Idea - A controllable new source-reduction mechanism

LL seem to be having trouble controlling the economy through lack of suitable short-term controllable resident-acceptable L$ sinks and sources (either will do).

Proposal. To decrease the L$ supply, which is needed at the moment. Our existing L$ stipends remain unchanged. But LL can reduce the number of new L$ it creates to meet this obligation, and each week adjust the figure as needed.

I propose it should do this by getting part of our stipend from the resident-to-resident exchanges (eg GOM) and only part by creating new L$. Each week it adjusts this "market fraction" as necessary.

It works beautifully, because the long term and short term effects match perfectly, so it works almost instantly, but then lasts.

The short term effect is the extra buying in the market pushing the price up. The long term effect is the reduction in the money supply, which stops it drifting back.

It allows the stipend to come partly from the market, but without all the emotional problems from residents associated with a stipend which varies from week to week.

Each week LL decides exactly how many L$ it is ideal to create for money supply adjustment. Then it tops up the stipend to its promised fixed level by buying some L$ for each resident, using his own subscription US$, in the resident-resident market.

The downside is for LL. Its US$ income will be reduced in proportion to whatever fraction of the stipend mix comes from the market. And it will face variable income instead of us.

Whether this is a downside LL could bear would depend on how big the market fraction needed to be to exercise the necessary control. My guess is that about 2% of stipend would be enough, in which case it should work perfectly.

But I could be wildly wrong. It might need much more, in which case the idea is useless.
How big is the ratings cut ? 19% of something ? Of what ? That has done nothing. But maybe because it has to work slowly through the system , and won't really do anything underlying for another 4 to 8 weeks, since it hasn't succeeded in altering our confidence and expectations.

The beauty of the proposed SSCM (Spilt Stipend Control Method) is that it has all the instant effect of market intervention, but no organisation takes risk, because the intervention is with our own money, and on our behalf.

OK, breaking my own rules, I haven't sat on this and thought it through for several hours. So I am relying on you lot to shoot it down in flames. As far as I can see, the only killer is if the required "market fraction" is too big, costing LL too much US$ subscription loss. Anyone able to estimate its size, or see something else wrong ?

The idea seems to make control very immediate and flexible. I am imagining that is our biggest problem, and that the actual size of the control inputs required is not large. May be a total misunderstanding.

I am acutely conscious that I am doing that dangerous "word-equation" thing, when we really need numbers, and even differential equations, but I simply don't have the data to do better.

Opinions ?

PS I understand that some of you will say this is a disguised way of LL breaking its own rules, and intervening in the market itself. The difference is subtle, but I think it is there. Though I agree it could be argued otherwise.

Interesting idea. I wonder if LL's cashflow would support something like this -- definetely something LL should consider if the expenditure isnt that significant.

-Adam

This would require a) Linden Lab being approved by GOM which has instituted fraud protection measures that may exclude them b) Linden Lab spending revenue to purchase L$.

It's a great idea, many governments do this routinely to control their own money supply, but such governments have to care to.

Don't understand this. Is it irony ? Needn't be GOM anyway. Just a trade with a resident - ie used, secondhand L$.Yes, thats true, Introvert. But is this a little different from direct intervention on their own behalf, or am I deluding myself ? They simply get the L$ shortfall from other residents on our behalf. Perhaps its just a different spin on direct intervention, in disguise. But perhaps it's what is needed nevertheless. We just want the tiniest control touches possible to be effective, done weekly.

I suspect it may be dead because the market fraction needed would be too big for LL to bear. The size needed for the controlling inputs is as it is, regardless of how you present them. So often an idea will appear brilliant until really close inspection, with the numbers. Maybe this one is no more than a marketing strategy, a matter of how intervention is presented to the populace. I need to think more to see if there is anything more real behind it.

What a minefield without a proper mathematical model. I hope LL have one.

The more I think about this whole "controllability" problem, the more fascinating and subtle it becomes. No wonder people become economists.

However we spin it, exerting control by manipulating the underlying factors (eg money supply) will require control decisions of a certain size. Which will incurr costs. Which must be somehow shared between company and residents. Since LL has no option but to survive in RL, we can assume it has no option but to achieve a certain level of minimum profitability. Since the growth of the world is critical to its future, we can assume it is not in its interest to drain the world for more profit than the minimum. The more we believed it, the more we would see it would, and our belief would grow. Positive feedback. Dangerous because it can flip to the opposite direction - but forget that for now.

If this is correct, then ultimately all additional control costs will be met by the residents. Bit too simple, but it'll do.

So we need to balance our costs in stabilising the L$ against the benefits from doing it. Extremely difficult to estimate either, let alone carefully calculate the trade-off.

The best way would be to find a way to achieve stability with almost no actual control, or at least much-reduced need for it. Is there a way?

I think the answer is yes. Confidence. Belief. Expectation.

If we really believed LL were going to bring it back to $4, and hold it there, that would be threequarters of the battle. It would immediately start to happen. This belief would reduce the variability to the point at which the actual genuine control needed, and associated costs, would be much reduced. And the effects would be almost instant, with no need to wait for them to work through the actual economy.

So wouldn't the best approach be a sort of balanced sleight-of-hand ? The steel claw of controlling action sheathed in the velvet glove of controlled expectation ?

Basically real, but eased, speeded, and assisted by simply convincing people it will work?
Not a confidence trick, because work it will. Even if not believed, given long enough it will succeed, which in turn justifies the belief, and makes it work faster, better, and cheaper.

I think I want to become an economist . I want lots of lovely equations, including confidence estimates and influences, feedback loops, and differential equations. Perfect blend of sociology, applied maths, and magic.

Yum yum !

PS I realise this is mostly self-indulgent thinking-aloud. If it annoys, you'll just have to ignore me.

LL has no trouble controlling the economy, if they wanted to. The problem is that they don't give a $#!t about it. Anyone who does not accept the L$ as currency, forcing it to be sold for US$, is driving the value down. There is no bigger offender than LL. What government doesn't recognize it's own currency?

Well, Smiley, they could buy back all the L$ we're trying to unload, but they'd likely end up bankrupt. Or they could abolish all stipends, and half of us might leave.

Their problem is finding something between these two alternatives which we could accept, and they could afford.

Wow ! Is that it ? In a nutshell ?

Why does everyone think SL has got any "trouble" with the economy? Imposing restrictive measures is just one of many controls SL puts in place in order to keep the economy trouble free. You don't use the breaks on your car because you're out of control... you use them precisely because you are *in* control. Now... using them too late will certainly drive you out of control.

In a nutshell, yes, it's that easy. Greed works - except when it doesn't. LL is killing their own game. Philip talks about trying to find some way to fix the economy, but supporting his own currency in a meaningful way is out of the question. He got used to not accepting his game currency for auctions real fast. Now there is no going back, and he doesn't care that it trashes the value of the L$, because he doesn't accept it anymore. In the long run, it might matter to him, when someone else makes a similar game, but decides not to repeat his mistakes.

So I just cashed out a few thousand dollars worth of L$, money that I more or less had invested in LL. Anyone need an investor to make a better SL?

Its amazing how easy it is to solve problems! All you need is for somebody to give away a bunch of US$ and poof! Problem solved!

Buster

Actually, it isn't annoying me. It is making me salivate hearing you talk about yummy things. Lol, now I probably just annoyed someone. Oh well.

Yes, pretty much, but as pointed out earlier, countries buy back the currency to control the value. The problem is LL isn't a country, it's a business, and business exist for one purpose: to make money, and I don't see LL spending any money to buy back what it techincally "owns."

The removal of bonuses from ratings will be a step in this direction. However, I've noticed that the prices in SL for most things is relatively unchanged, which means the conomy hasn't been affected too much by this yet.

If after a couple of months, the L$ - US$ rate hasn't improved, I can see either decreased stipends across the board, increased upload fees, or a combination of both. With the Lindens down to only two major money sinks that actually remove money from the game, these are their only two options at this time.

As for the we can accept point, I suspect it will be treated like our federal reserve is doing, lowering the amount given out to residents a little at a time and carefully watching the changes inworld.

It'll be something interesting to watch, that's for sure. *grabs popcorn and finds really comfy chair*

yes, math and magic... and you have to like being wrong a lot

My favorite effectiveness of lovely equations example is Long Term Capital Management -- simply put this group of nobel prize winning economists and wall street stars put a little too much faith in their theories and models and nearly caused a major financial collapse -- the US Fed Reserve had to step in. Speaking of, I need to read "When Genius Failed".

gotta love assumptions...

don't mind me... i've just listened to too many famous economists contradict each other LOL

I don't know Nala... I don't see LL doing this simply because of public perception of market manipulation and the need to protect their own cash flow. However, if the first concern was alleviated somehow, and they decided that spending their money this way brought them longer term returns, I don't suppose there would be much stopping them.

An example that fits in some ways and doesn't in others: a company buying it's own stock on the market and retiring it into treasury stock. Lots of companies do this when they have excess cash and feel that their stock (their own capital raising and M&A currency) is undervalued.

The flaw in this is that members of SL having $L does not give us a stake in LL, from a legal standpoint, anymore than owning gold in WoW gives me a stake in Blizzard.

Shares of a company, I own. Money in a virtual environment, I do not.

Therefore, my logic is: why would LL pay for something they already own?

I doubt people would be upset at LL doing some market manipulation. That's like saying we should all be upset at the Federal Reserve for making sure the US$ doesn't end up in the drain compared to other currencies (although that's kinda what they're doing atm). My money is owned by LL, as is the world. I see no reason why they couldn't step in, maybe not in an overbearing way, but enough to remove a lot of money out of the world.

The major issue I see is that you have to make some way to take money out of the game while giving the players back something worth it in return. Currently, the only ways money actually exits the game is through uploads and ratings, and ratings are about to be removed as useful due to the impending bonus removal.

Another reason I'm still in favor of a fee on all mainland teleports, a fee against sim owners for teleports from their sim, and a dramatic increase in upload fees.

To use the flooding in New Orleans as an example, water only started leaving the city when people started pumping it out, not just because the rain stopped or because the levies got fixed but because people began actively removing it. I think the same applies here.