Forget What You Think You Know About Economics
Day 412, 18:24
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Published in USA 
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by
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by Lowell Kennedy
This article is largely an amalgamation of two previously published articles that are revived from months ago and I believe should be repeated today. The ideas should be attributed to the original authors as they are copied verbatim in many cases. Works are cited within the article.
The hardest thing for players to grasp when they first start playing eRepublik is how simple everything is. The economy is simplified, the political process is only a few functions and votes, training, and working is a click of a button. The second hardest thing for smart players to grasp when they first start playing eRepublik is how complicated everything is. The basic supply and demand envisioned at first is strung out with monetary markets, taxes, lack of incentives -- a whole mess of complications and problems.
All eRepublik economies are in a general, fixed state of decay. This is because the economy is in a constant state of self consumption, trending towards monopoly. By some sort of luck or magic, one company gets favored over another. One company sells a little more; one company has a little more company activity and thus more production; one company gets a little extra money in the savings; and that’s all it needs. Soon this favored company will sell more than the other companies, produce more than the other companies, sell for less, and inevitably set higher wages. And so it begins, the growth and eventual destruction of this simulated free market plays itself out on the world stage.
And it is no secret to any person of eRepublik: in each country, there is a dominate monopoly. The dominate monopoly is one person who owns a little more than another. The companies with more employees, more production, and slightly higher wages will control the entire market. They can sell their goods for less, because they produce more. They can give higher wages, because they undercut everyone else, and because they indeed sell more products as a result. Soon it becomes a large pond with a single large fish and then the entire purpose of the market is destroyed. Naturally, the free market reaches a state of failure. A state in which the system itself is so flawed by its very design that the only way it can function truly is by combined effort of its membership; in other words a planned economy.
The preceding paragraphs are drawn from and mostly copied from Hatebot’s “8 Rules of Erepublik.” They establish the problem and show the inherency for a solution. However, the solution of a one state party offered by Hatebot is not the best for United States or any other country. Thus, in order to solve the problem, I am reviving the arguments of one of the eUnited States’ greatest economic minds. This article seeks to revive and update the arguments put forward by Nave Saikiliah in his article “Pros and Cons of a Planned Economy & Shortcomings in our Economy.”
There are a few reasons why planned economies tend to fail in real life. The invisible hand of the free market tends to work better than the iron fist of the government in almost every case. The real life economy is ridiculously complex. There are millions of different products, hundreds of variations for each product, countless disparities in price, and billions of workers. The best way for all that to function is greed. Each person, by acting in his own self interest, tends to do what is best for the whole. Additionally people tend to act irrationally; markets are virtually never fully efficient. The free market is just better than anything else.
In eRepublik, we have twelve markets that are deceptively simple -- simple enough to manage.
The shortcomings of planned economies are often the issue of incentives. However, if central planning took over this economy, would people be less inclined to work hard and would it affect things? No. In eRepublik, working is simply pressing a button. As long as there is no reason to not click the button, incentives won't be a problem. If a country implemented a central planning system, a few things could be accomplished.
First, the central planning agency could look down from above and evaluate exactly how much production should be used in which industry. Then it could shift resources from one inefficient industry to a more efficient one. With the proper means of information, this task wouldn't be too difficult. It would not be too difficult with only twelve industries and five quality levels.
Second, there could be focus on maximizing productivity. For example, the gift industry could be invigorated as a consequence of simply making the best of the system. If there was focus invested in the gift industry and means of dispersing wellness to the best workers, there would be an increase what is produced. With an increase in what is produced, profits and inventories grow.
Third, and finally, there could be a more team-based environment in a country with a planned economy. Certainly, competition helps the economy -- and there will always be a sense of competition. But, a common goal of maximizing resources will create a sense of kinship within a country that will come in handy when the further complexities of V1 are released. Additionally, it would go a long way in soothing the differences that have flared up between political parties.
Even without establishing a planned economy, there is a lot we can learn from it. We shouldn't simply dismiss it based on its stigma from real life.
Please vote, subscribe, and comment.
The hardest thing for players to grasp when they first start playing eRepublik is how simple everything is. The economy is simplified, the political process is only a few functions and votes, training, and working is a click of a button. The second hardest thing for smart players to grasp when they first start playing eRepublik is how complicated everything is. The basic supply and demand envisioned at first is strung out with monetary markets, taxes, lack of incentives -- a whole mess of complications and problems.
All eRepublik economies are in a general, fixed state of decay. This is because the economy is in a constant state of self consumption, trending towards monopoly. By some sort of luck or magic, one company gets favored over another. One company sells a little more; one company has a little more company activity and thus more production; one company gets a little extra money in the savings; and that’s all it needs. Soon this favored company will sell more than the other companies, produce more than the other companies, sell for less, and inevitably set higher wages. And so it begins, the growth and eventual destruction of this simulated free market plays itself out on the world stage.
And it is no secret to any person of eRepublik: in each country, there is a dominate monopoly. The dominate monopoly is one person who owns a little more than another. The companies with more employees, more production, and slightly higher wages will control the entire market. They can sell their goods for less, because they produce more. They can give higher wages, because they undercut everyone else, and because they indeed sell more products as a result. Soon it becomes a large pond with a single large fish and then the entire purpose of the market is destroyed. Naturally, the free market reaches a state of failure. A state in which the system itself is so flawed by its very design that the only way it can function truly is by combined effort of its membership; in other words a planned economy.
The preceding paragraphs are drawn from and mostly copied from Hatebot’s “8 Rules of Erepublik.” They establish the problem and show the inherency for a solution. However, the solution of a one state party offered by Hatebot is not the best for United States or any other country. Thus, in order to solve the problem, I am reviving the arguments of one of the eUnited States’ greatest economic minds. This article seeks to revive and update the arguments put forward by Nave Saikiliah in his article “Pros and Cons of a Planned Economy & Shortcomings in our Economy.”
There are a few reasons why planned economies tend to fail in real life. The invisible hand of the free market tends to work better than the iron fist of the government in almost every case. The real life economy is ridiculously complex. There are millions of different products, hundreds of variations for each product, countless disparities in price, and billions of workers. The best way for all that to function is greed. Each person, by acting in his own self interest, tends to do what is best for the whole. Additionally people tend to act irrationally; markets are virtually never fully efficient. The free market is just better than anything else.
In eRepublik, we have twelve markets that are deceptively simple -- simple enough to manage.
The shortcomings of planned economies are often the issue of incentives. However, if central planning took over this economy, would people be less inclined to work hard and would it affect things? No. In eRepublik, working is simply pressing a button. As long as there is no reason to not click the button, incentives won't be a problem. If a country implemented a central planning system, a few things could be accomplished.
First, the central planning agency could look down from above and evaluate exactly how much production should be used in which industry. Then it could shift resources from one inefficient industry to a more efficient one. With the proper means of information, this task wouldn't be too difficult. It would not be too difficult with only twelve industries and five quality levels.
Second, there could be focus on maximizing productivity. For example, the gift industry could be invigorated as a consequence of simply making the best of the system. If there was focus invested in the gift industry and means of dispersing wellness to the best workers, there would be an increase what is produced. With an increase in what is produced, profits and inventories grow.
Third, and finally, there could be a more team-based environment in a country with a planned economy. Certainly, competition helps the economy -- and there will always be a sense of competition. But, a common goal of maximizing resources will create a sense of kinship within a country that will come in handy when the further complexities of V1 are released. Additionally, it would go a long way in soothing the differences that have flared up between political parties.
Even without establishing a planned economy, there is a lot we can learn from it. We shouldn't simply dismiss it based on its stigma from real life.
Please vote, subscribe, and comment.
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The Free Market Works.... If a company is able to establish a monopoly and supply, lets say Wood, for a fair and cheap price to the market, then that is a benefit for all the Housing, Defense System, and Hospital businesses. And thus a win-win for the nation. So who cares if a monopoly is created. If the free market weeds out the high priced and unproductive businesses, then more power to them..
We should not attempt to rid the market so that unproductive and over priced widget makers continue to exist. Only the best of the best need survive.
Free market is second best to planned economy in eRepublik. The real life reasons to favor the free market do not apply. Self-interest (which manifests itself as greed) and complexity are the ultimate factors in real life.
With the creation of a monopoly, there are not incentives for maximizing productivity.
Maximum productivity occurs with planned allocation of resources. The game is simple enough to allow that. Take for example, Pakistan with Dio. They were the pre-eminent Eastern power because they utilized centralized planning.
i am with Alby.....if you hate monopolies giving government all power is basically doing the same thing ,but we have q1 q2 q3 ,and so on so there can't be one "dominate" company.
Real recently (like a month) our economy doubled.
Right now since we have already grown it will be harder for companies to start ,but what's the point?
Maybe it's not the time yet! The economy is running strong just not growing.
How do you feel about just letting things be for awhile? See what plays out, view the results over a certain amount of time. I have no idea if this has been done already, if it has, I would like to see an article by someone who has the info. A history of the American economy would be an asset for a new eRep junkie, like myself.
voted, already subscribed.
I am generally not in favor of any sort of government control and not saying I am now but to play the devil's advocate if I was a rich and monopolistic business owner in eRep... @Alby What is to prevent me from simply lowering my prices to drive out any other businesses when I wish.. then raising prices when they are out of business and I wish to fill my war-chest for the next time some up start should wish to challenge my dominance of the market?
Any company that obtains a monopoly can't pull a RD Rockefeller and jack up prices once the competition is gone. Because it only takes that opportunity to bring back the competition. Least we forget, the entrance cost into business is low. So you don't need 1000/Gold to get a business going. A Meer 20/Gold and some seed money is all you need to unseat the competition.
So I say, that free markets show reign supreme. Because the net result is affordable prices for consumers and businesses in the end. Anybody who can't compete fails. And good riddance in my book. Because why should a Defense Contractor be forced to pay high prices to a Wood maker who is allowed to charge high prices because the Government has rigged the economy to allow it?
Free Markets work better than planned Economies..
Else you end up on the Road to Serfdom.
http://www.youtube.com/watch?v=q6lSR62wmSo
I'll repeat my earlier comment - you're taking away a third of the fun in the game! There are three real areas to excel - military, corporate, and politics. And you want to take one of those avenues away? I don't want my options limited, thank you - and I'd rather try and fail then never have the chance to try.
amen ppl- welcome to the right side
Good answer Alby and the one I was hoping to hear from you.
@Ogdensign: Because once you raise your prices, the competition will be back to take you on. Before long, you'll be broke and unable to compete. And its not just from that competition, but from the fact that your business alone cannot feed the entire market. So you might be able to push out a few, you cannot push out the majority. As such, the loser in the end will be you.
Well worded and thoughtful, but I couldn't disagree more. Free markets will always have more organization, efficiency, and productive economy.
Part of what Ogdensign points out is actually true.
Back in Beta, moving tickets required 20 production units and the free market (really the largest moving companies) drove prices down under ten dollars which was unsustainable for any company because an experienced player produced between 6-10 units but were being paid 7+ dollars. Eventually, that forced most new moving companies under. Prices skyrocketed after a little bit of time.
Again, there are examples in eRepublik to support a planned economy but there have not been any examples put forth to support a free market.
Planned Economies don't work because their is no incentive for success. Why should a business become a Q5 operation if the state has dictated the maximum price for Food and that amount is unprofitable for a business? As such, what you instead end up with are shortages because of the arbitrary limits created by the Government in a Planned State. Then when things don't work out and the only the Government is to blame, the leaders point the finger at some scapegoat (ie: The Greedy Business Owners) as the culprit for the economic downfall of the nation.
Free Markets allow for prosperity and failure with no intervention by the government. Cycles will always exist and what might be failure for one is opportunity for another. The less of a role the Government plays in the economy, the better and stronger it will become. But when Govt begins to dictate wages they, by default, create inflation. Because a business will just pass along those wage costs to the consumers in the products they sell.
You cannot reign in the forces of free markets.. They will always overpower the planned state.
http://www.pbs.org/wgbh/commandingheights/hi/story/ch_f02_01.html
@alby I agree with you on one hand but, with only a few catagories of products that type of thinking severaly limits the amount of jobs any economy is able to create for its citizens so I also disagree with the thinking you have there. No monopolies, I beleive that a small amount of government interaction is needed in any economy otherwise the economy is subject to wild swings that can be very bad for the average person. A totally free market economy is only good for well establish companies and does not promote new development thus leading to only a established few being able to control the market compleatly. This could be great for the individual but horable for the majority after a while.
government should not be creating a cap but in this case rather a min price, this will allow new bussinesses to develop and if they are well managed they can have a chance to live.
And a min price also lowers the impact of foriegn products introduced to the market. forceing them to compete on equal ground with demestic companies and still making sure there are no shortages.
A Min.Price is an arbitrary number pulled from a rabbit hat. Because it fails to take into considering Supply, Demand, and an ever changing Currency. Nevermind the impact of Imports and Exports.
What happens if the Govt says all Q1 Food will Cost $0.50/unit and your ally Spain's market is trading Q1 Food for the equal of $2.00/unit? Guess what? All the domestic companies will begin exporting to Spain and the local market will be devoid of Food. Now you'll have citizens crying about dying because there is no food to go around. All because of arbitrary prices set by the Government. And then the govt will turn around and blame the greedy capitalist for political brownie points so they can be reelected to do something about it.
Instead, if the govt didn't dictate prices, none of this would occur.
Able you have just literally taken the words out of my mouth......i've been trying to say this for awhile but haven't had the time .but thank god for you.
Final Word= Non intervening Government+Capitalism= Good times (despite it's down ,but for those people who hate those down slopes....welcome to the economy.)
I have said this story a million times (it's good to prove)just remember it and pass it on:
Canada call's "The Great Depression" just "The Depression" for they stayed capitalist and did not go socialist like a America did during the bad time, and Canada got out faster than us/U.S.
Canada was hit harder for they were already a little poor (as a friends say) but they got richer than us and lived better.The U.S. had to wait for an invasion to finally start a demand for products such as iron, and other things for war.
Problem with both free markets and planned economy are that they are opposite ideas or ideals. In such respect they are the words we use to describe how we organize things and are comparable to different ends of a scale. Problem is when people are blinded by those ideas so they dont see that practical organization needs adjustment or big gains can be made by adjusting.
I think the 8 rules make an excellent philosphical framework for understanding this game. Its deep, but true if you take the time to think it over. We are already organized in partys that effect our economy. To make a nation there can be no thing as the absolute free market and by social design, some sort of socialism is a necessity. The true wise leader would be a balancing master between the two
I think Lowell Kennedy is very right to adress this and I admire his courage to speak up on this. Political US rhetoric says the free market is adamant, yet it still needs to tax and protect national industry. Military logistics and weapons production is not to interfere with the free market, but its problems with logistics and supply is glaring. Something needs to be done and for the next president there should be no excuse not to consider all options
You said it brother Donovanator. Planned Economies are Roads to Serfdom - http://mises.org/books/TRTS/
The Economics of A Free Economy - http://mises.org/multimedia/mp3/audioarticles/2891_Paul.mp3
O boy. now I feel I have to stand behind my point, lol. Its simple, the government min being set at say .50 is very extream and any responcable government would never do such a thing to begin with. By setting a min your not inviting everyone to sell somewhere else as long as that min is kept up. Honestly I think that we should have a more privatized body that does the price setting anyway, more or less a business admin to help establish controls in the market place. Either way there are problems and Iam just as against big business as Iam big government. Controls should only be placed on raw matterials for the most part in my view for they can be used to set the market standard. In the long run it all boils down to jobs and as long as the free market system doesnt overly affect the tax base government really has no reason to get involved. Labor is the primary factor in all of it and as long as we are using the majority of our labor force if not all of it, a free market system is just fine. Its when the greed that can come starts to effort the employment level of a nation that government needs to be involved.
I don't know where you got that information but Canada was worse hit during the Great Depression. The British introduced trade protectionism and a system of trade preferring the Commonwealth states in 1931 to help Canada and Australia avoid defaulting on their public debt. Additionally, Canadian productivity remained down comparatively throughout the depression. It took WWII to pull Canada out of the Great Depression.
Nevertheless, that's real life, which is a completely different beast.
Sorry, but I don't understand the argument for the tendency toward monopoly. Because of the optimum production levels of 10 workers, even a company employing 10 lvl 7's can only produce so much.
And if someone with $$$$ is throwing their weight around, the smart thing to do is shut down and wait it out.
Unlike RL, you can sit on stock and inventory as long as you like with no extra taxes or penalties, so shutting down and waiting is an option. Of course, those who own several companies across several industries are still favored in such a situation, but then that's what being rich is all about!!!
Good points by everyone!! An unusually high-quality discussion!!!
Lowell, my comment went long and i had to republish it as an article linked here: http://www.erepublik.com/en/article/a-response-to-musings-on-planned-economies-718484/1
I agree with Severian. It's true that back in Beta, the formulas pushed toward monopoly, because the employee multiplier only increased as you grew, but the new formula is exactly the reason we can't have monopolies anymore - if you try to produce enough to satisfy the whole market, you're at a 2:1 disadvantage to those companies that are satisfied with just 10 employees. No matter how rich you are, you can't do that for long. The only exception is if you can satisfy the whole market with 10 employees, which is true with Father's example of South Korea, but not anywhere else.
This isn't 'forgetting what you think you know', this is 'remembering what used to be true but isn't anymore'. In fact, the closest we have to monopolies anymore are the decaying remnants of Beta monopolies, as they either run out of money or were the only ones who could afford Q5 upgrades. Even there, the smart ones, like Benn Dover, immediately accepted being just a player, not the monopoly, and they're still doing fine.