I'm An Economist And...

Even if you did such a thing, no one would use the Linden dollar anymore. It would maybe be partially feasible if you locked down the whole currency trading system (which I think is the last thing LL would want to do) and STOPPED adding to the money supply but if you did that and kept adding to the money supply, no one would use the LL. There would just be tons and tons of L$ sitting on the market with no one willing to buy. People would switch to using items (a barter system) for trades and rarely use the L$ anymore for anything other than uploads, etc. Infact, the only way Linden could keep the L$ in circulation would be by having it as the only form of payment for sinks, which would in turn drive up the cost of sinks, and devalue the worth of playing the game slightly because of increased cost.

I think LL wants people to use their currency for exchange. Pinning it artificially would only sentence the L to death, especially in the long term as the value of the L continued to sink due to adds.

Prost!

Reserve a question to you. How will ending stipends help anything hmm? Can you answer that with a straight face? Your to simple to figure out all of you that say the stipends must end or that LL printing money hurts the economy. I might as well look in a bucket of vomit for a salvagable piece of food scraps trying to get it thru anyones head that thinks this way that it isnt the problem. Its the manner in which people sell the L not the amount. It never had anything to do with the amount of L. Its not a sociolist or communistic view to have stipends. How are people expected to have money or develop anything in SL if they constantly have to buy L? Can you answer that one to? I for one dont have deep pockets i cant afford to go buy a ton of L but i still wanna enjoy SL. I dont want some idiot ruining my experience so he or she can make a profit.

I stated this before LL needs to find a medium that keeps both sides happy and if they get rid of the stipend it will end up hurting about 90% of SL. You may not wanna hear your wrong over and over again but you are. Simply put introducing L into the economy of a virtual world like SL doesnt hurt it unless the people that have the money abuse crap like they have been in SL. All games online or otherwise have a way for people to make some kind of in game currency. ALL of them. There isnt a single game that uses a simple buy money technique if they do it its usually a mix to get "special items". This doesnt pertain to SL. I dont care what an economist says and you know full well how SL operates Reserve and Many others. You simply cant prove it to actually be a bad thing I've yet to see proof of it thru all the posts.

No one has stated good reason to get rid of it while a great deal of people have stated good reason to keep it. Simply put you may think its going to be good for SL but its not and anyone that has any history at all in MMORPGS knows what im talking about!!!!! Its people that spout this crap that such and such or so and so is ruining the economy. Then the game company screws it up by listening to these people and the game ends up becoming stupid. Do you honestly want that to happen in SL? Seems these people want Linden Labs to fail or something. People go on over and over that its going to help the value of L. You know what your lacking One Single Shred of Evidence proving it will.

Your suggesting total greedmonger control over the economy basically. People that have money will have all the power and those that dont will suffer because some people had to be an ass. Most of you will whine as soon as it goes to the other extreme or when you find out that you make about 1/2 - 1/3 of what you make off of SL now because of your own selfish desires. I may come off as hostile but frankly I've had it with people getting into SL strictly for money.

Its these people's fault the economy is the way it is not the Stipends!!!!!!!!!

Seriosuly i hope to f'ing god that your kidding here. This is f'cked up as hell right here. Do you have any idea what in the heck you even stated here. Ban players for sending L to someone. This idea is wrong on so many levels that i wont even say it. Just get these idea's out of your head NOW!!!!!! If you did this you would screw up things horribly for those that help people. I dont want to insult you personally but seriously WTF are you thinking!!!!

Actually i believe there is a conspiracy myself and ill openly admit that. These people control what they sell the L for. LL doesnt, money supply doesnt. They themselves do. They undercut each other to sell faster and that causes the loss of money then they cry bloody murder on the forums. So yes there is some crap going on here that you simply dont want to see. We took out alot of the L coming in got rid of dwell/developer incentives and ratings bonuses. None of which made the L value rise up any higher. Can you give an answer as to why hmmm? Simply put there wasnt a change because of Greed people will keep undercutting one another to sell fast and it will continue that way or it will go to the other extreme (this is what these idiots causing a panic want).

So your gunna force people to buy L to enjoy SL. WoW how kind of you (sarcasm). Seriously I dont know where some of you get off. You do realize only about 5% of the population prolly approves of this. Simply put you dont wanna see that these people are the ones causing it. It never had anything to do with the Stipends. More money was coming into SL when i first joined and the exchange rate was higher. Funny isnt it. Yet you keep claiming Omg its the stipends doing it. I was here when it was higher and im here now when there is less money coming into SL per month per user. There are more users now but most of them are basic. You people are cutting it dangerously close to the line and you really need to think more about the effects on the whole of SL.

Your obviously not thinking about what effect its going to have on all users in SL. Simply put as someone said here dont let other people do your thinking for you. You go along with the big name people alot of you and thats where you fail to realize something. That something being those of you that dont have money now will be forced to buy L at whatever rate these loons start to sell it for if they remove the stipend. There will be no money going into SL. Someone even posted if that it got to costly they'd ask for stipends again. Thats basically whining because it did exactly what you people wanted and became absurdly expensive. You still think this is so grand hmm?

In closing actually examine the issue dont just decide because you think its going to increase some kinda profit (which it wont). Think what the effect on the community of SL is going to be. Think about the slowing of development caused by this. Think of the demand for land going down even more. Think of half the user base leaving SL. Think about all of that and see if you can honestly say straight faced or without guilt that it is Still a good idea to get rid of the stipends. I for one care to much about the community to let this happen!

@Teufel

Excellent analysis.

Despite not being an economist I've been suspecting for some time that the Linden is not at its correct value and what we're seeing is just the market seeking a value.

And yes, the basic issue is the lack of sinks. Acutally, given its age SL has done a pretty good job of economy management.

Just for others to get your drift, I've been in two games where massive inflation took place because of insufficient sinks. In one game an item that used to sell for 10 Million in the earlier days was being traded for 900 Million due to massive cash influx (so large that it would make SL's "flood" look like a trickle). In another game, something that used to sell for 4 million two years back now trades for 200 million.

In most MMOGs, as Teufel pointed out, cash is *generated* by the *player base* and there are no economic controls.

I got to play one game where despite players generating cash, massive inflation never happened. That was because that game has massive sinks built in. As players become more powerful, they still need to spend large amounts (eaten up by the game system). Unfortunately this game is somewhat on the stressful side due to its 24/7 3-way war.

What we need in SL are some good sinks that won't stress the casual player.

As for stipends, fact is that US$ are entering the system via premium and tier payments to Linden Labs, as a result of that influx cash has to be printed. Maybe its value has to be rationalized or graded but fact is stipends must be generated.

Hey,

I actually never gave an opinion on what LL should do and I never said that devaluation of the L was a good or bad thing, I only made economical observations and stated what would happen if LL did certain things to the money supply and why the Linden Dollar has been losing value and what it may mean to SL. I don't really care what LL does, because I hardly play the game. I do find economies of virtual worlds interesting, though and follow them avidly.

There are many of us who play every day, because we enjoy it here, despite what the 'economic experts' like yourselves are trying to change and destroy that.

May I ask WHY you don't play? Is it because you were lured here under the fake advertising of make easy money, found out you couldn't, and gave up? Because that's what so many people are doing.

Lewis

He answered that Lewis, he said "I do find economies of virtual worlds interesting, though and follow them avidly."

That's motivation enough for me. Everyone has their own kind of fun. And for Teufel it's Economics. SL is the only MMOG (sort of) with some form of detailed economic system and for someone like Teufel, it's certainly a good reason to show up.

Might or might not work.

The basic account stipend is only L$50 a week, and the avatar has to go online to get it.

From an economic angle there are three kinds of basic holder

1. Player doesn't play
2. Player stays and just subsists on the stipend
3. Player stays makes a working business

In case 1 the stipend doesn't matter because the L$ doesn't participate in the system. The money effectively doesn't exist anymore.

In case 2 the stipend is so small that this kind of basic account holder does not affect the Lindex.

In case 3 removing the stipend won't matter since he makes much more money than the stipend.

I agree There.com sells Tbux and is 'allows' other 3rd party websites to sell it ( with their consent ) but NO-ONE EVER sells tbux on ebay or clothing etc....NO ONE trust me Ive looked. Everyone knows There.com would ban you instantly.
I believe There.com had the right attitude about selling Tbucks. As they are contoling its value over all. The 3rd party sellers gaged their sell rate based on what ever There.com was currently selling at, they just slightly undercut them. So as a result teh Tbuck as far as I am aware has remained almost constant in value from day one.

Thats why even though a number of people left There to come to SL they keep their There accts active and produce content as the sell rate of the Tbuck is strong and consistant.

( thinking of going back myself and starting to make things...at the time I was there I hadnt enough photoshop exp to produce anything worth selling to be honest but think I could handle it now)

Fair enough, E A Games also dont encourage ppl selling simoleans for TSO but ppl did it anyway ( before that economy crashed and died big time ( people left the game ) and never got banned because EA Games have too many games to be concentrating on one.

EVE online...MASSIVE amount of people play that game.. the game currency ( ISK ) has a high value too because it takes a lot of skill and time to make it generally...they ban instantly anyone found selling it and as such no one does....This is a recent thing after they found some sweat shop office in Asia were 15 employees were running 'mining bots' and the owner sold the currency made a MASSIVE amount of money I believe hundereds of thousands were made b4 they swooped in and closed them down. ( te employees were paid peanuts btw )

Now they have screwed the lid TIGHT because it was destroying the game...people were AFK running mining bots....the 'game' was turning into nothing more than a place for ppl to make ISK and sell it w/o adding to the games content not to mention the effect it had in the in game currency value..things became so expensive to buy with game currency because it had a RL value for a short time

I mentiion EVE online as nothing more than an example of how diferent things effect the value of a game currency.

Hi Teufel, the above has been repeated so many times on these forums its not even funny anymore. Get used to reading the following logic ...



... because I guarantee you it won't be the last time you see it.

I, for one, welcome your expert knowledge on economic matters into these forums, and simply ask that you continue to do so and not become discouraged by some of the responses you may receive to your posts.

I think you mentioned that you taught undergrad economics. If so, then I am certain that you are accustomed to being challenged by your students, and I trust that you will persevere through similar challenges in the face of adversity here as well.

Again, welcome and I look forward to your increased participation in the Land and Economy forum.

Aodhan none of that in MMORPGS actually had to due with inflation it was botch up's by the game company to try to discourage people selling the money. Making the item scarcer thus pushing up the price. Its a ploy that punishes the majority of the user base of the game for something a few people do much like what is happening in SL. The economy itself is open and that in itself tied with human nature is the problem. People can dictate the price and alot of them actually do purposly sell at a lower value. People seem to think its a conspiracy theory to think this way but all the facts point to exactly that.

As a whole nothing other then the people themselves need to change. They dictate the price they sell for therefore they can control its value. There dont need to be more sinks there dont need to be anymore ways to take money out of SL regardless of what you may think. None of the issues stated other then human nature account for anything. The demand here can go up but its greed that is the underlying problem plain and simple. People wanna cash out fast and dont wanna wait. So in turn everyone suffers and panics because of that.


What happens is the relative value is based on an average not an actual exchange rate. On the market buy area right now 1 usd = 227 L . Now if that rate to 1 usd stayed 10 usd should get you 2270L 10 times what you had, But instead it gets you 3152 at an exchange rate of 315.2L/1USD. That is the problem here. The less you buy the more you pay the more you buy the less you pay. See the trend there? Thats a huge jump to go from 227/1 to 315.2/1 care to elaborate how it isnt the people selling the L''s problem? You keep claiming its the stipend but the actual exchange rate to 1 usd if you spend a buck is alot more then if you went and spent 10 usd. Which is kinda funny in relation to what the market data itself states best buying rate 325L - 1 usd. I kinda find it funny as hell. Here Folks Im Even going to post a link of the data currently to prove what im saying!!. Change between it was +14 L per usd Now that is a bit extreme. Thats nothing to do with stipend and you and i both know it!!!

Here is the link then to prove what i said http://linadragon.zoto.com/img/original/85df4b106cf020cea0eaf1e278fbd8a3-.jpg
Now how is that then? Its kind of a bit off to me. I think the exchange rate per 1 dollar is fine its the people selling so much!!

Teufel, just want repeat the welcome you received from Cheyenne Marquez. There are a multitude of opinions form many uninformed people found in this forum, myself included, so it is nice to hear from an expert now and again. If there is one thing this forum needs it is an education and right now most of us are getting it by on the job training.

Yeah lilly thats the one problem =/. Unless LL decides to uproot everything and sell all money themselves this will never work out how people are thinking. And i wasnt stating anyone specific in my posts just the majority of the people that rant that stipends arnt needed. Basically control of stipends based on the current market of what 1.25 usd a week worth of L is worth is the best way to fix this thing without causing an upheeval of everything. It goes some fluxation and control over the market again though its all down to human nature *shrugs*.

Human nature doesnt have to good of a track record of doing what "morally" correct. Its all about survival of the fitest and in SL those are the people that control the money. Basically any statements to get rid of the stipends says hey lets put all the power of the currency in their hand. The only way it can work is if LL sells all L which takes away a draw that brings alot of people to SL and takes away alot of the appeal for alot of people to stay. There isnt a correct way to "fix" this. You can help to push it in the right direction but you have to watch what steps you take. Difference between me and the person that started this post is 2 things. Firstly I've been around virtual worlds and mmorpgs and things since they existed and some muds and stuff b4 mmorpgs were about. I know the virtual economy's pretty well over time and have seen alot of mistakes made by the companies themselves. The other that sticks out is that i work for a game company in Real life. I dont have a degree in economics but i did need to take a class for it to understand some of the points of it.

I can argue this till im blue in the face. All i ask is these people to think what the best decision for the SL community as a whole is. Not what is going to make them a quick profit. Im asking people to think of someone else other then themselves. Im not an expert but i do know enough to take up what i see in world and figure out whats going on. It may seem like a bunch of conspericy theories but the fact is what if we are right hmm? Most of these people are going to whine if it goes the other way and some are counting on it going the other way from what it is. Still the people like me that arnt in SL for money. I co-own one of the few dance clubs in SL that doesnt run a ton of events. We are trying to move away from it not because we are trying to skimp on money but because we feel we dont need to pay people to be there. We took the time to make it and we can draw a crowd of about 20 people without an event.

Now we run at a loss of about 210 usd a month. None of which we make back at all. Now alot of clubs do rental space(malls) etc, give out cash, and relied on dwell and developer incentives heavily before. Not everyone is in SL to make money and not everyone wants to be forced to have to buy or work for in game money. I think alot of you fail to realize that morally and socially the suggestion of getting rid of the stipend is absurd. As a business practice its good but it makes things mundane and boring.

Great analysis Teufel, you make a clear, rational assessment of the game's economy, although I don't think it's anywhere near hyperinflationary yet.

Still, anyone who has read this far and still can't understand why the value of the Linden is going down need only look on the economics page: https://secondlife.com/currency/economy.php

Sixty million Lindens were created in April. Eighteen million Lindens were destroyed. That is a net increase of 42 million more Lindens in the game world. So of course the currency's going to lose its value. It's not a conspiracy, it's basic math and simple economics.

I don't know what the overall total money supply is for Second Life, but if we knew that we could figure out the actual inflation rate for the month of April.

Linden Labs could probably get the money creation and money destruction roughly in synch, if they 1) cut the stipend in half, and 2) doubled the price of Linden-sold land, classifieds, upload charges, and the like.

Both of these options would be immensely unpopular and they'd risk a player revolt, so they're not going to take such drastic, sudden steps. So if they want to slow down inflation, and eliminating 'dwell' suggests that they do, they will sloooowly dribble out price increases and stipend decreases over time.

With regard to other MMOGs I am 100% sure. I have friends who are economists and we successfully predicted price movements of various items.

In other MMOGs rare items are dropped by monsters, hence the more monsters you hunt, the more items you get. Except for things like IGE's boss monster camping in FF, monopolies of rare items are not likely.

To cite two examples that illustrate the phenomenon Teufel refers to. In one franchise of Ragnarok Online clips are dropped by a monster called Alarms. It used to be that the monster that was also present on the map with Alarms is the Skeleton Archer (a pesky but relatively easy monster). When the monsters were changed the new companions of the Alarm were the Rideword and the Mimic (extremely troublesome). When we saw that we knew the prices of clips will skyrocket. Which they did.

As for money, loot farming by bots vastly increases the money supply and with more money going around the rare items (notably the Ghostring Card whose price I quoted) skyrocketed as well.

In Earth and Beyond the massive inflation was caused by the introduction of the higher leveled Voltoi in the Antares sector, the level 150 characters can kill these monsters easy and their drops were very high in cash value. The more level 150 characters appeared the more the sector lagged but the cash influx increased dramatically. Prices increased because of a bidding war over the rare items.

Online trading of cash and items isn't the only thing that drives up prices. There are very powerful in-game forces that do the same thing often with predictable results.

As for your consipracy theory. Yes undercutters are causing the price to come down. However I'd hardly call it a conspiracy theory. That's one of the normal behaviors in a trading market, in the stock market what you describe is called "selling down" and it does cause the price of the traded commodity to go down. Normally buyers and sellers are separated by a price gap. A trade takes place when a buyer buys up or a seller sells down. The Lindex is currently what could be called a "buyer's market" where sellers are eager to cash out Linden thus giving buyers better prices.

My thinking in fact is that the "conspiracy" is in trying to hold the Linden price high against a natural market force pushing it down. If the Linden is overvalued then this is my theory (which really isn't a conspiracy theory because it happens in just about any trading market):

Before there were few people trading Lindens. With a small forex trade volume the market was easy to manipulate. Naturally those with a lot of Linden would try to force the price up, which was possible (a phenomenon used in forex and stock markets). When the number of market players increased the value became more difficult to manipulate. The bigger the market gets, the more the value will try to seek its equilibrium point, which, who knows, might even be in the 340-360 area.

We're seeing market forces in play. Unfortunately since SL has significant differences from the real world, economic solutions that work in the real world either won't work in SL or can't/shouldn't be implemented in SL.

Note my highlighted word above "eager." THAT is the operative word that can stabilize the SL economy. You have to find a way either to stem the eagerness to sell or balance it with an increased eagerness to buy.

P.S. (an afterthought on the black market trading matter)
When bots start farming for money it doesn't matter how the money changes hands. Whether you farmed by yourself or bought the money from a money-farming company the fact remains that the money was generated. Automated or very easy money farming is what increases the cash supply of other online games. It's not the black market selling, it's the farming itself.

The only farming possible in SL is having a large number of alts. Regardless, the money influx here is still much more controlled than that of grinder MMOGs.

Actually yes I agree 100% and hadnt thought of that. Just as in RL people who make more money pay higher taxes...in the UK if you live un an afluent area your house tax ( community tax ) is graded and you pay a higher amount.
UK is one of the worlds biggest tax payingh counties but we are one of the richest despite our size.

So although I would be one of those paying higher 'tax' If it would benefit the value and there-for myself in the longrun I am happy with that.

This is the problem and I hold my hand up as being one of the types I am refering to.

I generate quite a bit of L$. But I do not 'play' SL anymore the business side has taken over I spend most of my time in Photoshop.
So Im not out & about much spending L$.

Monthly I reckon I spend $L3000 on uploads and now & again I'll pay $L100k for scripting/building/hired help/

I currently rent 1/2 a sim island at 65K ( ish ) a mth spent 50K on a new single vendor made exclusively for the store... paid 100K to my builder when we moved... 12K to the store manager...but the last mth isnt a typical month.
Generally I spend MUCH less than I make and thats the problem ( or at least one of the problems causing too much cash not as much demand )

Ive increased the price of my stock to try and balance the fall of the L$ value but it takes a joint effort of all members involved.

Thats not going to happen as many ppl dont really care.

Good you're trying. What would be bad for us is if people who do care do nothing.

I'm not in a position to do anything about the economy one way or the other. So best I can do at the moment is help with idea development.

How can he be an expert if he hardly plays?

I repeat once more - this is a game, not real life. You cannot automatically expect real life principles to apply because real life expenses do not apply. We don't pay expenses that real life incur such as fuel, electricity and food, because our avatars don't use them. Therefore it's wrong to assume that an economic model that 'works' in real life will just work in SL, which is what many people here are trying to apply.

To know how SL works, you have to play it, you have to experience it. Otherwise you are merely an observer.

Lewis

Teufel,

Many thanks for your astute analysis, which was put in a form that even I could understand.

It is so pleasant to hear from someone who clearly knows what they are talking about, as opposed to the rantings of the capitalists-manques who have lately come to infest second life.

I hope to read many more of your contributions to the ongoing debate.

Threads like this are one reason why I'll never fully want to leave SL.

Morning Teufel, and welcome to the debates.

Probably the best suggestion mentioned here is to gain/raise/adjust sinks. There are several threads around that had some good discussion about this. One interesting idea, for example, was a tiered model for texture upload (i.e. a 64x64 cost less than a 1024x1024).

Actual slashing of the stipend - however much that ends up to be - is the 'easy way out,' and will likely be LL's first choice. I hope I'm wrong on that, but historically... *shrug* Perhaps they can at least re-do their subscription model as well to entice folks into Premium memberships.

:link:

Whilst there are large elements of your original analysis that I don't have a problem with, there is one part in a later comment I do disagree with.

If there isn't some consistent drive to devalue the L$ there are far, far more stupid people in SL than I give credit for - and as a teacher I have a fairly low opinion of human intelligence and its distribution.

For the last several months I've cashed out enough L$ every month to pay my $195 tier. I put the money up in my morning of the tier day (so the very early hours of the morning) and I've always sold it within a few hours (about 4 is the longest). That's selling at the highest rate (it is a time sensitive sale after all) or if there's a big block there the highest rate +$1. If there's a screwball block (lots at 295 and a chunk at 350 on one occasion) I'll hold on 'til the 350 has gone and sell at 295-ish.

So why on days when the rate is $300 do we get people selling at $350, $500 etc? On days when the rate is 325 we get people selling at 400? I'm prepared to accept the real screwball results $79000 etc. are simple mistakes, but any half-wit can see that the money at or right next to the current block sells fast and planning 6 hours or so ahead for your tier isn't THAT complicated surely?! The others - they're either stupid or there's a deliberate attempt to spread FUG and devaluation around.

Well with the new limit buy orders, they won't be able to do that anymore.

Excellent post Teufel! You very accurately described patterns of behavior that I have seen and carry out myself simply in response to the situation as it is today (meaning that I am not an economist - just finding ways to cope).

I agree that the economy is not in self-destruct mode - as you mentioned, the price of everything should become relatively stable in terms of US$ even though the price in L$ is going up.

I am wondering though, would it be practical at some point to artificially increase the relative value of the L$ by dividing the value by 10 or 100? For example, suppose something that costs L$1,000 today increases to L$10,000 at some point while still having the same value in US$ today and when the price increases to L$10,000. Given that the relative value of the L$ at that point is so small and such a valuation is not practical in terms of L$ to US$, would it be practical to increase the value of the L$ at that point by dividing it by 10 - so that that price of the L$10,000 item becomes L$10 while retaining the same relative value in US$?

I was thinking about the massive price changes that this type of change would cause; however, the key benefit is in visibility since the fact is that many people pay US$ for Linden$ and want to know what value they are getting. Paying US$0.002 per Linden$ makes it hard to know what L$1000 is worth to a typical SL citizen. I am speaking from experience where I have people often asking me what my rates are in US$.

As for the stipends, you're right in that their relative value is changing - I personally feel that they'll become *almost* worthless at some point(if the amount in L$ does not change) as prices increase. As for the effect of stipends on the economy, they are a great way to get someone started and supplement most people's incomes so that they can pay for sinks like upload fees.

-2fast