction house in WOW is effectively a *single* source of all items non-NPC-purchaseable items.

Real life has a MUCH worse UI. I have to check Best Buy, then Newegg, then Amazon, and who knows if a place 1 mile away from me actually has a better price! The game also lets me (through addons) see historical prices, price averages, and let's me trivially undercut competitors when selling goods.

I don't think anyone is claiming that a game market is identical to real life, but that shouldn't stop us from learning from it either.

Central bank of Norrath droppped platinum standard (2, Funny)

Anonymous Coward | more than 4 years ago | (#29635969)

And the ridiculous idea that every Orc has a right to a home is what lead to this bubble.

Monopoly (3, Funny)

gblackwo (1087063) | more than 4 years ago | (#29636023)

You can learn tons from games. Yesterday was explaining that when the taxes get rolled into the free parking kitty, money doesn't leave the system- it only gets redistrubuted leading to massive inflation from passing go. Also was explaining dice statistics and why it was better to build a house on this square versus that square based on the two people 5-7 spaces away.

Game economics (0, Flamebait)

girlintraining (1395911) | more than 4 years ago | (#29636053)

'Our own economy has turned out to be less stable than we'd all assumed.'

Well yeah, what do you expect when you hire a bunch of kids and people from India to grind away for hours and then sell it back to you at inflated rates? I mean, you've got a guy who's willing to hire a pile of workers from some foreign country to do all his work while he sits back with his level 80 character and monopolizes all the good stuff for his friends? It's just like outsourcing!

Re:Game economics (1)

Xiterion (809456) | more than 4 years ago | (#29636171)

+1 Sadbuttrue

Re:Game economics (0)

Anonymous Coward | more than 4 years ago | (#29637957)

What was his first name? I think I worked with him once, the smelly bastard.

Re:Game economics (1)

selven (1556643) | more than 4 years ago | (#29637433)

It IS outsourcing.

modK doWn (-1, Flamebait)

Anonymous Coward | more than 4 years ago | (#29636099)

Of the warring clean for th3 next

Real Money. (1)

olsmeister (1488789) | more than 4 years ago | (#29636103)

I suspect we could learn more if the game used real money rather than monopoly money.

Re:Real Money. (1)

AlexCorn (763954) | more than 4 years ago | (#29636605)

I suspect we could learn more if the world used real money rather than monopoly money.

Fixed that for you.

Re:Real Money. (0)

Anonymous Coward | more than 4 years ago | (#29637903)

The real world uses monopoly money.

Go down to your local central bank sometime and ask to have your currency converted to a non-fiat commodity like gold. See what happens.

Economics, Schneconomics (1)

jeffasselin (566598) | more than 4 years ago | (#29636131)

Economics is as much a real science as MMOs have real economies.

As someone else said, many of the basics of those in-game economies are designed by economists and mathematicians. Of course they'll reflect economic theory.

Re:Economics, Schneconomics (1)

Vintermann (400722) | more than 4 years ago | (#29636951)

Up to a point. They may design the rules, the central banks, the inflation/anti-inflation schemes, incentives against cheating and farming, a big lot of stuff.

But they can't design player behaviour. If players don't act as they think they do, those economist designers won't achieve their goals. It should be a very educational experience, designing an entire economic system and seeing if it behaves as you think it will.

Economic ignorance as a universal standard (1)

MSTCrow5429 (642744) | more than 4 years ago | (#29636161)

'Our own economy has turned out to be less stable than we'd all assumed.'

Who the hell is we, and who is listening to someone so clueless in the first place?

MMOG's economy is fully controlled... (1)

emanem (1356033) | more than 4 years ago | (#29636163)

That's the point.
In RL governments can act and do something about the economy, make laws, bail banks... but all the bribes, the people in key position, the network of friends, will always allow the banks to be essentially free (eg. leveraging and taking more risk), and basically all the good words that are being spent now on the banking sectors will just be words.
Instead in a MMO everything is under control.
Too much gold?
Increase repair price/decrease loot, etc etc.... well add new taxes. If RL governments do so banks will move offshore or in other countries where taxes are acceptable (to their standard...).
The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.
In an MMO you just go grind and magically you get money. Then you have sinks like the gear/enchantments/etc etc.
Again, saying that governments had to bail the banks doesn't mean that the economy is controlled; btw in MMOGs you totally lack the investment part of the capitalistic economy; you can only throw away your money on some item that will become useless in 2~6 months, you can't use your money to make more money*

* practially you can....if you have some in game cash you can briefly get the monopoly of some kind of commodity (eg. reagents) and put the price you want; I've done it a couple of times in WoW...I invested 5k in one particular reagent, managed to get 6k in some hrs...
.

Re:MMOG's economy is fully controlled... (1, Insightful)

Anonymous Coward | more than 4 years ago | (#29636539)

The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.

no they had not and should not - running huge deficit for years and paying interest on it is not worth the temporary gain. Governments should never give up to such blackmail - "omg, if you won't give us fuckton of taxpayer's money the world will end!" The world would change somewhat but that's it.

Government intervention equals central planning - it's inefficient and produces a lot of waste and misallocation of resources. It also perpetuates faulty schemes and in effect economy is less flexible and unable to adapt. This is not what viable economy is about.

Re:MMOG's economy is fully controlled... (1)

emanem (1356033) | more than 4 years ago | (#29636839)

Couldn't agree more, but everyone has his tag price, and just take a look at the so called Watchdogs... they don't do nothing and are all friends coming from the same banks/universities... too sad...

Re:MMOG's economy is fully controlled... (2, Insightful)

vlm (69642) | more than 4 years ago | (#29636601)

The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.

Regarding "had to", that is because in RL the equivalent of "The Big Guild" owns the equivalent of "Blizzard". If WoW allowed the players to purchase their own government, like we do in real life, then it would be a fair comparison.

Re:MMOG's economy is fully controlled... (1)

Vintermann (400722) | more than 4 years ago | (#29636985)

Increase repair price/decrease loot, etc etc.... well add new taxes. If RL governments do so banks will move offshore or in other countries where taxes are acceptable (to their standard...).

Well, there are other MMOs. If your MMO is sophisticated to have attracted "private" banks, you don't want to lose them to a competitor...

Virtual money (0, Flamebait)

noidentity (188756) | more than 4 years ago | (#29636715)

As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months.

Yeah, but they can just create money out of thin air in the game, unlike the real world. Er, wait [wikipedia.org] ...

Missing pieces (1)

gmuslera (3436) | more than 4 years ago | (#29636809)

In MMOs, everyone is "employed" or capable to make money (not to get rich, but still to participate actively in the economy) by themselves. Things like food or where to live are not big problems, neither is maintaining a family usually. And there aren't laws (like patents) giving individuals virtual monopolies.

But still there is commerce there, sharing several of the rules of with the real world one and behaving in good part like it.

They picked the wrong games (4, Insightful)

durrr (1316311) | more than 4 years ago | (#29636865)

Why not look at the Eve online economy? The Eve system is a lot more flexible, largely player driven and a LOT more players involved. This should more accurately model real economies.
Then of course, eve have already had a lot of attention for this reason, so perhaps they wanted to do a more novel study.

maybe they'll "discover" open-source economy (2, Interesting)

h00manist (800926) | more than 4 years ago | (#29637023)

the thing I don't understand about money is, why don't more people make it? there's no law against creation of local currencies. [wikipedia.org] some cities do have them. fortaleza, brazil, has a community with a currency called "palma" [bancopalmas.org.br] , switzerland has the WIR bank [wikipedia.org] , ithaca has the hour [ithacahours.com] ... it's problably the best way for a community to change, develop and become self-sustained. economically, ecologically, and in other ways. money is, in reality, just a contract, a document - shows that if you help someone, give something, someone else will help you, give to you. as long as the contract works... who cares who filled it out, printed the form, bill, wrote the software, or if it's electronic, paper, or just a paper ledger [wikipedia.org] . the only hard part is creating a community that realizes it's in their best interest to run their own economic system. open-source software could perhaps benefit from adoping something similar for rewarding programmers more.

Re:maybe they'll "discover" open-source economy (2, Informative)

Sj0 (472011) | more than 4 years ago | (#29637857)

I think in the United States, it's illegal for anyone but congress to create legal tender.

The purpose of creating a federal government was to standardize trade between the states, and the creation of a common form of currency was one of those standardizations. It's a power given to the congress directly by the constitution, rather than the later programs which are given by loopholes in section 8.

Re:maybe they'll "discover" open-source economy (1)

gtbritishskull (1435843) | more than 4 years ago | (#29638973)

The problem is that all currencies have to be backed by something. I can create my own currency and tell people to give me money for pieces of paper with my face on it, but who is going to accept it? The US currency is basically backed by the reputation of the US saying that it will be worth something in the future. Other countries may tied their currency to a mineral or to another currency. But, in the end it has to be backed by something, and it will then be at the whim of whatever backs it. Be that gold or a country's reputation.

Re:maybe they'll "discover" open-source economy (1)

h00manist (800926) | more than 4 years ago | (#29639137)

'backing' is needed only if you're looking for a long-term value deposit. if you're looking for a currency useful for everyday trading, all that matters is that you can spend that currency on something you need. so if there's a few local stores that accept the currency, you're set. but of course, not just anyone can print the currency. it doesn't even actually have to be printed, in fact, but some places do.

What about EVE? (2, Interesting)

spedrosa (44674) | more than 4 years ago | (#29637071)

Any researcher worth its salt will have to first and foremost look at EVE Online's economy. The game is driven by its economy, not the other way around.

They you can look at toys like WoW or Everquest, if you want a simpler model.

Re:What about EVE? (2, Insightful)

KahabutDieDrake (1515139) | more than 4 years ago | (#29637647)

They ignored EVE because it's nearly as complicated as the real world and just as messed up. They obviously didn't want the hassle of studying anything of true significance.
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