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

Ummm, first guess: There?

1. Do you think the content creators will keep creating if 1000L$ = 0USD? Yes
   
2. Do you think the content creators will keep up the same quality and quantity if 1000L$ = 0USD? No
   
3. Do you think the L$ will still be valid tender if content creators start pricing stuff in USD instead of L$? Yes, with comment
   
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? Yes, with comment
   
5. Do you see where i'm going with this? Not really
   

I think that it is not a viable option to go all USD. The USD is just one county's currancy. What about all the people in Europe, USD are as good as the L$, in the fact they have to convert them to Euros, or whatever currancy they use, but for they can be really useful. Also, it make it really easy to sell things via L$, and with the system that is set up, easily tracked too. The L$ is an easy way for all users to buy goods. There may be some crossing over, and that might even stablize the price too. If an item can be bought either with L$ or USD, and the conversion rate goes one way or the other, then the "cheaper" option will be used more until the rates come back into agreement.

1. I think it is impossible for 1000$L = US$0. Games that outlaw currency exchanges of any type have proven that people put a value to virual items even when their trade is outlawed. Without an ability to exchange, there would still be creators, but there would certainly be less. The creators would only be those that create for entertainment, and the creators would have to be rich enough to own the land they need and pay the $L fees they need without a blink of an eye.

2. I think the $L is an excellent tool for the reasons mentioned by Dnate. Second Life is international, so it would not make things easier to use $US any more than it would be useful to use any other currency as the measure. At least the $L allows Linden Labs the ability to adjust sources and sinks, and it can act as an in between currency between the currency of all other countries. International billing should be made as simple as possible for the best overall success.

3. Content pricing in $US does not make a difference. If $L1000 is worth US$3.50 to the buyer, then both prices say the same thing to him.

4. I don't think demand for Second Life products is based on the success of the $L. I think casual users already put a US$ value on their products. Casual users make decisions every day of whether they want to spend US$ on a currency exchange to buy $L for their SL products. Whether they made the choice to buy or not, they have decided whether that product is worth those US$.

5. No, I don't see how $US over $L would help. If the demand is not already there, changing the bills used in exchange will not make a difference.

When you have two related markets that are connected like we have in SL, you do not always have an immediate change reflected from one market to the other. The supply and demand forces aren't even the same on both markets at the same time. This is mainly due to the fact that people don't do their pricing perfectly. One example would be a rich person dumping $L for cheaper than the optimal value, the currency exchange will push down and then it should naturally come back up to the spot it was naturally. This could cause content creators to make more money as some have claimed to do in the past. They got more sales from underpriced $L, and now the market is back to normal and they can make more money by selling their $L.

The mystery about SL is that the natural price continues to decrease. This average price spiraling down should be forcing people to change their prices. There is a time delay in this though. People don't learn immediately. It is hard for someone to say that their product price has changed its $L price. They have seen price dips and rises before. Most people will think since it sold for that much last month, it should sell for the same now. Eventually people will learn, but it takes time.

The markets push and pull on each other, but they will never be mirrors.

SL's economy is extremely simple.

When the bathtub is overflowing, you either have to turn off the tap or open up the drain. You shouldn't need a PhD to figure that out.

What we don't have enough of, is information.

Buster

Adding real economic knowledge into the situation WILL improve it, at the least help residents understand what's going on with the L$ and what to expect, and perhaps help LL to make 'better' economic decisions. (Although in this context better for LL is not necessarily related to better for SL business people)



IMO, this is about 10 steps too far for the next paragraph in an initial post to form a group looking at Monetary Policy. Surely it will take time for skilled people to analyse the situation and work out what's going on and what your group's recommendations are?

Either you want to get knowledgable people involved to discuess and work out a course of action, or you already know what you want to do and are looking for a group to support pre-set ideas?



The goals of LL are entirely unrelated to the L$:US$ valuation, see GOM forums.

'maintain a steady currency with weekly/monthly adjustments' sounds like you already have a pretty good plan for how the Reserve might work... if you do, why not post it?

I am willing to help you with this

Exactly, the so-called 'stablity' of the economy, which is seen by some to be so important, has relevance only to those who wish to trade Lindens for US dollars. For the rest of us, the lower the Linden falls the better it is for us, because then they do not cost such an extortionate amount to aquire. So the exchange rate of the Linden is of value to the land barons and those who sell sl goods to make a profit, but so far as I can see, to no-one else.

And as you point out, for those of us who live inworld and do not wish to do outside trading, there is no reason to change the price of goods, because inworld the value of the Linden stays constant.

Personally I feel that the cost of land in rl money is grossy inflated. It seems almost surreal to me that people will pay such vast rl sums for a small piece of virtual land, and feel that if the value of land were to fall (which is the thing we are mainly talking about when we speak of the exchange rate) it would be a good thing for most people here.

This is from someone whose financial nous is such that he gets overdrawn in the middle of the month, so I stand to be corrected.

Just making the reminder yet again that land does not rise and fall in value for US$ a great deal anymore. If it does rise, people buy one of the unlimited sims for US$1000, they pay their US$195 teir fee. They then subdivide the land, and sell the peices for enough $L to make them more than US$1195. If the price falls, people stop buying the unlimited sims until enough new players come in that there is a higher demand for land. When this demand goes up the entire cycle happens again, and land stays right at the same US$ price all the time. The land market is fairly stable in US$.

The $L market has nothing to do with the stability of the land market when measured in US$.

Content sellers have both a fluctuating market for their product in $US, and they have a fluctuating market for the $L. This means their work is twice as hard. The market being stable benefits everyone that is trying to plan a business. It takes out some of the guesswork they have to do.

The reason the falling market may help a buyer, is because it allows you to buy a product for cheaper than the seller originally intended. Those of us that want a stable market, want the prices of things to be closer to the originally intended price.

But only if the seller is dealing in US dollars rather than Lindens. That is the point of what I was saying. In terms of second life, the value of the Linden hasn't changed since I have been here. In terms of the dollar exchange, a stable Linden benefits people who use second life to make a real life profit. The rest of us only tend to deal in US dollars when we buy Lindens, and that is normally only when we wish to obtain some land, and a falling Linden has nothing but a beneficial effect on us.

I see everyone's concern of "why would next have the power to make this group." and "who the hell are you" or "who the hell do you think you are takign this type of control"

We to answer all that. Why hasn't anyone else started this!? Why am I the _ONLY_ one who's pushing for a group. Yes i'm leading the group. Why am I leading, well because no one has stepped up. I'm simple going to give it initial directions and planning. This is why i'm asking for everyone's help and input. I need YOUR help, ALL of you for this work.

As for my initial "plan" it's simply a suggestion to get the ball rolling. If we all come up with better suggestions, hells, well head in that other direction.

I fiugured the best way to start this it by an open house. I'll be posting a couple of events for friday.

2 Events, these will be open to everyone in SL.

They will be held Friday Sept 23rd @ 12h00PST and 18h00PST

https://secondlife.com/events/event.php?id=87285&date=1127502000

Sorry to those who went to the event today, it's all friday :\

I would just comment that you can't measure the value of a currency in a vaccum. You can measure it by what you can buy (goods/services) or how it trades versus other currencies.

Regarding "how much you can buy" -- one metric a government uses is the CPI (Consumer Price Index) which measures average prices for a "basket" of consumer goods and services. What I hear some people saying is that the a "CPI" for SL would have remained fairly flat over the last year.

If you look at the average Object cost (in SL's released economic stats) over the past year, the chart looks relatively flat, but in actuality, if you compare a 4-week average ending 9/11/05 to the 4-wk avg ending 7/25/04, the average price has risen 41%. There is a lot of noise in that 41% number, but it's still a semi-credible data point. [The "payments" figure LL shows is so volatile that it is harder to draw conclusions, plus its an even noisier category of transactions.]

On the exchange rate side, GOM rate, once it fell to the indicated target zone of approx $4, remained fairly flat over most of the year until late August. The initial fall and then ensuing stability was probably due to a combo of market psychology (esp. given $4 guidance from LL), the less efficient market system GOM had in place which hid increasing downward pressure, and land supply corrections LL was making.

The Object data point I mentioned implies that we've seen some inflation, but it makes intuitive sense based on what I've seen in world that there hasn't been massive inflation yet by content sellers re-pricing. Is this due to natural lag as sellers react? Probably. As has been said, a lot of our content/service "sellers" have low COGS so do not need to immediately pass on materials costs to buyers. The time requirements of changing prices and the fact that most participants still treat this as a hobby will also stretch out the delay between an exchange rate change and a "goods" pricing change.

I give LL credit for seeing inflationary problems looming and trying to take steps to compensate.

I've run out of time, so am going to end my musings here.

I view the land metrics LL provides as more difficult to draw conclusions from, especially when total supply figures aren't readily available which include the growing number of private islands. The rental market also affects these figures. RL land analogies, where quantity/supply remains static, do not lend themselves very well. So I'm very interested to hear how people view the impact of land on these discussions.

Edit: adding chart
Object Sales defined by LL as: Direct purchases by residents of in-world objects
Payments defined as: Money paid by a resident to an object, or received from one - vending machines, games, etc.

I'm a strategist. I can say few things.
Mainly this: Conflict of interest.

3 conflicting entities:
1. Second Life: The community/the end-user.
2. Linden Labs.
3. The businesses.

The problem with this forum is that it is so subjective. People do not seem to be able to tell the difference between the 3 entities. People think that they are one and the same. They are not. Furthermore, their best interest conflicts.

If you were not jaded, you would understand these very important concepts:
1. The single most important thing to Linden Labs is maximizing their profit. You cannot develop a proper strategy for your business or for Second Life as a community if you do not understand this.

2. The single most important thing to any business and all businesses is profit. This is not a cruel and evil intention. It is plain and simple objective fact. If you have a business, and do not understand this fact, you are deluding yourself. You are not doing justice to the community and those your serve when you do this. When businesses do not understand this fact about themselves, people get hurt unintentionally


See my hotline to Linden for more information: /130/ea/62171/1.html

deleted... my frustration should not need to come out in words... occasionally this fails

I have an undergraduate degree in Economics, albiet 20+ years ago. I would be willing to participate in a committee on SL monetary policy, economics and the L$ money market.

Thanks for this extremely valuable analysis, Forseti!

And I guess for everyone with eyes willing to see, it is clear that the inflation of the L$ is something very real (if you would scale the orange curve diffferently the inverse correlation between avg. prices inworld and exchange rates would become even more obvious.)

The correlation would be even stronger IMHO if it were not so damn tedious for sellers in SL to update their prices. Thats not the case with prices for "services". They can be changed easily and I guess the steep rise at the end of the curve for "avg payments" is no accident.

Its an illusion to think that the stability of the L$ is of interest to the business people of SL only. (Most residents buy a lot of goods and dont build anything themselves.) And even if this were the case those "profiteers", as they were called in another thread, contribute greatly to the experience of the "non-business" player, too.

While I greatly applaud the idea of a kind of "Federal Reserve of Second Life" I would like to question its feasibility in the current economical system of SL.

The real Fed (or her equivalents in other countries, like our Bundesbank or the European Central Bank) is dependent on a working banking system. The most important instrument for steering the economy is the setting of the federal funds rate - this is more or less the interest rate that banks charge each other for overnight loans to one another. The "cost of money" so to speak. The details are rather complicated (though interesting) but it all boils down to: High interest rates basically "take money out of circulation", "dampen" the economic heat and lower inflation. Low interest rates pump money into the economy, heat up the econmy an lead to more inflation (all a gross oversimplification, I know).

But banks and loans are - contrary to the situation in RL business - not very important for the SL economy yet. Not many residents are financing their businesses with a loan. Of course, the Lindens could start to buy and sell treasury bonds. But I guess this would not be a very agile instrument for controlling the volume of money in the economy.

So as long as banks are more or less irrelevant in SL a "Fed of SL" would have to use some very different instruments ...

If by "system" you mean something like "an organized set of interrelated ideas or principles", I would contend that your question is ill-formed as neither "organized" nor "principles" apply to the alleged economy of SL.

Wikipedia (http://en.wikipedia.org/wiki/System) says (and Merriam-Webster agrees): "an assemblage of inter-related elements comprising a unified whole". And like with a lot of systems in nature, the principles behind the workings of an "assemblage of elements" do not have to be intentional or even be understood by us mere humans to comprise a "system". Seemingly (!) chaotic systems are the rule not the exception in nature. But this is debatable ...

you've lost me introvert... are you arguing with the content of pham's post or how it was written, or both

if the first, pls explain b/c this could be an interesting tangent

The value of the $L is based entirely on the faith people have in the currency. The US dollar holds value even though we add a billion new dollars to the economy every day, because people around the World have faith the currency will stay stable over the long term. People support the currency by holding it rather than transfering to other currencies. Running to exchange $L lowers the value.

In SL the value of the $L is fragile because few people have faith in it's ability to retain value. Instead of holding their wealth in $L they buy US$ dollars every day, clearing their $L out to avoid a decrease in value.

In the 1980s I was in Argentina during a period of 1000% inflation. People kept their wealth is US$ because their money lost value so quickly. Shop owners would go directly to the currency exchange after work.

SL is the same, and these sellers want to cash out fast. GOM operates in a way that forces the lowest priced $L to sell first, giving incentive to sellers to reduce their price by a penny or two in order to sell fast. This causes the prices to drop faster, as competition to sell heats up.

Making the currency easier to buy should help increase it's value. Adding buyers will help the 'supply/demand' issue. More buyers means more demand.

I think LL has a good handle on this problem. Just my opinion

Sorry, it was neither. It was a sardonic comment upon the very fact that Nexus has had to form this group, the failure of economy management by LL, and my expectations of futility of the endeavor in actually effecting change regardless of the amount of thought, effort, knowledge and experience brought to bear on the matter by genuinely concerned players.

I agree that it was obtuse; my apologies for that. I thank you for asking for the clarification.

In case you care about my motivations, I feel that LL has done a great job of appearing interested in all sorts of input from their customers while seemingly doing nothing with that input. Some recent examples are: the votiing system being effectively untied to any development priorities, recent Linden roundtables on various subjects, and the claims that LL has changed the rules on the promotional video contest after the hard-work of the entrants was submitted. I could go on, but I'm boring enough as is.

Bump, open house tonight (Firday Sept 23rd @ 6pm PST! check your event boards!) (it's in Olive)