Looking for members to help with LL's monetary policy.

While looking at GOM fall fall and fall, I decided it was time to do something.

So this is what i'm going to do. I'm looking for people with some type of background in economics wanting to crunch some data at regular intervals to determinewhat type of monetairy or policy action we should recommend to LL.

Essentially, I want to start an SL Reserve. A team comprised of Lindens and users. Users for this team must demonstrate knowledge with basic eco and monetary policies (and their effects)

This group must remember to be fair and just. Our objective is NOT to make the L$ go as high as it can go, but to maintain a steady currency with weekly\monthly adjustments to money flow and keeping in close proximity the policies and goals of LL.

If you are interested please post here.

I spoke with Philip recently today about this. He liked the idea and offered some advice and help. He told me if we can get a good group formed we would be able to work WITH LL into assuring a stable currency for all to enjoy.

*Please note 'non-employee members' of this group will NOT have access to any priviliged information. All information\data used to compile the study will be made available to all users in the SecondLife community.

Oh! I know someone who may be interested. I'll be sure to give them a heads up about this thread.

I'd like to take part.

However, while I understand for land owners who can not reprice quickly, a dropping L$ is problematic. For myself, though, I haven't found it to be a problem. If the L$ drops, I will simply reprice my items for sale.

In other words, I don't feel terribly impacted by this.

But, I can see where it is a problem and would like to help.

I'm really interested in this, but I have no economics background.

Nexus, I do very much appreciate your initiative in this matter and have little doubt that you will strive toward your stated objectives toward fairness and the commonweal.

I'd offer my time and thoughts but for my utter disgust at Philip's continual desire to decline to buy the cow in favor of exploiting the efforts of his customers who care more about his world than does he, and apologize for soapboxing in your thread.

Hi,

I noticed that you used the word "reserve". What does that mean exactly?

I could be, nexus. We can discuss my background in person, but don't need to discuss it here. I do have pretty heavy financial excel/modeling skills and if RL time permitted would help out.

I ain't got no economics background; but I'll purchase long term bonds to help seed the reserve.

One thing I have noticed is that prices for goods have been stable and haven't gone up or down with the market. Like a widget that cost 100L two years ago...still goes for around the same price. Land and the linden have changed.
I know...off topic a bit...but would like to add that I would be interested in this group. I have been trading on GOM for awhile now and have somewhat an understanding of where we have been and where it seems to be going. Would like to add my two lindens.

Yes, it is curious how most of the content sellers seem to have mutely accepted a cut in their incomes. Except perhaps for those who accidentally had their prices higher than the ideal value for optimum return. These may have seen their income hold steady, or even (if they had it badly wrong) rise, as the price moved down to a better position on the curve relative to US$ spending alternatives.. Though I suppose if there was little competition in the consumers mind between RL and inworld expenditure choices, the position on the demand curve would change little, and all sellers would simply lose US$ income proportionate to the rate change.

But in general (unless most people have by accident been running with prices higher than optimum) incomes will have fallen, and prices will need to be raised. So they fall either way.

Is it possible that the reason an overall correcting price increase hasn't happened is that for the average seller it is a tedious and laborious task which he is delaying to tackle ? I wonder what percentage of mid-range traders use networked vendors which will allow across-the-board price increases to be done quickly and easily ? Without such, the seller with many sites and products faces a big task to implement the required changes.

I've been thinking about your "SL Reserve" idea, Nolan.

If we are willing at first to neglect the effect on market confidence, but look just at the maths and feedback equations, it occurs to me that the calculations are almost certainly precisely analogous to those of certain electrical circuits. I believe such analyses are in fact used by economists, as the equations are the same. I can check.

In this case, we think of the variations of supply and demand as variations in the signal voltage at the input. Your "Reserve" is mathematically analogous to a large capacitor ( a charge storage device consisting of two separate conducting plates alongside each other). Just as the capacitor is a store of electrical charge, and will give it out or take it back as needed, so the Reserve is a store of cash doing exactly the same thing.

The voltage variations are smoothed out by the interposing of the capacitor, depending on its size. If we know the form and variability of the input signal, we can readily calculate that of the resulting reduced-variability output.

Conversely, if we choose exactly what we want to reduce the variability to, the maths will tell us exactly the size of capacitor we need.

In exactly the same way we can calculete the exact size of the cash reservoir which would be required to reduce L$ variations to within, say 3%, or 1% of the long term mean.

Fascinating. But of course, like a capacitor, no reserve can hold the value up indefinately if the underlying factors are forcing it downwards long term, heading for a new equilibrium position. All either reserve or capacitor can do is filter out variations about a centre point, and slow the drift towards it.

Underlines the limitations on what a reserve such as you propose could actually do. In other words, not work miracles, just seriously smooth out the bumps.

We would still need the Lindens to implement the right long term corrective actions from time to time, but the Reserve could prevent sudden changes, and hold the fort whilst the significant actions kicked in. The bigger the reserve is, the bigger and longer its steadying effect. But any attempt to force it to hold out too long would bring it to the end stops, with nothing more to trade, and any long term change that could not be avoided would change the value of the reserve correspondingly. To the likely displeasure (or when it goes up, delight) of those who had contributed to it.

I thought it curious that in-game prices have not tracked inflation (as measured by the exchane rate) until I realized there are two types of players.

I'll call them the "traditional players" and the "drawn to SL by the 'make money here' players" for arbitrary reasons. As others have noted elsewhere, the "traditional players" come from an era where the exchange rate was $L1 = $US 0, that is when there was no exchanges and L$ had value only in game. Not coincidentally, these players have been here longer, have had more time to master the game skills, were driven by the desire to create and have others appreciate their work. For much the same reason, they typically are the major merchants in their fields and their ethos and drives haven't changed much, with those who sell L$ considering it "gravy" on top of what they were already enjoying doing and therefore are little emotionally affected by the devaluation of the L$. They are also notorious for not bitching about the change in exchange rates and have not repriced their wares accordingly. By virtue of longevity and experience they are still the dominant price setting merchants within the game.

By contrast, the "make money here" players are represented by the land brokers, the day traders, the frantic empty mall builders and have utterly different skills and motivations. They are also the ones screaming loudest about the changes in exchange rates and lobbying for and obtaining concessions like "LL keeps the telehubs so as not to piss of the land brokers".

This dichotomy does not negate the merit of a stable L$ exchange rate but neatly explains the price inelasticity of in-game goods.

Oh damn, I accidentally gave LL advice on understanding how their world operates. Sorry.

To clarify, the 'Reserve' would not be player funded, but follow the same idea as the US reserve or *insert country name here* reserve. I'm using the term 'reserve' in a lose fashion, bascily whatever is in the reserve is money out of circulation, pending or waiting to be put back in circulation. I would go as far as saying my idea of 'reserve' in SL would be where the sinks go and where the outputs (dwell, bonuses) come out. Also, if we have to pull money form the economy, it would drop in the reserve fund until we release it at a future date.

So will LL be selling L$ denominated bonds? That would be extremely cool.

I totally agree with your observations!
I'm also the type of creator who is happy if some L$'s can be converted to USD, but it's just pocket money, good for tier, a pizza once in a while, etc. So even though the L$/USD has dropped, I'll just probably buy a slice less of pizza, and that's it.

Though I'm puzzled, what will be the effects of most merchants not inflating their prices?

Maybe they don't even have to: if more and more people play SL, the "old" price might mean more sales in volume, because of more customers.

Hello-

I'd like to help as I can. Good number cruncher (solved the "google riddle" using Excel) and currently working as an analyst in the Commercial RE industry. Let me know if you need a hand.

- Transuranic

Hi Nexus
I'd like to join up as well please. I'm a business woman in RL and know a little about finances as a result. I'm also a GOM trader.

Greetings Nexus,

I would be interested in helping with this particular endeavor. My credentials are whatever you can google on my name. In RL, my knowledge in this realm is in use in an academic research facility.

I also like the way some of the voices on this thread are thinking, as they match (though not all at once) some of the notions that I have about the SL economy.

Now, to venture an answer to Introvert Petunia's question, I'll rehash bits of theory from the GOM forums:

I suspect that the content-for-USD providers (that is, the people *most* interested in gaining USD for their contributions to SL [for which L$ were received], like land resellers) are amassing the bulk of the L$ being printed. Then, I suspect that the majority of the people buying their L$ are people that spend their L$ directly on these content-for-USD providers. In short, I think that the internal economy is being bypassed in our current L$ glut.

This possibility is logical but not stable. If content-for-USD providers remove themselves from the L$ economy, then the L$ glut they have been absorbing will be distributed throughout the local economy, driving up inflation.

...unless, of course, everyone is fine with being able to afford everything from everybody else. It is possible for a SL community to exist without an economy, but it would be an unmotivated community.

The effect of the "premier" merchants (by virtue of experience, long developed skills, established reputation, etc.) Gives them some power to effectively "set" the prices for a given market. For example, if MajorClothier Avatar continues selling dresses for L$150, SortaNewClothier Avatar can't really price dresses above that and probably needs to price a little below. However, there is probably some point of inflation at which MajorClothier will consider it worthwhile to reprice - e.g. if the L$ becomes worth 1/10th of its value on the exchange, you would probably see MajorClothier and similar merchants repricing.

However, as I've noted elsewhere, for reasons of the way LL is marketing SL and for the reasons that people who have the skill, drive, and interest in becomming creators/merchants have already found SL long ago, fewer new players are not playing the game to express their creative drives. These "consumer class" players (that's a definition, not a value judgement) are indeed buying more vGoods, but each one adds to the money supply because of their stipend without adding more content.

One of the primary metrics that real governments use to stabilize their currency is the amount of goods and services being produced. Why? Because experience and theory has shown that keeping the money supply proportional to production is the naturally effective way to ensure stability of money value (i.e. purchasing power or "consumer prices". The way real governments do this is in exactly the way the original poster advocates; for example, when the US Federal Reserve finds that there the money supply is getting larger relative to production they sell T-bills (pieces of paper not usable for buying goods and services) for dollars, thus pulling dollars out of circulation, or if relative production is going up, they buy T-bills thus putting more dollars into circulation.

The general problem in SL is that they have locked the money supply to population - through fixed stipends - and not to production and have made no provisions for regulating the money supply. As the "consumer" population grows, the money supply grows without a corresponding increase in content production and thus there are more L$ chasing the same amount of content, which necessarily devalues the L$.

So, even if sales volume goes up for MajorClothier, it has no effect at all on the global purchasing power of the L$. Please note that I didn't even mention L$/US$ exchange rates above because it is not relevant to the game's internal economics.

On a completely unrelated note: upon further thinking, my dichotomy between "traditional players" and "make money here" players explains much about why a vocal faction here has open contempt for what they call "content barons" in a way I never understood before, but you didn't ask about that.

Hey you tricked me into divulging more of my analysis through flattery (I'm a sucker for that )

That's insightful; thanks for bringing it here. Although I might question your use of the phrase of "absorb L$ glut" as it is definitionally impossible to "absorb" L$ through GOM (which merely transfers L$ from A to B).

Whereas I agree that traditional "capitalistic" pursuit is indeed a powerful human motivation, it is far from the only motivation that drives people. If capital pursuit was the only motivation, no one would ever - for example - bear and raise children.

I wish this new group well, though I dont believe they will have a significant impact. LL dominates w/o player intervention.

Best Wishes.

I'll make time for this. It sounds like an interesting effort.

As a content creator who actually used L$ to pay for some real life bills, I think I can answer this. I very rarely change my prices and when I do is because I made an error in determining the price in the first place, not because of the falling L$.

The reason is simple. When I create a new product I will value it according to the current exchange rate and the work hours put into it. I put a price on my labour according to actual exchange rate. I also make an estimate on how many copies of the product I'm going to sell. By the time the falling L$ would start to impact my income on that particular item I've already profited what I expected from it. As I continue to put new products out, my income doesn't drop.

Think of it this way... any gadget you buy today on a store in RL will be priced at a much lower amount when the hype is over. In here its the same thing, but I dont need to adjust the price in L$ because inflation has already done that. If the L$ actually stabilizes I will in fact start to lower the prices on older products.

Fascinating, Ralek. A very valuable insight. I wonder what proportion aof SL products have a short product life like this, so that an L$ decline just fits naturally with a good pricing strategy, and does the price change for you ? Maybe this applies to fashion items, like clothing ?

Our concern about L$ instability, however, is not just with it falling, but equally with it rising. When this happens, as I assume it will, does that mean it will be making your products more expensive as they get worth less ? So that you will be forced to keep altering your prices quite regularly?

But thanks, Ralek. You added a new dimension to consider. Interaction of L$ changes with products which have a naturally changing price structure. Needs thinking about.

Hey guys, i'm getting some valuble insight here form all of you.

Couple things...

1. Do you think the content creators will keep creating if 1000L$ = 0USD?
   
2. Do you think the content creators will keep up the same quality and quantity if 1000L$ = 0USD?
   
3. Do you think the L$ will still be valid tender if content creators start pricing stuff in USD instead of L$?
   
4. Do you still think their will be as many casual players if all content creators price stuff only in USD because the L$ failed?
   
5. Do you see where i'm going with this?
   

I'll be making an discussion group sometime this week, open house or via invitation, don't know yet. I'll let everyone know.