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Things are changing in eRepublik.

The game is evolving and the rules are in flux. Our nation has grown in territory and damage capabilities but it is shrinking in population and activity. And as Gold flows out of our marketplace, wages and the value of both raw materials and finished goods drop, causing anger, confusion, and calls for change.






The doors are comin' off the bus and it's okay.


The more things change, the more they stay the same.

(I outline much of this treatise on the air with WahooBob at The Report. I suggest people who don't feel like reading throw on this podcast and listen to my dulcet tones.)


The next month of this game is a fantastic opportunity for the eUnited States. While other nations obsess over resisting the effects of these changes in the game, we can embrace them and come out on top. There are a number of ways we can do this, some will be easy, others will be hard. Not everyone will agree (and I look forward to a compromise, believe me) but after nearly two months of research and discussion, this is what I firmly understand that we should do:


STEP 1: Taxes


It is absolutely true that wages and prices are both dropping and have been since January. Mid to High Level wages have dropped to about 1/2. The price of goods has also dropped. The government's income has begun to trend downward signaling a shrinking tax base. These are all important indicators for an economy but they do not tell the real story.

Where last summer the eUS did not have enough guns to supply the population for consecutive battles, now the eUS has excellent gun prices and more than enough guns when we need them most. As I see it, three things have happened since then:

1) seeing the profit margin possible, people (Americans and 'foreign' players alike) stated Q1 Gun companies in the eUS and started selling like crazy.
2) The US started getting into daily wars where people could fight and heal and
3) the US lowered import taxes on guns to 5%, and later 1%.

Obviously the increased # of companies created more supply, and the opportunity to use them created more demand, but why lower imports? Why not keep them high so that American (or foreign, of course) business owners could sell at a higher price and pay higher wages?

A lot of people ask me that question daily, they attack me and call me an idiot. "Why oh why do you hate domestic businesses so much, sydiot? Don't you want us to profit and pay our workers more? " My answer is:

No.

Why would we want GMs paying workers more than they're worth? Why would we want our citizens to buy goods for more than they're worth? Why would we want people making more profit than the market can handle? Let me explain a little more in detail:

The price of products, both raw materials and finished goods, is set on the international market in Gold. Obviously, countries which produce raw materials have the cheapest prices for those goods, but manufactured goods can be produced everywhere. And because not every country has a high raw material region (we have at least 1 in 4 different resources) and manufactured goods are ubiquitous, there is actually a motivation for those countries to specialize in manufactured goods. They have no choice! The productivity formula, which governs how much a particular worker makes each day that he or she works, is the same everywhere. Moving organizations to and from cheaper markets is common practice, particularly for entities that buy large amounts of products at one time. This means that although the local price of a good will fluctuate slightly based on local supply and demand, by and large the price of finished goods is set but the global supply and global productivity.

Some detractors of this view say "But if our prices aren't higher, then our wages will be lower than other countries and our GMs and citizens will lose Gold!" This is half true. Yes, if prices are inflated in the eUS through imports, or through artificial price gouging from the government or GMs, then yes, the % between a worker's wages and the products they produce could increase and the worker could earn more than they deserve. But to me, this is a very bad thing. As much as I would love to make a higher profit on my companies, or earn a higher wage at my job, I acknowledge that having an open market with natural pricing helps our country in the long run. It will be painful, especially those with establish companies and expectations of what their labor is worth. But it is the unavoidable truth that as Gold becomes more scarce our labor and our products will lose value against it and we will have to adjust. Trying to fight it with tariffs, and pretending that our economy isn't a part of a larger global marketplace will not work. But there are things we can do.

Before income taxes our purchasing power is the best in the world. After income taxes our individual citizens have purchasing power on par with the other large economies like Poland, Spain and Hungary. Our government has the highest daily revenue of any other country in this game, and our organized government spending, chiefly through the military, is some of the most efficient damage-dealing activity in eRepublik. We are in a very good spot compared to other countries, but we could be doing even better.

The Value-Added Tax, or VAT, is a sales tax placed on the price of goods after the GM's selling price. Because it applied only to finished goods it has an uneven effect on our economy. GMs will sell at the lowest possible price they can stomach, where citizens will generally only buy when they want an item for a specific activity. (People don't usually stockpile finished goods after sale, storage in eRep is very difficult.) Because of this, the VAT tax, which seems to be paid by the consumer, actually takes away from the spread between the cost of raw material required to produce a product and the wage paid to the worker who makes the product. Because GMs have demonstrated a willingness to operate at 0% profit, this tax is hitting the manufacturing worker. Because of this apparent imbalance in the tax code, I propose we reexamine the VAT and start to bring it downward.

There are good reasons to maintaining a VAT. It is the only tax we have that brings in added revenue when consumption spikes (income is steady as people only work once a day). This gives the government more money when it needs it most to balance a currency or spend in war. It also taxes wealth being brought into the country to purchase on our markets, and it can penalize enemy countries who seek to raid our markets before important battles to make goods more scarce.

I think that these reasons are outweighed by the imbalance in taxation and the desire to have free and open markets, and I believe we should bring them down as low as we can manage in Congress. But as we talk about lowering taxes, we have to look at our national budget and understand that it is barebones, and that any major cut in revenue will necessitate a cut in the military spending and the supply of our most active and important group of players. Even with our current budget, we will not be able to pay our rent on Karnataka to India. I do not want to see that happen.

The income tax is the most efficient form of taxation the government has. It does not interfere in the marketplace, its largely ignored by the day-to-day activities of players. It charges members of our 'team' and provides them with the best military that money can buy. We were the first country to raise income taxes and countries all over the world are raising theirs now as well. The income tax is a major part of what has made America awesome, and by raising it 1% for every 1% VAT lost, we can have a net revenue increase, a balancing of taxation between manufacturing and land, and we can include in the budget those expenses which currently are unaccounted for.



Income Taxes: 25%

VAT: 1%

Imports: 1%


A wide open market with a strong income tax base and equal taxation, with increased government revenue automatically returned to the market through war spending. There will likely be a high VAT for food (because demand for them is inelastic), hospitals and defense systems (because they are effectively nationalized).

That is the sydiot tax plan and it is endorsed widely by members of the Economic Council and the Budget and Finance Committee. There is also plenty of room for compromise, and I've also read Joe DaSmoe's plan and I can tell that this month we will have a deal. For more reading see ssomo's writing on the subject, PigInZen's quick turn around and even Misho's suggestion to make EDEN an open market, something I would love to see. These views are not incompatible because at their heart they have a goal of making the eUS stronger. I think the data at hand and the models we've built will show the right way to a sound policy that is efficient and full of win.




Stimulatin' my ass some breakfast.


STEP 2: Stimulus

Efficiency is Good. Efficiency is what makes things cost what they should cost. Right now, goods are going down in value because they should. Wages are going down because they should. Gold is more valuable because it is more scarce, and so guns are cheap as hell because the should be. The coolest thing about this is that guns are cheap as hell, and we can use tons of them.

Congress has approved a budget that maintains full military funding and increases domestic spending through expanded civilian gun programs. By maintaining our revenue, continue deploying our troops, and providing wars for people to fight in we can provide the best service that a government can perform: spending money.

Money only does a country any good in terms of growth when it is in action. It seems like the countries with the most saved up would be the most powerful, but this is not always the case. The reason for this is because guns (as well as gifts, houses, and food) are turned into damage. Creating damage (and wellness which also then turns into experience and damage) is the only way to consume goods in eRepublik. That is why everyone agrees that war is the basis of any eRepublik economy and why the countries who control the most damage have the loudest voice in global alliances.

Damage = Power.

There is an epic thread by One Eye of which many of my readers may be aware called the Relative Merits of Gold and Consumption. In this thread One Eye explains how the use of stuff now and over time is better at dealing damage than saving wealth in Gold and tanking later on. Recently, he's updated it to show how Lana comes into play, and the verdict is still the same. In almost all cases, spending your wealth on guns and gifts rather than WPs or Lana remains a more efficient way of dealing damage. This means the more guns we purchase and use by any means necessary will give us an advantage over countries which are hoarding Gold for fear of losing it to other nations or in preparation for V2. It means countries who spend their wealth on active conquest become more valuable allies, rank and level faster, do more damage and have more fun. This has been the basis of our national economic strategy for some time.

I realize that not everyone is spending. I myself put resources into things like tanking and Lana just like everybody else. But collectively, through our government policies, we should be setting policies based on the collective good, even if that means going against popular opinion. People may individually want to invest in more companies and more strength, and there isn't anything we can do to stop them. But we know for sure that stuff does damage better and faster than Gold. There are exceptions which we account for, including the need for damage/second (tanking) and training Field Marshalls with Lana to keep pace with Phoenix in the strength race. But mathematical certitude gives me the confidence to say that we should spend every dime we get on guns, gifts and moving tickets, and that everything else is a waste. While every other nation saves and saves, we can be ranking our population, growing our economy and inflicting more damage on our enemies through the expanded consumption of goods. This means giving out more guns to civilians, it means asking the military to stop stockpiling and start spending their budgets in the domestic market, and it means everyone should take a look at their fiscal plans and decide whether it might be more fun and better investment to buy a gun and shoot a penix.



A little anti-Syd porn for my detractors.


STEP 3: Monetary Policy

As the value of Gold deflates it takes prices and wages with it. Another thing that loses value are the national currencies, and for the sake of this article, the USD. Since the unexpected hike in the Peg precipitated by speculators back in January, the value of the USD has fluctuated more than it ever has before. We have adjusted our Peg twice since then, first to 0.03 to meet Spain and later to 0.028 to try and mitigate an almost weekly dip in value. Once again, as many of you know, we have seen a prolonged drop in the value of USD to 0.027. There are a number of reasons for this, but the biggest ones are harmful speculation and Gold deflation.

There are individuals who spend much of their time and money trading currencies on the Monetary Market for the profits it occasionally provides. Smart traders can exploit the cost of 'arbitration', which is the price difference between the Gold value of a currency and the currency value of Gold, and by watching these values closely are able to create a stable profit with occasional bursts of value depending on the actions of a central bank. Recently, the US and other currency markets have been manipulated by speculators whose goal was to force additional currency into the market and take advantage of the adjusted value. Because the Congressional Budget Office only sells USD (we do not buy it according to our current policies) this allowed folks with a large sum of Gold to override our normal market techniques for controlling inflation and keeping a lid on the money supply. As a result, the Peg set by the CBO is no longer among the lowest offers. Enough currency is in the system and the current psychology of the market dictates the value of the USD to be 0.027. I believe it to be lower than that.

Even though currencies are losing their value in terms of their effective use compared to the scarcity of Gold, their rates vs. Gold are not dropping at a consistent rate. I've gone over the process countless times in my head about why the US has a less stable currency than other countries and I've had to amend many of my preconceptions of the system we use. Our MM is more vulnerable to foreign influence because a greater percentage of our market comes form overseas labor, meaning more currency must be traded daily (converted to Gold and then into the foreign currency) than most other nations. We also have a prominent central bank which monopolizes many citizen purchases of currency, even when it is not the highest offer. This makes controlling the money supply more difficult, and the Economic Council in conjunction with Budget and Finance has suggested these steps as ways to better value and stabilize the US😨

1) Lower the Peg to 1 USD = 0.025 Gold

By lowering the peg we can expedite the process of currency inflation and help our market reach equilibrium with Gold more quickly. This action would cause people with stockpiles of USD to lose value vs. Gold, so it is not a step I suggest lightly. Still, it can be argued that their USD is already worth less comparative to Gold, as their currency is not perfectly liquid with Gold because of scarcity. Lowering the Peg will help us reset the speculative atmosphere surrounding the USD and will help stimulate exports as our wages adjust to the international RM market.

2) Back the Peg with Gold

What I mean by this is posting a government offer or offers buying USD with Gold at the maximum price we'd need to protect the exchange rate. If the Peg were 0.025, then we could set a maximum Gold purchase of 41.5 USD = 1 Gold. This would prevent speculators from attacking the 'spread' and remove USD from the market when the supply becomes to much. This prospect will require some investment from the country in terms of dedicating the Gold for this purpose, but I have ideas on how to finance such a project without endangering tax revenue or strategic reserves.

3) Reduce CBO Competition with the Private Market

By this, I suggest we relax the competition of the CBO on the MM by posting less aggressively. Right now, if we so wished, we could put the CB offer on the front page for everyone to buy. By doing this, we could inadvertently force more USD into the system than is required to maintain the currency's value, thus causing further inflation. By being more conservative we could reduce the number of waiting orders from the first 10 pages and help stabilize the currency.

These monetary changes, because they are not a part of Congressional business, could take effect before the others pending agreement from the Economic Council and the CBO.



Me winning my Emerick Prize. Guess what I did with it!


STEP 4: Finance

Wealth needs to be in action for it to grow, it useless when it stays stagnant. This game provides the mechanics necessary to save basically an unlimited amount of wealth and to transfer it to others without any needs for banks or the other financial instruments that exist in real life. This is a great thing, don't get me wrong, it would be infuriating to depend on other players to handle your money every time you wanted to buy a gun from the market. But it also causes a problem when it comes to the stagnation of wealth in economies, and it makes saving an economic problem.

There are corporations in this game, some more famous than others, but they all have in common that they are using their Gold to invest and grow the game, and occasionally spend it on goods, rather than letting it sit and gather dust in their accounts. Banks, like t'jelle, accept deposits and lend that money to other players and governments, charging interest all around. Multinationals like Big Johnsons Corporation pool the resources of stockholders to create a more efficient and higher quality manufacturing plan, they take the load off of the shareholder but provide value on investment. Mutual funds like Ambrosia Investment Fund invest their deposits in the monetary market and grow value that way. All of these companies are traded on the eUnited States Stock Exchange, and all of them are putting savings to work in the economy.

As Treasury Secretary I've worked hard with my team to find more ways for the government to become involved in this growing financial sector. We've taken strong steps to help these companies put their wealth to use in making America more awesome, and by building this partnership, I believe we have found a new dimension of gameplay and wealth building in eRepublik. The government is the chief individual consumer of goods in our market, and as everyone knows, the government has a built-in revenue stream from the taxation of the public. This makes the government the center-point for all successful investment in this game, and by allowing the government to borrow from citizens and corporations we provide value for investors, stimulus to the economy and damage on the battlefield.

When we released the latest round of War Bonds two weeks ago, we were able to raise over 4000 Gold in 48 hours at an extremely low interest rate. What this tells me is people have Gold, and they're even willing to part with it for a period of time, as long as they see some value from their investment and that its going to a good cause. The money from those War Bonds has not been spent in the slightest. After backing off of London and signing peace with the UK, we have yet to have a compelling reason to spend this Gold. We have, however, accounted for the cost of this debt in our Congressional budget. This bond system, if we choose to maintain it, could be a cornerstone for reliable investment in this game. The interest levels set by government bonds, I predict, will set the floor level for private savings programs and provide a benchmark of how a successful financial system can be operated.

With the cooperation of the game's largest banks, we have also started a Federal Reserve which will serve a similar function as war bonds but on a larger scale and for banks. Bank will be able to deposit their reserves in a central organization and earn interest on those reserves from the government. The Fed will be able to set the reserve requirement for banks, thus giving us an added instrument when it comes to liquidity and money supply, as well as regulation of large financial entities. If a bank goes defunct, their on-file reserves could be used to pay out depositors up to a certain amount. This system will give the government greater access to private Gold stockpiles and subsidize consumption and growth even more, not to mention the opportunity it provides for emergency funding in dire circumstances.

By tying these advances in player-created financial gameplay to an executive level government system of debt we can accomplish the 4th goal of the plan:

Use Banks, Stocks and Bonds to Move Stagnant Gold and Boost Consumption

I highly encourage citizens to use their Gold and other resources to invest in stock in public companies, or deposit them in banks, or to buy government bonds. If you are careful about the security of your investments, you can see them grow while ensuring that your money continues to be used well. By continuing to harness the financial sector and committing those funds to consumption and meaningful growth of government investments, we can provide a strong stimulus to the economy while funding monetary policy without any additional burden on taxpayers. If we purpose money collected from war bonds and other borrowing programs to backing the USD with Gold, we can pay interest on bonds from the profits made from that practice and leave the CBO out of the USD-buying game. With a system like this in place, the President will truly have the country's full economic power at hand when he or she brings us to war, and we can be confident that we are doing everything we can as a people to further our collective cause.






This article is a long time coming, and it is even longer reading. I apologize for not finishing it sooner and for not making it more comprehensive. This really only scratches the surface of the issues at play here, and I'm positive many folks, including those I respect, will have problems with what I've proposed. I only hope that together we can take the steps necessary to make the next month of this game as productive and full of win for America as it possibly can be.



love, sydiot


It's true: I love you.