Questions for Philip's Economy Town Hall

This is assuming that the economy stays at its current size. If, instead, it grows to match the amount of currency in circulation, there will be no inflation, just an increase in the quantity of goods that an individual can purchase.

And where's this collapse of the L$ that you're talking about? It looks to me like the L$ has been stable in the US$4.00 to US$4.10 range for several weeks now.

There is a US$0.17/cent spread in the Buy/Sell price and the bottom continues to decline with no top line growth upward. Rome wasn't built in a day. If your expecting to see L$ for a nickel, you might be waiting a while.

As for the economy growing to match the circulation, I doubt it. If the ever increasing L$ flood would halt, then yes, it would give the economy a chance to catch up. What your saying is 100% correct, but LL isn't halting the Printing Press to allow that to happen. They just keep printing money as if they profit from every L$ in the game. LL should only be printing enough L$ to allow for enough currency to exist so that players can trade goods and services without monetary constrants.

I don't want to sound more arrogant than I really am, but really, the economic system in SL is pretty well "oiled" and "fine-tuned" - you can read the papers on it. It wasn't just invented on a weekend with a "hey, I got an idea, let's do it this way!" and experimented with, to see if it works. Give LL some credit. They have economic majors in their advisory boards.

Unlike many of you, I don't see "an overall price increase" on products and services (and certainly not on land). If by "overall price increase" you mean some products are more expensive than others, then yes, it's true - it's called quality. Better products are more expensive. You can get lots of freebie clothes. You can get simple copy & paste texturized clothes which were done in half an hour and which cost L$20-50 or so. And you can get Chip Midnight's or Mrs Jones designs for L$ 500 a piece, because it takes them a tremendous amount of time to do quality items. This is not "inflation", it's paying more for better products and services. Actually, overall, clothes pricing have dropped tremendously in the past few months, as lower-quality designers try to make a few L$ by reducing their prices to almost nil.

Concrete question to Philip Linden: would you be interested to set up a reference baseline for establishing inflation in SL? This takes a lot of time (which objects should be used as a reference...?) and I'm not sure it could serve a real purpose, besides affirming what the inflation rate is in SL.

I also tend to view the stipend system as a way to discourage creativity - people already get money for free, so why should they concentrate on building stuff or socializing (translation: go to contest events)? They'll get money anyway.

Still, I wouldn't like the stipend system to go away. My feeling is, some people would find SL "too hard" if they didn't have a means of getting a regular income to pay for a few expenses. So they would just drop out of the game, and the population would drop until there is a level of people making a living from their creativity. Of course, this would also mean a reduced market. A mix between creative people - suppliers - and less creative people - consumers - is necessary to have a running, viable economy. Again, LL has given this issue a lot of thought, and we shouldn't just express our opinions based on "feelings" and on the spur of a moment.

Concrete question to Philip Linden: Would you consider setting up an "advisory board" or a forum thread to discuss the stipend system?

With the proposal on the revision of the rating system, the weekly stipend will change dramatically anyway, so perhaps this question is redundant.

Just my L$0.02. No, I'm not an economics major

nice discussion, try starting another post. lets keep this one on topic, please offer your suggestions and questions then move on - we can start any new thread to discuss any of them so lets keep it simple. TY

Gwen:

Your not taking in account that Goods in SL have a Zero Cost of Production. So vendors/manufacturers have no pressure to adjust their pricing of goods. So your idea that there is no inflation based on prices of goods not going up is skewed. You need to look at the increasing money supply in the game to gauge inflation.

If the in game currency is growing disproportional to the population of SL, we've got problems. And LL is being hush hush about the population numbers in SL.

Is the Stipend paid from a "central bank" that is filled from "taxes" (L$ auctions, rate payments, listing charges, etc) or is it created from thin air on demand?

Is the noobie account starting balance the only way new L$ are added to the world, hence keeping the L$ supply in line with user numbers, or are L$ created from thin air on demand?

My theory is that LL is creating Stipend money from thin air. Because, how else can you explain the ever growing circulation pot? L$94/mill to L$124/mill in 2 months? If the Circ.Pot was capped at L$94/mill, then stipend money would have to come from a pot of funds collected by LL. But since its growing, I think LL is just shaking the money tree every Tuesday and adding to the inflation woes of the economy.

In basic terms, the Macro Economics (IMO) is that LL creates new money for weekly stipends to players. Some of that money might be offset by L$ collected through direct land auctions priced in L$, paying and/or subsidizing your tier fee, and basic fee charges for advertisement listings of places and such. But the avenues of outflow don't seem to equal the inflow of L$ dollars via Stipends. Overall, Stipends as far as I can see is the biggest avenue of currency inflow into the game. But I don't see an equal outflow to help stablize the amount of L$ in circulation. The net effect is inflation, brought on by too many dollars chasing too few goods/services. The excess is sold on the spot market (ie: GOM/IGE), which devalues the currency.

The resolution (IMO) to the problem is that an equal system of currency outflow needs to be created in the form of taxes, fees for teleporting, prim charges, etc.. For every dollar put into SL, an equal amount needs to be removed. This needs to be done so the currency in circulation remains stable at a certain level.

With taxes, the tax should be spread around and not be concentrated. For Example:

1) Put a tax on all peer-to-peer currency transactions. (ie: L$1 per L$100)
2) Tax Land based on size (ie: L$1 per 100/meters per week)
3) Tax Teleports (ie: L$1 per Teleport)
4) Tax Steaming Music (ie: L$10/wk)


A few small taxes spread across the population will help to remove currency from SL. Keeping an even balance between Stipends which are inflows and taxes which are outflows. Otherwise, LL's current model has the effect of cooking a frog in the frying pan with the heat on low.

one thing I have read lead me to believe that the money taken from uploads and such L$ charges were put into a fund that was used to pay stipens and such.

ALBY- there are more things involved then just the amount of L$ in circulation, there is also a player base increase. I have read something else somewhere that said something to the tune of: money and land release is based on the amount of new players joining. Now if this includes alts, I bet it does even if unintentionally. I don't think they include basic members at least not for the land release. So if there is a % release based on new players then there is an increase in L$ floating around, but there are way more pockets to fill as well. Everyone playing today had the same stipends and seems to have survived. The low figure is free $ if you want more there are plenty of ways to create and sell things to earn as much as your willing to produce in products. Be a part of the SL world to make $$ don't sit there with 100 alts and get rich is my point.

A year ago this is exactly how it was, the Lindens specifically posted about it (now deleted). But that was in the days of prim taxes and land taxes. Since the big changes in 1.2 the Lindens have been silent as to whether the system remains in place or if they create L$ from thin air... we need clarification.

Haney, Phillip, this is probably the most important question you could get asked about the economy... we MUST know how it works is this respect. (See my questions three posts above...)

Point taken

If we are going to have faith in a system we need to be made knowledgeable about it. Please give us details about where, when, and why new money is made. Do you have any way of knowing who is, and who isn't an alt and does that number of players add to the money pool?


Do you plan a break in the land releases? This too affects the need for L$
What is your position on land trading? Is this a goal of SL or side effect?

see this post

/130/d7/27951/1.html

I would say these would be important questions for LL to answer:


1) What is the population of SL?
2) What is the average weekly stipend paidout?
3) Are stipend dollars paided from a pot of collected L$ in Circulation or Newly generated?


If LL dares to answer these questions with hard numbers, I'll be amazed. Unlike other game providers who love to crow about their user membership numbers, LL seems to feel such information is Top Secret. Because if you know the population, you get a rough estimate on how much money is being paided out every week in stipends. And then you could calculate the weeks between monthly economic reports of change in the Linden Dollar and increase/decrease in population numbers to determine if LL is creating cash from thin air or using pre-existing cash collected in SL.

Then if you can determine if cash is being created from thin air, you can gauge if the increase is becoming inflationary in SL or being absorbed by the population. If the cash is being used from collected L$ in circulation, then you can gauge if there are deflationary pressures on the L$ by a growing population and not enough currency being available.

It burns me up that some folks make comments like, "LL has the experts making sure the Linden Dollar remains stable". When obviously recent events have disprove that theory. In case anybody missed it, the Linden Dollar was valued around US$5.60=L$1000 at its peak. Now it has declined to around US$4.00=L$1000. Thats a 29% decline in the value of the Linden Dollar. And if you start asking how did this happen, every answer seems to point to an increase in the Linden Dollars being pumped into the economy and not enough population to absorb the increase. The effect is additional L$ to be sold off causing the decline. At the Linden Dollar peak, the currency in float was around L$94,000,000/million. Two months later after a 29% decline, the currency float is around L$126,000,000/million. A 25% gain in the currency float coincides with a 29% decline in the Linden dollar. I bet my bottom dollar that if LL reduced the currency float from L$126/million to L$94/million, that you would see a rise in the L$ value.

Strictly speaking, goods HAVE a cost of production, they just don't have a cost on materials. In SL's case, it's the time spent designing the goods. The fact that most people forfeit their labour wages for creating goods and do not take them into account when establishing the final price on the products skews things. I agree.

I certainly agree that a better way of establishing an objective measure for inflation is in analysing the "increasing money supply" beyond the population levels.

Actually, what I was aiming at was to establish the Consumer Price Index, which is another measure of inflation, but not directly related to the amount of money in circulation, but really a subjective measure based on supply & demand. For me personally, this index would be as important as the current "real" inflation level.

Gwen, I agree with you 100%. Having a CPI would be great, although LL would need to figure out how to get rid of "Zero Cost Production". They would have create something like "Prim Fields" randomly scattered around SL. Owners of Prim Fields could sell a variable prim-supply to players (or onto a Prim Market). And the supply/demand of those prims would create a fluctuating cost of production so that it isn't equal across the board.

So for instance, a player who needs 1000 prims to create 10 rainbows, has to purchase that prim count from a market where prims are being sold by numerous players lucky enough to have an oil well of prims on their land. The competition among prim miners and the ever changing prim supply they mine will randomly adjust the base cost for prims. That would then have some players with higher cost of production for rainbows and others a lower cost, depending on various factors. That would allow for a variable retail price for goods based on production cost, competition between rainbow suppliers/vendors, and the inflow-outflow of currency in the game. Then with that structure in place, a CPI which shows the overall price changes of goods would be a better gauge of inflation/deflation.

But overall, LL needs an overhaul on basic economic factors. The most basic getting off a Zero Cost of Production model. And the only avenue I can see is assessing a supply/demand to prim counts. Allow for a finite prim count across the board in SL and let a marketplace determine that prim value. If prims cost money, then goods produced in SL have a cost of production. So that Tshirt you buy might cost L$50 today and L$10 tomorrow if the cost of Prims goes down, due to an increase in prims being dumped on the market because somebody found the largest oil well of prims in the Zuni region.

I fully agree on those three questions. If we could only ask Philip a maximum of 3 questions I would also like to see those three replied!




I hope your not misquoting me (it's a long thread...) but I merely pointed out that LL has "experts making sure the SL economy remains stable" and NOT "experts making sure the Linden Dollar is stable". The difference between both is that you need to compare the L$ to an external currency to see how "stable" the L$ really is. Thanks to GOM and IGE, we have that, and we can gauge the psychological effect of the "worth" of the L$ by seeing how much people are willing to pay for that. I don't think that LL is "mantaining the L$ stable" (ie. by pouring/withdrawing US$ into GOM to make the L$ attain the required levels, like you do in the RW with US$ vs. Euro, for instance). GOM does guarantee the confidentiality of the transactions, so I guess we won't know if Lindens (or their alts...) are artificially pushing the L$ to the values they like. My guess is, they don't do it, but my guess is as good as yours.

You can have a stable economy with a weak currency, but it's unusual. Anyway, my point is, the L$ value (relatively to the US$) is one way to explain a "weak economy" but certainly not the only way. We all know that the hypervaluation of L$ this past summer was tied to a decrease in available land. Land is our major "limited resource" in SL, so, when there is less land available, prices rise. As soon as extra land was added, there was more money in circulation, and there was no need to bring in more money from the "outside". Lordly Digaridoo's SL Economy Analysis Blog explains this much better than I do.

Is scarcity/availability of land the only reason why the L$ fluctuates compared to the US$? I don't know. Figuring out the inflation rate, the average stipend, the Consumer Price Index, and other similar indexes, will certainly go towards better comparing SL to the world economy. But I still mantain that inside SL (and looking at it as a "closed system", which it strictly isn't, but I'm proposing this for the sake of the argument) the economy is "pretty stable" (where stable just means "Not subject to sudden or extreme change or fluctuation".

Alby, we should start a SL Group about economy Perhaps we could join Jacqueline Richelieu and Lordfly Digeridoo and form the "Unofficial Economy Advisory Board" LOL

I know that a Consumer Price Index is almost impossible to create (since in essence we mostly have "luxury" items, except perhaps for the "need" to wear clothes in PG sims... so clothes would not count towards "luxury items" in PG sims). I would just like to have a way to have an overall idea on how much things cost and have a table to compare, say:

November 2004

Pre-fab houses: L$ 100 - L$ 2000, average L$200
Clothes: L$ 20 - L$800, average L$150
Vehicles: L$ 50 - L$ 3000, average L$200
Dance bracelets: L$ 150 - L$ 350, average L$250
... etc, you see what I mean...

And then take a look at the statistics at December 2004.

Of course, I'm fully aware that getting all these prices and compute the actual values is too much trouble for anyone (even if you do it just like in RL, meaning just select a few examples and stick to them month after month). Perhaps the RATE group could do something like that for the affiliate members, but still, it would be just a small statistic and not really an "overall" CPI.

As to the "zero cost of production", yes, I agree that something based on "prim usage" would handle very well buildings, furniture and overall object types, including weapons and vehicles. Unfortunately, it would also leave out clothes, animations, textures, and scripting, which do not "consume" prims but certainly take time to produce, which you can't easily put down as "costs of production". There are "costs of sale" as well - renting space, owning shops, buying vendors, etc. - and even some sims have "sales taxes". my point is, it's easier to base any economic model on the "Zero Cost of Production" hypotesis, since it's so hard to calculate the alternative (ie. a prim-based or hours of work-based system)...

I'd say we agree on the same stuff across the board, with a minor twist here or there.. But I'm right there with you Gwen. If LL could answer those 3 questions, about a million other questions could be solved.

You know what, complicated is just not fun.

The economy has to be kept simple, please, and not nickle and dime you in ways that become oppresive.

The only problem with the way that things are now is that it is so expensive to create anything large scale; but I don't see the solution for that. Linden Labs has to stay in business.

They might have more "land-fee-free" programs, but we all know that land would be gobbled up by the same old folks who have the land now.

They might try a kind of monthly rotating program with fee-free lots awarded by lottery, but let people do what ever they like, including selling and collecting dwell, with a sim-for-a-month award for the devoper who is voted the best or achieves the best dwell, or whatever during that month. That way people might feel free to try something riskly and unique instead of just copying the casino next door. A project that succeeds in the free sim might then go on (best case) to move to a paying sim or (not as good) at least inspire imitators.

I think the real threat to the economy is that too many will just get tired of the struggle to break even and revert to the 9.99 plan. We'd lose a lot of diversity that way.

Its a paradox BB. Making it simple actually causes things to be unstable. Sounds crazy? Lets say it was as simple as possible to give players L$ in the game buy just making a withdraw from an endless cash-stocked ATM. Something that simple would effectively make everybody equal. And be no different than if you didn't have L$ in the first place. So what do you do? You put a cap on the endless cash supply to prevent runaway inflation. But by putting on a cap, you've now made the currency finite and subject to the whims of Supply/Demand economics. If everybody one day decides to buy a Widget for L$10, then people create a demand on the currency and cause its value to increase. And if your valuation of the L$ is compared to the USD, you've just unwitting created a market and exchange rate for the L$ currency.

It only gets more complex from there BB... Issues such as currency supply, stipend dollars being paid, currency removed from the game, etc... They all add to the complexity and valuation of the L$. So honestly, there is no way to make things less complex unless the L$ is just completely wiped out. Either that, or give everybody a cash machine.

Is it in LL's interest for the $L to correlate to a high value conversion rate to USD?

Do you feel there is a relationship between the (low) cost / (high) supply of land to the current devaluation of the $L? Do you see any changes coming in your land strategy?

Philip, due to the recent permissions bugs (creator tag going to nobody), several clothing designers that I know, several of them quite famous and world-known, have simply decided to not make clothes any longer until the problems are fixed. Is there an ETA to the current permissions system buglist? I only know a few designers, and they're getting pretty ticked due to their clothes being handed out for free at the Welcoming Area by various unscrupulous folks.

LF

Here is the question that I'd like Philip answering during the Town Hall :

1. Is LL interested to integrate professional content provider in SL?

Actually the world of SL is created by the resident for the resident and we see the emergence of organized group trying to join their creative force to bring inside our world a better quality of the content. In order to accelerate the developpement of high quality content in SL, do you have financial plans to encourage the creation of groups that offer serious and professional involvement inside SL?

2. How long it will take to have a SL able to give a respectfull income to our dedicated developper?

The ideal situation would be to have an economic system inside SL that would be able to afford high quality content made by professionnal for the pleasure of the community. Im my opinion, it is obvious that SL dont have the economic capacity by itself to attract serious content provider in our world. Do we plan to have the financial ressources in the future to integrate profesionnal content inside SL? When do you plan it will happen?

Philip;

It's apparent that there is a certain financial substrate within the current in-world economic environment that is limiting commercial ventures both in production cost and return values. Though it's the perfect breeding ground for an incubation program -- what's LL's position on an incubator program and forming business partnerships with commercial ventures vested in SL?

Thank you all for the questions - see you at the town hall...

wait a minute... $L 1695 for 512 is in no way "too expensive" "when it used to cost $L512"

512 was a bogus price created by fiat. $L 1695 for a 512 parcel seems relatively cheap all things considered. I think this whole "land baron" complaint is created by a lot of wealthy (in game) socialists who want to be an aristocracy and own large parcels of land on the cheap. (in their minds maybe - "because we were here first" or some other Geek Socialist Fallacy)

If things are priced below market value they tend to accrue to those with Status advantages.
If things are priced above market value they tend to accrue to those with lots of cash to burn or those with a really intense demand. (it pinches demand)

eventually though, the land sales come to an equilibrium.

If the land barons are getting so rich reselling this land (which they have to pay tier fees for) - why doesn't everyone jump in on the auctions and make it prohibitive for them?