Economics is sort of a tricky thing to guess at. It's a pretty complex system, much like an ecosystem. It's really hard to tell whether the removal of a single species, for example, will destroy the ecosystem or not. People can naysay all day long, but teh blue-throated warbler population going extinct didn't result in a massive mosquito population - other bug-eating species just filled in the gap with greater population.
I can't be that positive with the NWO economy; when any country prints obscene amounts of money, even when kept in people's mattresses and never "put into circulation", the trick is the consumer's idea of the worth of that money.
Money, when not backed by actual physical wealth (such as in NWO) is purely an idea backed by confidence. The worth of said currency drops based on "popular opinion" far more than by any other factor. Where the currency is backed up by actual physical wealth (such as the Swiss Franc), then the "popular opinion" doesn't matter as much. Now, as to what "public opinion" is in this case... that's really hard to gauge from a bunch of forum posters. We're a minority of those who played the game.
Now, the other thing working against "standard economic theorycrafting" is that there are money sinks - a large number of them - where AD are removed from the economy permanently via removing runes and enchants, buying store items, buying frill items, feat respecs, etc. which does not occur in the real world (unless you count the barter system and eat the goat/bread/what-have-you). The amount being drained is actually pretty high for the "haves", but pretty low for the frugal and have-nots.
Anyhow, I could go on theorycrafting about the factors in the economy which might result in inflation, depression, or outright economic collapse, but I'll just do a TLDR:
It's really impossible to judge how the economy in this game may or may not go, because even the "experts" don't predict properly most of the time.
If the ability to continually exploit and make AD out of no where, then yes, the NW economy will collapse.
In every MMO, money is not pegged against anything...it's called fiat currency. I don't see how else could an MMO design their currency...so it's a moot arguement.
Derailing from the topic a little into a real world, American has been running on fiat currency since the 70s, with good reasons...so that CB are more flexible in setting their monetary policies to smooth out the spikes in economy in order to control inflation. There's a long story on why the American abandoned the gold peg...look it up.
This is the thing...the worth of fiat money is based on "popular opinion", a more proper term would be confidence. Then gold pegging is just simply confidence in the value of gold...who's intrinsic value basing on its industrial application, isn't as high. People could had easily switch to believing in diamond instead and that alone would create an unstable currency. The most important point however, is that gold is finite, and still cannot prevent government from printing money. Even pegged against gold, governments has been printing it freely on crisis, or even changing the peg value against gold... because if the inflexibility, it contributed to the great depression in the 30s.
John Maynard Kaynes (I'm a fan of his contender, Hayek, but that doesn't mean I disagree with everything that he says), being called the father of modern economics got a few things wrong as well...but that does not invalidate his theories. Experts are often wrong when trying to predict the outcome of a system that is so complex...but these experts are also the reason that made America what it is today.
In real life the economy is out of balance. You get more wealth through ammassing wealth, and no longer through more work. This system will collapse soon. Even if Americans can't believe that now.
What we really need is a system bases only on work. As example: Only a man, who employs many workers is rich. This system will be a catastrophe for all bank institutes. They will be obsolete. So they will try to stop it at all costs. As they did in the past in a small town in switzerland.
They even try now to bring the bitcoin system under their control.
A clear sign of panic, because they know, that this system bitcoin system is the only thing that remains stable in value after the soon coming worldwide crash, because it has a stable -- or slow rising number --- of coins that can be used as money.
Contrary to common believe, more printed money will not help against a collapse. And it is not possible to grow infinitely.
I agree that a lot of wealth generating activities doesn't require any work or contribution, and I cannot deny that it is a problem.
On the other hand, people investing money are putting their wealth at risk for a return...so if investing does not generate a return which is worth for a person to take the risk, then there will be no investment...we will return to a time where stores and production becomes a family business, operating in an inefficient way, thus consumers have to pay more for any goods because there aren't anyone willing to invest their money to build a large factory to mass produce stuffs. We'll probably don't have much incentive for innovation as well...because these activities require large funding...which comes from investors. So...good bye to your MacBook, good bye to AAA games.
On Bitcoin. I'm a follower of Milton Friedman's monetarism (all hail the great Friedman). Money supply needs to grow at the rate of population and GDP growth to maintain stability. Last I heard, bitcoin has a hard cap. What happens when it reaches the cap? A naive answer would be: since I'm selling my bread at 1 bitcoin, and now a bitcoin is worth more, I can sell it at 0.5bitcoin, problem solve!!! Changing price is more complicated than that when viewed as a whole. There is this term called sticky price. It will actually create a lot of problem...with that comes uncertainty...and uncertainty in any economy is definitely a bad thing.
Not to mention, Bitcoin is volatile...the last thing you want to trade with is with a volatile currency...which is also the reason that many countries pegged their currency to the US dollars back then (which again, has its own set of problems). Many things will contain both the good and the bad side. Does the good outweighs the bad?
On your last sentence, printing money will not help against a collapse...if you are referring to the QE policy of the feds, that's not what they are trying to do. When there is a great uncertainty in the market, liquidity is reduced...trade is reduced, investment is reduced, then GDP takes a hit. QE's ultimate objective is to inject a temperory liquidity into the system, jump starting it, creating an incentive for people to start investing again...so that the industrial wheel can continue turning...which in turn raises output...and that's what's going to prevent a collapse.
on 1). Poverty exist because things keeps getting more expansive and the poor can't afford them. It is caused by a disparity in income, and income growth. If the rich's has an income of 100,000/yr, growing at 20%/yr, and the poor has 10,000/yr growing at 10%/yr, then yes, we'll have poverty. In the game world, the general public's income is capped at 24k/day if you do not purchase any zen. A sudden injection of AD through the exploit temporarily increases their purchasing power. They can afford to bid up what they want to buy from the AH....which then we'll have a temporary price increase. If none of these AD gets sink out of the system, then the AD in the game world will increase permanently, and will be continually distributed and traded to all other players. Fortunately, NW has many way to sink these AD out...so I don't foresee the price increase to remain so for too long...unless the amount of AD the exploiters get is astronomical in comparison to the aggregated AD of the other players.
Poverty also exists because there's an ever changing of the status you'd call poverty. Transfering this to game terms you could imagine, that 20% of the population can afford anything, 70% can affort most of the stuff and 10% are just poor HAMSTER trying to make it to the first so to say. Then a new set of items (T3) is introduced and it's so expensive, that only half of the mid-class can afford it. It's also "required". This changes the idea of poverty in-game. 20% can still afford everything, 35% can afford most of the stuff and 55% are now poor.
Now let's try to estimate how much AD could be injected in the system. Let's assume we have a total of 3000 players per shard maxing their AD income each day. This would give us 3000 x 24000 = 72.000.000 AD/day. In order to really force the market to go this or that way you'd require 3-5% of the total market value, but the exploiters were not an organised force, so I'll double that. 7.2mil/day is a huge sum and would require a lot of effort and mules to hide it. Founders a bit more than a quarter of that sum at the beginning, so I'd imagine all players who earned such sums in short periods can be easily found. Therefore I'd wager there won't be a long term effect on the economy from this exploit. As most of us know there are at least four other exploits, but they allow you to get gear not free AD, which will mean we'll all get richer (increased supply of high-end goods).
Central bank injecting money into the economy will cause inflation if everything else being constant, according to monetary theorist such as Milton Friedman. It is also known that it takes time for these effects to be felt...and even then, there are a lot more of other factors that can affect inflation. I haven't read those report, so I can't comment much on it...but I have no reason to doubt you.
Yes, pure injection would cause inflation, but in order for it to work this way in modern economy is to give the money directly to all the citizens. That's not how the banks inject money. They purchase long-term bonds, buy troubled companies (Like FED vs General Motors, BoE vs Lloyds Banking Group and Royal Bank of Scotland [65bn GBP]) from their shareholders and such. The main factor shaping currency prices, which in return cause inflation, is demand and trust. The more people trust a certain country or goverment, the stronger their currency gets (Switzerland and their poor CHF with floor level of 1.2EUR). QE is considered (in most cases) a signal, that a country is doing something about their economy and can actually cause a certain currency to appreciate .
Also there's this little thing about the markets called the Internet. People buy wherever it's cheap and an appreciating currency will in effect generate more direct import. In return this will cause an increased inflation in the country of origin. The process is called exporting poverty. It's what Americans do all the time .
2) the bread example is just to illustrate my point on the effect of money supply on price. In fact, any item can be used. In my example, due to the sudden increase in money for Mr. A, the demand for bread increases...in which the reaction of the baker is to increase their production. But then, the production factors are finite, and it takes time for the supply to catch up. Either way, it is through this channel that the money from Mr. A gets cycled into the community.
3) I cannot agree with you on this. By working you get money (or wealth, which ever term you prefers). If everyone gets the same amount of money and works for the same length of time, then everyone has the same wealth, hence they all have the same purchasing power. If I decide to work an extra hour than all others, then I'll have this extra hour of wealth, which allows me to buy more things, hence my purchasing power increases. In NW, we have a hard cap of 24k. If you're diligent enough, you'll earn 24k/day. For people like me, I earn less than 10k/day. Those who puts more time into the game obviously earns more AD than me, hence commands a higher purchasing power. Aside from the hard cap, another way to earn AD is by selling T2 gears, which again, depends on the time you put into the game.
The work you do generates the money you spend, so the root of your purchasing power is work not wealth. There's no long-term effect on the economy from a short lived purchasing power increase (savings dumping for example). There are ofcourse ways to increase income above that, but the question is "how much?". From what I see and calculate it depends on the dungeons you run, but in general only a small fraction of players can more than double the income. A standard deviation of 2 is nothing in a capitalistic economy. It should go up to 200 or more. This means we're all more or less equal maybe except for a small group speculating the auction house. Also such players actually cause everyone to get richer, because they don't earn to circulate the wealth back to the economy, they accumulate it causing deflation we're observing since the start (some items lost their value by a factor of 50 times or more).
You need to consider one more thing - psychology. What's the reason behind getting rich in NwN? There are two. One is gambling, the other one is being rich. You don't need anybody else's goods, they just make your life a little bit easier. You can find and craft everything, there's no real reason behind trade except for getting somewhere faster. The only thing you can almost endlessly spend your ADs on is ZEN -> keys. There is absolutely nothing else to do with your AD, so wealth accumulation is one of the top factors in NwN's economy and you can't forget about it when assuming anything.
Please don't take this the wrong way, but it seems to me your economic knowledge is from websites, news and magazine ( I could be wrong), and I applaud that...not many people are interested in it. Any economy, even the NW's one is complex...and there are many factors affecting it. There are also a general set of theories that describes how an economy will react to a certain situation. Textbook will usually try to illustrate it through simple examples with unrealistic assumptions (but that doesn't invalidate the theory) just to make a certain theory easier to understand...which is what I'm trying to emulate here. If you have one nearby, I'm sure there's a chapter on the things we've been discussing here which might be able to clear up some of the doubts you have.
I'm a practician. I work the markets every day for the last decade. I see the theories fail (Kaynes, anyone?) and I see, how the market really works (I have an insight into banks like Commerzbank, Goldman Sachs or JP Morgan), so no, my knowledge comes mostly from practice, though I do read books and magazines.
Anyway the economy in Neverwinter is incredibly simple, there's nothing complex to it. You could sum up the basics on a single A4 leaflet and still have enough place to draw a pretty picture. Oversimplifying it by omitting factors like market psychology and the fact, that there is no other reason behind getting rich in Neverwinter, other than getting rich is too much though .
Comments
If the ability to continually exploit and make AD out of no where, then yes, the NW economy will collapse.
In every MMO, money is not pegged against anything...it's called fiat currency. I don't see how else could an MMO design their currency...so it's a moot arguement.
Derailing from the topic a little into a real world, American has been running on fiat currency since the 70s, with good reasons...so that CB are more flexible in setting their monetary policies to smooth out the spikes in economy in order to control inflation. There's a long story on why the American abandoned the gold peg...look it up.
This is the thing...the worth of fiat money is based on "popular opinion", a more proper term would be confidence. Then gold pegging is just simply confidence in the value of gold...who's intrinsic value basing on its industrial application, isn't as high. People could had easily switch to believing in diamond instead and that alone would create an unstable currency. The most important point however, is that gold is finite, and still cannot prevent government from printing money. Even pegged against gold, governments has been printing it freely on crisis, or even changing the peg value against gold... because if the inflexibility, it contributed to the great depression in the 30s.
John Maynard Kaynes (I'm a fan of his contender, Hayek, but that doesn't mean I disagree with everything that he says), being called the father of modern economics got a few things wrong as well...but that does not invalidate his theories. Experts are often wrong when trying to predict the outcome of a system that is so complex...but these experts are also the reason that made America what it is today.
I agree that a lot of wealth generating activities doesn't require any work or contribution, and I cannot deny that it is a problem.
On the other hand, people investing money are putting their wealth at risk for a return...so if investing does not generate a return which is worth for a person to take the risk, then there will be no investment...we will return to a time where stores and production becomes a family business, operating in an inefficient way, thus consumers have to pay more for any goods because there aren't anyone willing to invest their money to build a large factory to mass produce stuffs. We'll probably don't have much incentive for innovation as well...because these activities require large funding...which comes from investors. So...good bye to your MacBook, good bye to AAA games.
On Bitcoin. I'm a follower of Milton Friedman's monetarism (all hail the great Friedman). Money supply needs to grow at the rate of population and GDP growth to maintain stability. Last I heard, bitcoin has a hard cap. What happens when it reaches the cap? A naive answer would be: since I'm selling my bread at 1 bitcoin, and now a bitcoin is worth more, I can sell it at 0.5bitcoin, problem solve!!! Changing price is more complicated than that when viewed as a whole. There is this term called sticky price. It will actually create a lot of problem...with that comes uncertainty...and uncertainty in any economy is definitely a bad thing.
Not to mention, Bitcoin is volatile...the last thing you want to trade with is with a volatile currency...which is also the reason that many countries pegged their currency to the US dollars back then (which again, has its own set of problems). Many things will contain both the good and the bad side. Does the good outweighs the bad?
On your last sentence, printing money will not help against a collapse...if you are referring to the QE policy of the feds, that's not what they are trying to do. When there is a great uncertainty in the market, liquidity is reduced...trade is reduced, investment is reduced, then GDP takes a hit. QE's ultimate objective is to inject a temperory liquidity into the system, jump starting it, creating an incentive for people to start investing again...so that the industrial wheel can continue turning...which in turn raises output...and that's what's going to prevent a collapse.
Poverty also exists because there's an ever changing of the status you'd call poverty. Transfering this to game terms you could imagine, that 20% of the population can afford anything, 70% can affort most of the stuff and 10% are just poor HAMSTER trying to make it to the first so to say. Then a new set of items (T3) is introduced and it's so expensive, that only half of the mid-class can afford it. It's also "required". This changes the idea of poverty in-game. 20% can still afford everything, 35% can afford most of the stuff and 55% are now poor.
Now let's try to estimate how much AD could be injected in the system. Let's assume we have a total of 3000 players per shard maxing their AD income each day. This would give us 3000 x 24000 = 72.000.000 AD/day. In order to really force the market to go this or that way you'd require 3-5% of the total market value, but the exploiters were not an organised force, so I'll double that. 7.2mil/day is a huge sum and would require a lot of effort and mules to hide it. Founders a bit more than a quarter of that sum at the beginning, so I'd imagine all players who earned such sums in short periods can be easily found. Therefore I'd wager there won't be a long term effect on the economy from this exploit. As most of us know there are at least four other exploits, but they allow you to get gear not free AD, which will mean we'll all get richer (increased supply of high-end goods).
Yes, pure injection would cause inflation, but in order for it to work this way in modern economy is to give the money directly to all the citizens. That's not how the banks inject money. They purchase long-term bonds, buy troubled companies (Like FED vs General Motors, BoE vs Lloyds Banking Group and Royal Bank of Scotland [65bn GBP]) from their shareholders and such. The main factor shaping currency prices, which in return cause inflation, is demand and trust. The more people trust a certain country or goverment, the stronger their currency gets (Switzerland and their poor CHF with floor level of 1.2EUR). QE is considered (in most cases) a signal, that a country is doing something about their economy and can actually cause a certain currency to appreciate
Also there's this little thing about the markets called the Internet. People buy wherever it's cheap and an appreciating currency will in effect generate more direct import. In return this will cause an increased inflation in the country of origin. The process is called exporting poverty. It's what Americans do all the time
In general yes.
The work you do generates the money you spend, so the root of your purchasing power is work not wealth. There's no long-term effect on the economy from a short lived purchasing power increase (savings dumping for example). There are ofcourse ways to increase income above that, but the question is "how much?". From what I see and calculate it depends on the dungeons you run, but in general only a small fraction of players can more than double the income. A standard deviation of 2 is nothing in a capitalistic economy. It should go up to 200 or more. This means we're all more or less equal maybe except for a small group speculating the auction house. Also such players actually cause everyone to get richer, because they don't earn to circulate the wealth back to the economy, they accumulate it causing deflation we're observing since the start (some items lost their value by a factor of 50 times or more).
You need to consider one more thing - psychology. What's the reason behind getting rich in NwN? There are two. One is gambling, the other one is being rich. You don't need anybody else's goods, they just make your life a little bit easier. You can find and craft everything, there's no real reason behind trade except for getting somewhere faster. The only thing you can almost endlessly spend your ADs on is ZEN -> keys. There is absolutely nothing else to do with your AD, so wealth accumulation is one of the top factors in NwN's economy and you can't forget about it when assuming anything.
I'm a practician. I work the markets every day for the last decade. I see the theories fail (Kaynes, anyone?) and I see, how the market really works (I have an insight into banks like Commerzbank, Goldman Sachs or JP Morgan), so no, my knowledge comes mostly from practice, though I do read books and magazines.
Anyway the economy in Neverwinter is incredibly simple, there's nothing complex to it. You could sum up the basics on a single A4 leaflet and still have enough place to draw a pretty picture. Oversimplifying it by omitting factors like market psychology and the fact, that there is no other reason behind getting rich in Neverwinter, other than getting rich is too much though
Best regards,
Kalantris
Cat has trophy... must be a lack of sleep XD