SL Economy correlated to the US Economy

I am very new at SL. And learning a lot.

I am wondering if there is a correlation between the actual state of the US Economy and the Second Life Economy? Real situations that are affecting the RL economy, like the housing market, and more complex issues like Sub-Prime investments by very important to banking and similar concerns that affect in a very substantial manner the everyday life of many people. Regardless of what the Federal Reserve Bank can do, like injecting liquidity and lowering rates.

The «insurance» of those concerns highly affected by the Sub-Prime problem is to establish actual lending rates to a more logical higher level. This in turn, makes the housing market even more depressed. So everything turns, on the short term, a vicious circle, outside and somewhat unaffected by the realm of the FRB actions.

Although one can argue that the cyclic nature of the economy, on the long run, might be positive, an activity like SL, according to what I reason, is something very optional, that depends on the reality of Real Life.

If that would be the case, one of the possible scenarios would be a relatively healthy long term upswing on SL economic overall activity would be very positive, as the RL economy, eventually recovers as history has demonstrated.

If my syllogism is true, them we may deduct that SL is at a low point and «investments» are bound to give us a very good rate of return over the long run.

Any ideas on this subject?

Cordially,

Jorge L. Belendez
[email]belendez@caribe.net[/email]
[email]belendez@mac.com[/email]

It's possible. SL really depends on the whims of Linden Lab. Whether new land is created and released, whether L$ are created and released, etc, all are decisions made soley by LL. Whether LL actually has someone analyzing the RL economy and advises creation/release of land and L$ is highly unlikely. I doubt that LL says "uh oh, the US housing market is in the dump; we'd better hold off on making more land..." Second Life's economy, of course, depends on both LL and the RL economy. If I'm trying to sell a house in RL, and money is tight, I wouldn't spend as much in SL.

Way too deep for a virtual world meant premarily for entertainment.

SL's economy is dependent on disposable income. RL events like the mortgage crash do not affect the SL economy except if an individual lost his or her shirt in the fiasco and can no longer afford to put any money into SL. Theoretically, Europeans will have more spending power so long as they use it on purchases that do not involve VAT.

Also, keep in mind that the majority of players are not located in the US and are therefore somewhat shielded from domestic US problems. While the subprime crisis may well have international ramifications, it's not many people outside the US who are really impacted by it.

In SL it's mainly the number of people active and the amount of money they want to put into the game which drives the economy. With the apparent high number of people who come in just to find a get-rich-quick scheme, I am doubtful as for the amount of riches to be made here in the future. If more people come who are willing to spend something on their entertainment, then things will look better.

The economy is global. Lending behaviors in the US do have an effect on foreign economies, as banks deal in an international money (lending) market - hence a GLOBAL "credit crunch". I am 100 per cent sure this affects Europe, just as if Europe decided to stop spending its strong euro on US products would affect the US economy - Europe is probably keeping the US afloat at the amount.

Effect on SL? Of course it has an effect - maybe not right now (I agree with the posts that many of LL's decisions impact on the SL economy, and so does the RL economy). To even get going in SL you need at least:

- a 1000 USD PC, preferably 1500 USD to 3000 USD
- a 200 USD graphics card (400 USD card is better)
- a decent cable connection (50 to 100 USD per month)
- commitment to keep upgrading hardware to cope with SL's new shiny features

To be actively involved in the SL economy you need:

- lots of free time, probably resulting from being able to not work (much)
- a credit card
- up front cost of 72 USD for membership
- disposable income (say 40 USD per month) for land

- and THEN money for anything you want to spend in-world

I cannot imagine many people would prioritize using SL above working, paying for gas, or having decent food, or even paying off credit cards. Entertainment is always the first thing to be cut when people tighten their belts, and entertainment that does not work will be right at the top of the list !

~Snowman~

I live in Germany and the US sub-prime crisis has affected neither by sources of income nor my spending habits. As far as I can tell, it hasn't even affected my bank since they are not too much into the American sub-prime business as a means of investing money.

I wouldn't say that the SL economy is unrelated to US and other economies. The low price of USD has made SL cheaper for Europeans, while the recent introduction of VAT charges in EU countries has probabbly had a marginal negative effect. Last year there was a huge land price crash in SL, when prices halved within a day or so, all because, reputedly, one or two of the big land barons decided to dump all their undsold land. That had nothing to do with the US economy and LL was NOT adding lots of new sims at the time.

We know that LL adding new sims tends to drive land prices down, or at least to prevent them from rising. But there are some big land dealers in SL - how big and how many of them we don't really know. But any one of them could decide to dump their land at cheap prices at any time, without warning, to avoid paying massive tier charges on unsold land. It has happened before and could happen again.

As far as sales of objects, a lot of us think the SL economy is in the Doldrums at present. I would not advise anyone to come into SL primarily as an investment because value is fragile. Supposing the US government one day outlaws the exchange of virtual currencies for real ones, in the way they outlawed internet gambling - then investments in L$ would become worthless overnight.

I'm starting to think that SL has a fairly strong, completely self sustained economy. Money flows throughout Sl without ever leaving. I've heard it said that SL is mainly driven by new money coming in. While this is true, it is slowly becoming a smaller percentage. I looked at the numbers for November and it looks like 184 million Lindens were added to the ecomony from RL. While this seems alot, the total number on lindens in circulation in Nov was about 3.9 billion. So Nov added around 5% more money to the economy. Not as big a number as I would have thought.

If we can believe the numbers on the website, 1.2 million US moves everyday throughout SL. That works out to about 9.6 billion lindens changing hands inworld per month. So the new money injected in Nov represents about 1.9% of the money moving in the SL economy.

So it would seem that SL has a robust, self sustained economy. I think it would be a fascinating study to find out what drives it.

1. Buyer beware.
2. Don't believe the hype.

The front page dollars changing hands has been around $1.2 Million US lately, or 320 million L$ per day. So lets see if we can figure out where thats coming from.

One hard number is from the economic statistics page. The land sales for November (71.5 million meters @ 6.3 L$/meter), works out to 15.05 ML$ per day.

There are about 2800 mainland sims, and 11,700 islands. Let us assume that half of this is rented land, and its rented sufficient to cover land fees. That gives us 550,000$/month mainland + 3,450,000$US/month islands = $4 M$US/month or 35.6 ML$ per day.

Linden sinks (classifieds, upload charges, etc paid to linden labs) amount to 4.1 ML$/day

Lindex Transactions are 220,000$US/day or 58.7ML$/day.

Assuming half of the businesses are rental property, and the other half are other businesses, we have around 88,000$US net profits/day, or 23.5 ML$/day

So far that adds up to 137 ML$/day, or 42% of the total economy.

------------------------------------------------------------------------------------------

Lets try a different approach:

91,000 premium accounts @ $8 average (6-10/month depending on subscription length)
= $728,000 US/month
2800 mainland sims x $320/month/sim (the average premium member owns 0.16 sim)
= $896,000 US/month
11700 islands x $295/month
= $3,415,000 US/month
Lindex transactions
= $6,700,000
Linden sources + sinks except supply lindens 292ML$
= $1,100,000
New Island sales 400 x $1675
= $670,000

Total Transactions between Linden Labs and players = $13,509,000 per month

Resident transactions are around L$5.8 billion = $21,800,000 per month (thats an approximate number since the economics stats have range of transaction values, and not an exact total)

Combined thats $35.3 million a month, or $1.175 million a day, which is pretty close to the quoted figure on the SL website.

For those of us who live on frozen food, this is a moot point...

There could be a negative correlation between an individual's user hours in SL and the individual's ability to cook. They should add that to the stats page.