The Economist ~ Why the Economy Module is Rubbish
Day 813, 08:47
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Published in United Kingdom 
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by
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by Spite313
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tl;dr: gold and a lack of a public works program is driving down consumption and causing a horrible downwards wage/price cycle which is in turn completely cocking up our economy
Firstly I’d like to point out I’m a socialist by nature, and that the fact that the economy module is rubbish doesn’t concern me too much personally, but on a national and international level it’s incredibly irritating. I’m sure even our enemies (those that understand what I mean anyway) would agree that it needs majorly reworking. And I don’t mean by adding in V2 economy aspects, which seem to be, as the gaming community would say, the same but different. Making new products makes the game more exciting for casual investors and ordinary citizens, but doesn’t help the underlying problem with the game.
Let’s start with a basic formula everyone even remotely involved in economics will recognise:
Y = C + I + G + (X-M)
Before your brain melts and you close the article disappointed I’ll rewrite that in English:
Demand = Consumption + Investment + Government Spending + (Exports - Imports)
Simple enough so far? Good. Now let’s look at how the admins have managed to completely screw this up. Firstly the fiat currency in the game isn’t currency (surprisingly enough) it’s gold. Gold is fixed value and that value is pegged to the cost of companies, wellness packs and a night with the lovely Lana. All of which absurdly remove gold from the game altogether. So we haven’t got a closed financial system. Normally spending money creates things of value, it doesn’t destroy the money. So what effect does this have on the formula above? Well for a start investment can go in the bin. Investing £670 into the economy (roughly 20 gold) would indeed work nicely in this formula. However spending 20 gold on a company does absolutely nothing. It just takes a bunch of gold and burns it on a sacrificial pyre. So what do we have now?
Y = C + G + (X - M)
So, what next? Well let’s go for Government Spending. In real life, Keynesians like to advocate government spending to drag a country out of recession. And in truth, pumping hundreds of thousands of GBP into the economy by artificially pumping up demand for products would drive up demand, having a beautiful knock on effect first on profits then later on wages once demand in the labour market has had a chance to catch up. Why doesn’t this happen? Well look at it like this- what does the government have to buy? Guns? Food?? It’s ridiculous. We have factories owned by the government to produce these things. We can’t exactly build a new motorway network or invest in an Olympic Park to pump money back into the economy. I suppose theoretically we could raise government wages, but for that to be meaningful we’d have to raise them so that total government wages plus total wages in the private sector exceeded the consumption deficit, and we’re talking stupidly high wages for that to happen. And in truth, if I am getting 5 guns a day already from the government, what am I going to buy? Food? Likely enough the money would be saved (removing it from our pretty equation) and then turned into gold to burn on the aforementioned pyre.
So.
Y = C + (X - M)
This is what we have left. I don’t even need to tell you how bad this is for the economy. But I’m going to anyway because I like to tidy up loose ends.
Demand = Consumption + (Exports - Imports)
As you can imagine Exports subtract Imports is a negative number. High import taxes abroad and almost no usable resources in the UK itself means that we have a rubbish balance of trade. Sure we sell a lot of black market stuff- but nearly all our RM abroad is bought and donated across via the same black market mechanism. And since the gold to buy the foreign currency to buy the foreign RM is gained by selling GBP we are effectively importing goods anyway.
I suggest you all read this article by British Economist Murat Eryanmaz (used to be Turkish but he’s ours now
Truth is, our consumption can be written out quite simply as:
C = P - PI - K - S
Consumption = Productivity - Productivity x Income Tax - profits - savings
Since in a perfect system productivity = consumption (in other words we have the capability to consume everything we produce) this naturally creates a negative number. So we end up with a situation where Consumption is less than 1. This is bad. It is like overproduction, but worse. It means that we not only end up with loads of crappy products in high demand markets like food and guns, it means that there is no way to change this situation .
So long as everyone is employed, we will produce more than we can consume. Even taking profits out of the equation it’s bad. And profits will be taken out of the equation, because the massive oversupply of staple goods means that competition is stupid. Anyone in the food market at its lower levels will be having the joyful experience of a company making next to nothing. A few pounds a day at best, and that’s if you have workers with high wellness and without the brains to look for a better wage.
So let’s put that all together now:
Y = (P - PI - K - S) + (X- M)
And into English
Demand = (Production - tax - profits - savings) + (Exports - Imports)
Not good. Now put in simple terms, we need consumption to be as close to production as possible. If consumption exceeds production we have a nice boom and our economy grows. Theoretically there are two ways to do this- firstly to have a baby boom and thus loads of babies with no productivity but the same consumption arrive, eat food, spend all their money and gold then hopefully die before they add to the problem. Secondly we make Exports exceed Imports (capitalised for emphasis) to the extent where our (X - M) section is greater than the ( - Pl - K - S) bit. In other words:
When (X - M) ≥ Tax + Profits + Savings
Then
C > P
Magic eh? Well that’s easier said than done. Due to our epic taxes in the UK (woo socialism!) we have a 30% of productivity margin to overcome straight away. So to slot some guesstimated figures into this lovely equation, which are just an example and in no way a reflection of reality, merely nice rounded figures to make a point. Say UK’s total private sector (not state or communes) productivity value is worth 750 gold a day. So:
Demand = (750 - 150 - 75 - 50) = 475
So we produce 750 and consume 475. This is bad. The effect of this on the economy is down spiralling prices, down-spiralling wages and upward pressure on the currency. What makes it even worse is that even if there is an accidental stimulus that may result from (for example) being invaded by several countries, wages are sticky so the money doesn’t go back into the consumption section of the equation but merely increases the profit section, which I have now come to call the gold shrine.
(X - M) ≥ Tax + Profits + Savings
(X - M) ≥ 275g
X ≥ M + 275g
So our exports have to be 275g greater than our imports. Being generous (we do want some demand in the system) we should really factor in maybe 10% consumption deficit to control prices. So...
X ≥ (M + 275g)*0.9
Basically the long and short of this is that the admins have failed to make a working economy module. Even if we export, we’re only exacerbating the problem somewhere else. Since there is no such thing as a developed/undeveloped country in this game (all aspects of the game are available to every citizen from almost day one, and there is no technology tree) we can’t even open up exploitable resources to expand the economy. Our only real resource is citizens, and as soon as they mature they add to the problem. So a constant stream of new citizens is all that is preventing global economic collapse essentially. This is rubbish if you’re not getting any of those new citizens.
Essentially the problem here is gold. Gold is rubbish. It turns productivity into something which can’t be used to increase consumption, and is for that very reason the main problem in the module. The second, less important problem is lack of major public works for the government to invest in. More useful versions of defence systems, perhaps things like art galleries and libraries to increase happiness/knowledge in V2, would give the government something it could invest in to stimulate consumption. Cos right now we don’t have a boom-bust economy, we have a bust one.
Sort it out admins.
Inb4 tl;dr
Don't forget to check out and subsribe to these government papers to keep up to date with country's goings on:
The Prime Minister
Ministry of Defence
Ministry of Home Affairs
National Newspaper Association
tl;dr: gold and a lack of a public works program is driving down consumption and causing a horrible downwards wage/price cycle which is in turn completely cocking up our economy
Firstly I’d like to point out I’m a socialist by nature, and that the fact that the economy module is rubbish doesn’t concern me too much personally, but on a national and international level it’s incredibly irritating. I’m sure even our enemies (those that understand what I mean anyway) would agree that it needs majorly reworking. And I don’t mean by adding in V2 economy aspects, which seem to be, as the gaming community would say, the same but different. Making new products makes the game more exciting for casual investors and ordinary citizens, but doesn’t help the underlying problem with the game.
Let’s start with a basic formula everyone even remotely involved in economics will recognise:
Y = C + I + G + (X-M)
Before your brain melts and you close the article disappointed I’ll rewrite that in English:
Demand = Consumption + Investment + Government Spending + (Exports - Imports)
Simple enough so far? Good. Now let’s look at how the admins have managed to completely screw this up. Firstly the fiat currency in the game isn’t currency (surprisingly enough) it’s gold. Gold is fixed value and that value is pegged to the cost of companies, wellness packs and a night with the lovely Lana. All of which absurdly remove gold from the game altogether. So we haven’t got a closed financial system. Normally spending money creates things of value, it doesn’t destroy the money. So what effect does this have on the formula above? Well for a start investment can go in the bin. Investing £670 into the economy (roughly 20 gold) would indeed work nicely in this formula. However spending 20 gold on a company does absolutely nothing. It just takes a bunch of gold and burns it on a sacrificial pyre. So what do we have now?
Y = C + G + (X - M)
So, what next? Well let’s go for Government Spending. In real life, Keynesians like to advocate government spending to drag a country out of recession. And in truth, pumping hundreds of thousands of GBP into the economy by artificially pumping up demand for products would drive up demand, having a beautiful knock on effect first on profits then later on wages once demand in the labour market has had a chance to catch up. Why doesn’t this happen? Well look at it like this- what does the government have to buy? Guns? Food?? It’s ridiculous. We have factories owned by the government to produce these things. We can’t exactly build a new motorway network or invest in an Olympic Park to pump money back into the economy. I suppose theoretically we could raise government wages, but for that to be meaningful we’d have to raise them so that total government wages plus total wages in the private sector exceeded the consumption deficit, and we’re talking stupidly high wages for that to happen. And in truth, if I am getting 5 guns a day already from the government, what am I going to buy? Food? Likely enough the money would be saved (removing it from our pretty equation) and then turned into gold to burn on the aforementioned pyre.
So.
Y = C + (X - M)
This is what we have left. I don’t even need to tell you how bad this is for the economy. But I’m going to anyway because I like to tidy up loose ends.
Demand = Consumption + (Exports - Imports)
As you can imagine Exports subtract Imports is a negative number. High import taxes abroad and almost no usable resources in the UK itself means that we have a rubbish balance of trade. Sure we sell a lot of black market stuff- but nearly all our RM abroad is bought and donated across via the same black market mechanism. And since the gold to buy the foreign currency to buy the foreign RM is gained by selling GBP we are effectively importing goods anyway.
I suggest you all read this article by British Economist Murat Eryanmaz (used to be Turkish but he’s ours now
😛). It explains why overproduction is a load of rubbish.
Truth is, our consumption can be written out quite simply as:
C = P - PI - K - S
Consumption = Productivity - Productivity x Income Tax - profits - savings
Since in a perfect system productivity = consumption (in other words we have the capability to consume everything we produce) this naturally creates a negative number. So we end up with a situation where Consumption is less than 1. This is bad. It is like overproduction, but worse. It means that we not only end up with loads of crappy products in high demand markets like food and guns, it means that there is no way to change this situation .
So long as everyone is employed, we will produce more than we can consume. Even taking profits out of the equation it’s bad. And profits will be taken out of the equation, because the massive oversupply of staple goods means that competition is stupid. Anyone in the food market at its lower levels will be having the joyful experience of a company making next to nothing. A few pounds a day at best, and that’s if you have workers with high wellness and without the brains to look for a better wage.
So let’s put that all together now:
Y = (P - PI - K - S) + (X- M)
And into English
Demand = (Production - tax - profits - savings) + (Exports - Imports)
Not good. Now put in simple terms, we need consumption to be as close to production as possible. If consumption exceeds production we have a nice boom and our economy grows. Theoretically there are two ways to do this- firstly to have a baby boom and thus loads of babies with no productivity but the same consumption arrive, eat food, spend all their money and gold then hopefully die before they add to the problem. Secondly we make Exports exceed Imports (capitalised for emphasis) to the extent where our (X - M) section is greater than the ( - Pl - K - S) bit. In other words:
When (X - M) ≥ Tax + Profits + Savings
Then
C > P
Magic eh? Well that’s easier said than done. Due to our epic taxes in the UK (woo socialism!) we have a 30% of productivity margin to overcome straight away. So to slot some guesstimated figures into this lovely equation, which are just an example and in no way a reflection of reality, merely nice rounded figures to make a point. Say UK’s total private sector (not state or communes) productivity value is worth 750 gold a day. So:
Demand = (750 - 150 - 75 - 50) = 475
So we produce 750 and consume 475. This is bad. The effect of this on the economy is down spiralling prices, down-spiralling wages and upward pressure on the currency. What makes it even worse is that even if there is an accidental stimulus that may result from (for example) being invaded by several countries, wages are sticky so the money doesn’t go back into the consumption section of the equation but merely increases the profit section, which I have now come to call the gold shrine.
(X - M) ≥ Tax + Profits + Savings
(X - M) ≥ 275g
X ≥ M + 275g
So our exports have to be 275g greater than our imports. Being generous (we do want some demand in the system) we should really factor in maybe 10% consumption deficit to control prices. So...
X ≥ (M + 275g)*0.9
Basically the long and short of this is that the admins have failed to make a working economy module. Even if we export, we’re only exacerbating the problem somewhere else. Since there is no such thing as a developed/undeveloped country in this game (all aspects of the game are available to every citizen from almost day one, and there is no technology tree) we can’t even open up exploitable resources to expand the economy. Our only real resource is citizens, and as soon as they mature they add to the problem. So a constant stream of new citizens is all that is preventing global economic collapse essentially. This is rubbish if you’re not getting any of those new citizens.
Essentially the problem here is gold. Gold is rubbish. It turns productivity into something which can’t be used to increase consumption, and is for that very reason the main problem in the module. The second, less important problem is lack of major public works for the government to invest in. More useful versions of defence systems, perhaps things like art galleries and libraries to increase happiness/knowledge in V2, would give the government something it could invest in to stimulate consumption. Cos right now we don’t have a boom-bust economy, we have a bust one.
Sort it out admins.
Inb4 tl;dr
Don't forget to check out and subsribe to these government papers to keep up to date with country's goings on:
The Prime Minister
Ministry of Defence
Ministry of Home Affairs
National Newspaper Association
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Comments
p interesting read 😃
It does suck, recently wages have fallen sharply
if there was not strength training it would be better but it's not great anyway. Good article Voted
interesting, but :
- The profits the people make go for a part back into consumption, this means that the consumption will be higher than what you are saying. People are for example buying higher quality weapons. True that a major amount goes back into savings, but not all of it.
- Gold may indeed seem rubish, but it offers an easy way to give a fair price for a certain product. Otherwise, the prices would vary from one country to another because currencies change (and a live update would be nearly impossible), gold is a safe and stable currency (like we have IRL) and (last I can think of) it offers everybody the opporunity to understand the system easily same as IRL is far to complicated and not interesting due to a too small amount of exchanges between some countries. Gold can by this not be deleted from the game.
Your conclusion about the fact that we survive through the constant flow of people is indeed plausible (and I can expect correct), but I don't see how allowing government investments will improve consumption... It will only be there to give jobs to people that may not have jobs for the moment, and the government already takes a big part of the consumption as it produces guns for the Army. You don't qualify it as consumption, but in fact it is.
Voted.
tl;dr
wow. I didn't know I was shoveling grain that fast. almost ruined the whole economy...
no seriously, about the downward spiral, it really is not downward spiral, it's a constant. it is only your view of it that is distorted, because you measure it through gold value. it's the gold value that is spiraling up. this is happening because gold can be spent in enormous amounts whereas other goods, well, one can only eat so much per day.
of course, you can say the prices and wages are spiraling down, obviously because of an urge to sell... sole reason is this unavoidable gold fever.
now how do you solve this? how do you turn this spiral around? simple. you just do it like it's done in real life. you destroy the surplus, throw it into the sea.
Good luck convincing admins to stop their little gold racket!
The cause of the economic problems are the 30% taxes. People have less disposable income. So they spend less on things. Causing prices to drop. This reduces salaries, which reduces disposable income further.
either the taxes get reduced or the eUK economy stops working.
Jack Jockson talking a load of rubbish again.
Apotygma you raise a couple of interesting points. If you'll allow me to respon😛
Profits do go into consumption to a certain extent- but you answer your own point here. High Quality goods are in high demand, and this is evidenced by the relative high cost of these goods. Profit margins on these goods can be as large as 25% so consumption of these doesn't really contribute to the reduction of our problem.
I understand your point about gold as a fiat currency (indeed I mention it in my article) and I agree currency must be pegged to something in such a volatile economy. It isn't the fact that gold exists which is the problem, but rather the fact that so much currency is turned into gold and then the gold is removed from the system.
To respond finally to GLaDOS- I put the tl;dr summary at the top for simpletons 🙂
>the gold value that is spiraling up.
I'll just let that statement stand there. No explanation needed.
wooo a-level economics 😉
good article.
wooo a-level economics 😉
good article.
>It isn't the fact that gold exists which is the problem, but rather the fact that so much currency is turned into gold and then the gold is removed from the system.
now it doesn't take to be an Einstein in economics to see that currency is being removed from the system. so why don't you just print some money then?
OMG.
What do I say to such logic.
erm.. yeah. That last comment by Jockson was rubbish, I agree. Totally way of target.
KFC didn't let me comment on the article earlier today, but v+s.
Also, the perfect theme song: http://www.youtube.com/watch?v=d0nERTFo-Sk" target="_blank">http://www.youtube.com/watch?v=d0nERTFo-[..]o-Sk
'I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly'
New players is indeed holding the economy together, as their consumption-production ratio is relatively high.
v/s. Verry good article. This needs to be made clearer to the admin team.
was I too cynical? must have been because deep inside i kind of can not help liking the price drop. if i was to rephrase it, if you like. is what i meant to say was: i don't get it, what excatly is it you'd change in existing economic model? you don't like the 14th century king Henry's model with woodsticks as fiat and would just like to print money out of thin air? besides, seem like afterall gold fiat is here to stay, and you are left with not so many other parameters to experiment with, and as a socialist you'd probably prefer not to experiment with skyrocketing min wage and dealing with unemployment? or are too moderate to nullify the wages and switch to people being paid in nature? and you don't agree with my school of economics saying the sole reason for this is the global gold fever? that's all the questions i don't get, and would like to hear some arguments and explanations. to be honest, the only thing i probably understood is that this economy is not competitive with baby boomers because of the taxes.
Next up: Iain proves that the Pope is Catholic and that Bears Defecate in the Woods.
Do this job forever Iain, you are awesome at it. I don't want you anywhere else 😃
Goku, you're a failed ...everything. Don't talk to me like you understand anything at all.
Personally I see 3 solutions to this crisis. First off, gold should not be removed from the economy, as is shown gold is the only true measure of value in this game and unless the supply is allowed to grow there cannot be any true economic growth, the way in which the admins actively created it to remove gold is frankly a destructive process.
As my second point the government should not be allowed to produce goods except for at times of true national emergency. As a relatively new player i can vouch for how much my actual consumption dropped due to a constant flow of weapons from the royal navy and government. By all means create stick piles for when invasion strikes, but doing this constantly would just strangle private industry, just in the same way that aid ruins private industry in developing nations.
3rd point, and the most controversial, free trade, i know the module currently doesn't allow for specific taxes on specific countries but hear me out. Low taxes with all our allies, practically zero, all mutual of course. With trade embargo's on all other nations, i know this would require a lot of laws and constant renewal but it would give us an opportunity to export much more and would give other nations a reason to join our alliance as it would benefit their economies too. There would be bugs to work out but i think this would help the economy. I don't say this as an experienced player but i am doing a degree in economics so my points aren't entirely unfounded.
Of course, with the economy slowly cocking up, I found it easier to move to various scandinavian countries where the economies seem to be a hell of a lot more balanced. If the situation gets worse in the UK, and with the invasion who knows what'll happen next, then the solution for the individual is to move to a better working economy. This reduce the number of workers (especially the best workers) in the eUK economy which'll then help to improve the consumption/production ratio. Of course, this'll help put some businesses out of business, but......... I'm only back in the eUK in order to do my part in defending my home country - once the invasion is over, I'll move abroad again where I would be better off....
Voted and sub'd
Moving the best workers out of our country will not help the problem really. Also, moving to an enemy country will definitely not help it. Do your duty.
I agree with you Thom, but it's a closed loop and exporting to our allies hurts their own domestic consumption.
I was in Scandinavian until there was active fighting at which point I moved back here - bring all my foreign savings back here which can be converted to sterling and spent here.... Instead of buying Q1 weapons, I have been buying Q2 instead (I don't go for the begging the MoD for guns route). At the same time, I help in over producing in the now enemy terratory... 😃D Or not...
But my point is that in a game module where you can basically move to a country the other side of the world each day and change your citizenship just like that, outside of patriotic duty during war time, it is in the individual's best interest to go where the money is. Outside of war, it is in the country's best interest for a population export so that consumpton and production is more or less equal. It is in times of war when those people (like me) return home to help in the defense of London when the economy especially struggles.
I think this is where the new economics update might well shake things up - I hope we get warning of the change so that we can get an idea of what specialist skills are needed. Add to the time usage angle, it could be that to be economically functional, it might be ideal for workers to work only 6 hours per day rather than working every hour of the day. With the wages in the eUK being generally low, the point where an additional hour of training is worth more than working an extra hour might be quite low. I know the last update postage from the game's creators haven't had a good response, but it might just help the eUK long term - if those responsible for running the economy gets it right under the new rules...
yeh, interesting read. I like the equations that I understood.
in after tl;dr
Iain's solution is to nationalise everything.
But good article.
@Ian, well, you have missed one important detail, baby boom driven economy and hence scores of new babies growing to maturity burning gold at high rate, drives demand for pumping new gold into eEconomy, and this time reaching out into the real Economy, deep down our pockets. Loop is closed. They win.
If you read the article I think you'd find my solution isn't to nationalise everything ^_-
Was going to write something on the economy as well but thought I'll wait for the new modules first.
Thought the effects of lana would drain gold outta the economy at a much faster rate then currently but seems the surveys are putting gold back.
I wonder if the admins do try to balance it out that way.
ignore all that complicated mess, just raise your prices everyone, and raise your employees pay.
governments, lower your taxes so you citz can do this.
For someone called neo-capitalist industries you seem to miss the point of supply and demand entirely.
If you want to increase demand, I would have thought a solution would be to give out more free guns bought by the government from the private market as a 'public works' project.
Then again, I would just nationalise everything personally. Besides, I doubt there's enough people active enough to request free guns and make a real difference.
giving out free guns reduces demand :3
I'm suggesting the government buys weapons off the market and then gives them out free. 😐
pro<3