295: The Economics of Meat

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The Economics of Meat

Economics lessons and meat don't usually get mentioned in the same breath, unless you're in the Kingdom of Loathing and a meat vortex has just made you rich.

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It's important to note that while Kingdom of Loathing was hyperinflated, the staff has been introducing tons of meat sinks since that day and now the economy is pretty much free of the bugmeat.

It's actually really interesting that they got rid of most of it without just removing it or resetting everything.

Fascinating read. I hadn't considered looking at video game economics, but now that you mention it, it does provide a pretty good example of a strong commodity backed currency.

You won't learn much about trade deficits, for example, and if you're looking for insight into the mortgage-backed securities that brought the world economy to its knees in 2008, you'll have about as much luck as Lehman Brothers has money. You'll learn some about inflation and deflation but little about the programs governments use to prevent them or dampen their effects. Stocks? No. Bonds? No. Perhaps most noticeably, videogames in general lack any concept of savings or credit, two aspects of economics that everyone in modern society could stand to know more about.

I do find it funny that you think governments dampen or work to reduce inflation. I mean, it only makes sense to relieve, reduce, or even get rid of inflation. Some people actually think inflation is something that increases quality of life, which is completely false of course. Governments cause inflation, they create inflation. That is what the US has done with the Federal Reserve. It's what happened in Rome. And it is what happened in Greece only recently. Hyper inflation is what happened in the game you mentioned and Zimbabwe. All inflation reaches this point eventually, it's only a matter of when. The governments make promises that cannot be kept, then they make more money to cover those promises, and this of course is based off of credit. Which is fine if you're not handing it out all willy nilly. But all credit should be based off of savings.....

I could go on and on.

Great article, though your ideas in at least this one instance were backwards.

An article on game economics and no mention of EVE Online? Damn, economics is pretty much the only thing that game gets more or less right.

I'd be interested to play a very minimal, browser-based market game where players buy and sell resources, riding market highs and lows and trying to pull a profit from the margins. Think day-trading, at ten times the speed. Add in multipliers, conditional min/max buy/sell macros, etc...that could be pretty darn addictive for a certain class of gamer.

The Auction House in WoW is almost a game in and of its self. Making a killing at the Auction House is almost as fun as taking down a boss.

the italic tags dont work, how about using plain http tags.

Nice article, but this is a spectacularly oversimplified (and erroneous) view of how supply and demand operates, even in video games. Very few people in a game evaluate up front how much it's going to cost them to get certain things for sale and then base their price off that. They go after certain things based on whether they evaluate the current price as being worth it. Prices generally fluctuate within a certain range because most people sell by slightly undercutting the lowest price currently on the AH, until the price goes down far enough that they'd rather hang onto what they got rather than sell at that price.

DDO recently underwent a similar inflation due to some (perhaps) poor planning with the recent Anniversary event. The devs gave us an event where you could farm components to make some really nice items. That's okay as far as it goes, but due to the way they structured the event you wound up with an ENORMOUS surplus of some of the ingredients. And those ingredients could be used to buy items that you could sell for a good amount of cash.

I only farmed enough to fully upgrade 3 of the nice items, and I made over a million plat just liquidating my leftovers. Many, many people farmed far more than I did and got a correspondingly larger amount of money. (Keep in mind that this is a game in which it can take a year of solid work to pull down your first million plat--it gets easier once you have a stock built, just like in real life, but building up that stock when you still need to buy stuff regularly is really, really difficult.)

So, a lot of people have been posting high-ticket items on the AH for really inflated prices as a result. (The low-ticket stuff has not been affected one bit.) Here's the interesting thing though--for the most part, things aren't *selling* at the newly-inflated prices. There's been no rush, because most people who've been playing DDO for a while have a really solid underlying grasp of what an appropriate price is for those high-ticket items--and they exist in *theoretically unlimited quantities* just like everything else in the game. There's no limit to how many large dragon scales can come into existence, no ultimate scarcity.

So, instead of hyperinflation, the situation we have in DDO is actually *wealth creation*, albeit not the way it generally works in real life. (In real life, advances in production of goods/services have to precede increased money, because there IS real scarcity. In DDO we got a sudden influx of investment funds pulled literally out of the air, a feat governments are constantly attempting to accomplish and always failing at because, huh, REAL LIFE IS NOT A VIDEO GAME and tax money doesn't fall from the sky.)

In real life, wealth creation is a system that few people understand and is what leads to many economic misconceptions, like the idea that machines and less labor-intensive methods of production put people out of work, which is precisely the opposite of the truth--improvements in production are what ultimately allow for *more people* to be employed in easier jobs and get more out of the time they spend working, which they can then spend on luxuries they could not dream of prior to the process improvements.

Basically, you're doing what most armchair economists do, and ignoring the great and interesting complexity involved in these processes. It's great to explain things to "laymen", but don't dumb them down. Otherwise you wind up with people fearing wealth creation because they think it will lead to inflation, which was actually a big problem among academics and led to John Maynard Keynes's horribly incorrect fears about "overproduction" and the need for protection of markets and other nonsense.

What happened in Diablo II was similar to what happened in a lot of locales during the heavy part of the latest economic crisis. Local communities started bartering with their own goods and services because money was such an issue. In some placed they even created local currency, some which Douglas Rushkoff has been calling for a long time. Those local currencies didn't really stick, as far as I know. The almighty dollar and the Federal Reserve perhaps proved too terrible.

/ramble

"Economics is a science that's often shrouded in jargon and politics."

As an economist this saddens me. It's sad but true.

@JMeganSnow nice retort

There's one part of the article that I don't quite understand.

Because there's so much more money in everyone's pockets, each piece of money, be it a stack of meat or a Zimbabwean dollar, is worth less than it was before.

This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

CounterAttack:
This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

You are right one dollar is still a dollar. This is called the nominal value.
What decreases is the real value which means that a dollar is still a dollar but you can buy less. So a dollar might be worth a pretzel before inflation hits but afterwards you can buy only half a pretzel for a dollar. So the value of the dollar stayed the same, but your purchasing power decreased because prices were/are rising.

I really liked this article as an accounting/finance major myself and economics is really a subject that is very important in daily life yet many people do not grasp fully or worse they believe they did and spread half-truths.
It might be interesting to note that regular inflation (about 2 % p.a. in industrialized nations) is mostly harmless. It is hyperinflation like in Zimbabwe which causes huge cost for the people and can downright destroy an economy.

This reminds me of that incident where a viral outbreak in WoW let epidemiologists learn some amazing things about human behavior in times of pandemics, that the CCD's computer simulations were unable to predict because of the human factor.

All this makes me think of a possible sci-fi scenario where governments worried about financial and biological destabilization would set up an MMORPG and run fantasy simulation of various outbreaks and financial crises, and base security and policy decisions on the outcome of those simulations. And the outcomes would start being manipulated by learning-program-equipped NPCs who have developed sociopolitical agendas of their own...

Crazy_Bird:

CounterAttack:
This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

You are right one dollar is still a dollar. This is called the nominal value.
What decreases is the real value which means that a dollar is still a dollar but you can buy less. So a dollar might be worth a pretzel before inflation hits but afterwards you can buy only half a pretzel for a dollar. So the value of the dollar stayed the same, but your purchasing power decreased because prices were/are rising.

I don't get it. People have tried to explain this to me before...

CounterAttack:

Crazy_Bird:

CounterAttack:
This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

You are right one dollar is still a dollar. This is called the nominal value.
What decreases is the real value which means that a dollar is still a dollar but you can buy less. So a dollar might be worth a pretzel before inflation hits but afterwards you can buy only half a pretzel for a dollar. So the value of the dollar stayed the same, but your purchasing power decreased because prices were/are rising.

I don't get it. People have tried to explain this to me before...

Instead of looking at it in terms of increase over time, consider changing location.

Say you have a $12/hr job, and pay $3 a beer in your local boozer. One hour of work is worth four beers for you. You then go to a bar in a wealthier part of town where people can afford to spend more, and discover the same beer selling for $6. One hour of work is now worth two beers to you.

As commodity price increased (as a function of location here, rather than time), the usefulness of your $12 decreased.

Same idea, except that we now live in a wealthier time than we did last century decade year month week.

Tulks:
Instead of looking at it in terms of increase over time, consider changing location.

Say you have a $12/hr job, and pay $3 a beer in your local boozer. One hour of work is worth four beers for you. You then go to a bar in a wealthier part of town where people can afford to spend more, and discover the same beer selling for $6. One hour of work is now worth two beers to you.

As commodity price increased (as a function of location here, rather than time), the usefulness of your $12 decreased.

Same idea, except that we now live in a wealthier time than we did last century decade year month week.

Nope. Still doesn't make sense.

CounterAttack:

Tulks:
Instead of looking at it in terms of increase over time, consider changing location.

Say you have a $12/hr job, and pay $3 a beer in your local boozer. One hour of work is worth four beers for you. You then go to a bar in a wealthier part of town where people can afford to spend more, and discover the same beer selling for $6. One hour of work is now worth two beers to you.

As commodity price increased (as a function of location here, rather than time), the usefulness of your $12 decreased.

Same idea, except that we now live in a wealthier time than we did last century decade year month week.

Nope. Still doesn't make sense.

It's kind of tricky to explain, but we'll go for something maybe a bit easier.

Okay, I noticed the magic icons, so we can use that as an example. We're going to go in the opposite direction with a reverse hyperinflation.

As you may know, there are around 10,000 Black Lotus cards ever printed. We'll say the average price is 1,500 dollars. The fact that there are so few that were printed makes it cost as much as it does. If somehow the number was raised to say, 50,000 of the card(and several were sold off), the price on the card would drop very rapidly. After the number was at 50,000 and another 50,000 showed up, the price would drop even lower.

Basically the more total money exists, the less the money is perceived to be worth.

vxicepickxv:
Basically the more total money exists, the less the money is perceived to be worth.

To me, that is illogical because an individual piece of money is hypothetically worth the same no matter how much you have. Whether you have $5 or $5000, a dollar is still a dollar and it is not made less so with the increase in quantity.

CounterAttack:

vxicepickxv:
Basically the more total money exists, the less the money is perceived to be worth.

To me, that is illogical because an individual piece of money is hypothetically worth the same no matter how much you have. Whether you have $5 or $5000, a dollar is still a dollar and it is not made less so with the increase in quantity.

Seems like we're all beating around the bush here, with nominal and real values, and changes in commodity value vs. changes in place/time. vxicepickxv, you're almost there, but we need to go deeper.

Let's scale it all the way back to Supply and Demand 101.

Considering that there is more money flowing around in the economy, people on average have more of it. They will most likely buy more stuff, or buy things that they normally wouldn't buy. This doesn't always happen, but that's getting into a completely different subject.

Ok, considering that people are buying more stuff, aggregate demand is exceeding supply. Stores can't keep enough product on shelves because people are buying it up quicker than it can be replenished. The only way this imbalance can be equalized is to increase supply or decrease demand by raising prices. Increasing supply takes a whole lot of work, a lot of capital and a lot of money is required and it takes a while for results to happen. The quickest and easiest way to solve this problem is to raise prices.

Prices go up, and if they go up across the board in many different areas of the economy, than the average price for all goods goes up. This is inflation, the driving up of prices on average due to there being more money in the economy. The theories behind it are based on a lot of assumptions like the ones I've been making here, but it still happens.

Bre2nan:
-snip for length-

Um... I tried studying Economics in uni. That didn't go so well. More importantly, it's still not making much sense. To me, at least: this may seem as simple as one plus one to you guys.

Wasted a great opportunity to talk about games with more intricate economies, like Eve Online.

CounterAttack:

vxicepickxv:
Basically the more total money exists, the less the money is perceived to be worth.

To me, that is illogical because an individual piece of money is hypothetically worth the same no matter how much you have. Whether you have $5 or $5000, a dollar is still a dollar and it is not made less so with the increase in quantity.

Well, the dollar still has its Intrinsic value no matter how many more there are of it, only the intrinsic value of a dollar is limited to what you can do with a dollar without trading it for something else.

The real value of the dollar is based on what people are willing to give you in exchange for it.

Bre2nan:
-snip-

It's been a long time since I've had an economy class, so I'm doing the best I can.

Ultimately it boils down to controling sales without doing any more work. If everyone was a millionare, a cup of coffee would cost a million bucks.

Mullahgrrl:

CounterAttack:

vxicepickxv:
Basically the more total money exists, the less the money is perceived to be worth.

To me, that is illogical because an individual piece of money is hypothetically worth the same no matter how much you have. Whether you have $5 or $5000, a dollar is still a dollar and it is not made less so with the increase in quantity.

Well, the dollar still has its Intrinsic value no matter how many more there are of it, only the intrinsic value of a dollar is limited to what you can do with a dollar without trading it for something else.

The real value of the dollar is based on what people are willing to give you in exchange for it.

A dollar has a numerical value, but without the context of a government, isn't worth anything.

vxicepickxv:

Mullahgrrl:

CounterAttack:

To me, that is illogical because an individual piece of money is hypothetically worth the same no matter how much you have. Whether you have $5 or $5000, a dollar is still a dollar and it is not made less so with the increase in quantity.

Well, the dollar still has its Intrinsic value no matter how many more there are of it, only the intrinsic value of a dollar is limited to what you can do with a dollar without trading it for something else.

The real value of the dollar is based on what people are willing to give you in exchange for it.

A dollar has a numerical value, but without the context of a government, isn't worth anything.

By 'having a numerical value' do you mean that there is a number on it?

I'm glad I horded. :D

Haha, damn. I started the game a month after that incident so I missed out.

EDIT: I wonder if the people saying an opportunity was wasted to talk about EVE ever played KOL?

Great article. Always good to see KoL, the only game that can with only a bit of shame refer to itself as an MMORPG that I keep coming back to, getting a mention.

It reminded me of the WoW plague that has already been brought up (and of which KoL also had a version, essentially parodying the WoW one). It's interesting how these kind of environments can mimick real worlds - especially because the one thing that your ordinary computer simulation can't predict, the reaction of a bunch of people who dispair easily and have access to different levels of partial information, is the one it excels in creating.

CounterAttack:

Bre2nan:
-snip for length-

Um... I tried studying Economics in uni. That didn't go so well. More importantly, it's still not making much sense. To me, at least: this may seem as simple as one plus one to you guys.

I'll go with that other guy's idea and explain it in Magic terms because I'm evilly judging you solely on your avatar.

How much does it cost to counter a spell?

Back in ye olden days, it cost imageimage - that's Counterspell. A cheaper spell would not work as well, and a spell that cost more would have some extra advantadge.

Then, the Powers that Be decided that the best cost for counterspell should be imageimageimage. They released a card that just countered a spell by that cost, and started releasing weaker cards that cost imageimage.

Do you understand what happened? image is still image - it's still what you get when you tap an island. That didn't change. But what you use that mana for has changed. It now has less use than it had before. Because of that, it's like it's lost its value.

The opposite has happened as well - there was a time when Grizzly Bears was the best possible card you could get for imageimage. Nowadays it's at best an ordinary choice. The cost is still the same, but because you can get better things by that same cost it's no longer as useful.

The difference is that in the real world there's no Mark Rosewater to dictate the value of money (well sometimes there is, but that's not how things actually work). If the cost of something changes, it's because something happened to cause it - maybe more people wanto to buy it, maybe more people want to sell it, maybe people don't want to hold on to their money, maybe people are stockpiling, maybe it's one of those inscrutable things that happen when you study social sciences. Still, if you could get one counterspell for $2.00, tomorrow you'll need $2.50.

I hope that this helps you understand it, since it was a pain getting those symbols from Wizards' site. Also I hope you actually play Magic and I didn't waste my time with an explanation you can't understand. I liked writing it anyway.

CounterAttack:
This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

I'll take a stab at it.

Perhaps you're associated dollar bills with value, even though their value is entirely representative.

So let's use something else.

//============================

Suppose that we have an isolated village with one successful person who produces food. Suppose that everyone else in this village spends their lives searching for a special leaf with extremely shiny, beautiful leaves that the food-producer likes to look at; however, let's say that there's absolutely nothing about these leaves that is useful beyond their status as shiny things that the food-producer likes to look at. Let's say that these leaves are rare, and people use them to pay the food-producer, to get food.

Suppose that, at the present time, 1 leaf can buy a villager enough food to sustain them for a week. Also suppose that, at the rate that people bring the food-producer leaves, he can produce just enough food to distribute to them at this price.

Now suppose that, one day, one of the villagers finds a massive tree that produces these leaves at a high rate. So, the villagers grab armfuls of the leaves, and take them to the food-producer, hoping to use this massive amount of currency to purchase a massive amount of food. When the food-producer looks at these villagers, he quickly realises that he doesn't currently have enough distributable food to supply even the first person, at least according to the old 1 leaf=1 weeks worth price. The only way he could possibly distribute food to all of these people in exchange for leaves would be if he demanded more leaves for the same amount of food. Suppose, instead of 1 leaf for 1 weeks worth, he can instead demand a barrel of leaves for 1 weeks worth. This will not only allow him to distribute food to more people, it will also get him many more leaves, since he won't simply run out of food after accepting a few leaves.

Now, considering that you now need a whole barrel of leaves instead of 1 leaf to get a weeks worth of food, would you say that each leaf is worth as much as it used to be? A particular villager may now have 500 leaves instead of 1 leaf, but he holds no greater amount of wealth than he used to, because either way, it's a week's worth of food.

Mullahgrrl:

vxicepickxv:

Mullahgrrl:

Well, the dollar still has its Intrinsic value no matter how many more there are of it, only the intrinsic value of a dollar is limited to what you can do with a dollar without trading it for something else.

The real value of the dollar is based on what people are willing to give you in exchange for it.

A dollar has a numerical value, but without the context of a government, isn't worth anything.

By 'having a numerical value' do you mean that there is a number on it?

Yes. All that a bill contains is ink and a special paper. Without a government to say it's worth anything, it doesn't have any actual value for barter.

There are no socialists at the AH.

I have a friend who left high school a socialist. Then he played WoW. Any time he would promote a socialist issue, I would ask if he would be okay with the equivalent to be done to his raiding character. Such exchanges and a view of his first pay stub made a quick free marketeer of him.

Interesting article that has a lot of fluff and limited economic insight. I wish the author went less into game examples and more into explaining economic theory.

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
-F.A. Hayek, the best economic thinking imo.

teknoarcanist:
I'd be interested to play a very minimal, browser-based market game where players buy and sell resources, riding market highs and lows and trying to pull a profit from the margins. Think day-trading, at ten times the speed. Add in multipliers, conditional min/max buy/sell macros, etc...that could be pretty darn addictive for a certain class of gamer.

eRepublik has a currency trading market in-game, since it's played on the real-world map and countries. You have to pay attention to the surrounding wars, region changes (affects resources), tax changes and political changes in each country (all of these are player-controlled by player-elected leaders) if you want to do well though.

CounterAttack:

Crazy_Bird:

CounterAttack:
This doesn't make sense to me, largely because I tried studying it at university and I didn't understand it there either. A dollar is still a dollar whether you have one or a million. They're valued the same in either case. Am I not correct?

You are right one dollar is still a dollar. This is called the nominal value.
What decreases is the real value which means that a dollar is still a dollar but you can buy less. So a dollar might be worth a pretzel before inflation hits but afterwards you can buy only half a pretzel for a dollar. So the value of the dollar stayed the same, but your purchasing power decreased because prices were/are rising.

I don't get it. People have tried to explain this to me before...

Basically everything is getting more expensive. That's all basically. Because everything is more expensive your dollar gets you a fewer quantity of goods. Less gasoline, less food, less drink, less games. Everything went up in prices. In the German hyperinflation in the 1930s a loaf of bread costed multiple millions of Reichsmark. Basically your standard one Reichsmark note was worthless since you needed a million 1 Reichsmark notes to buy some bread. But a Reichsmark is still a Reichsmark.

You're with me so far? Or is the problem that you have a hard time to understand the reasons for inflation?

JMeganSnow:
Basically, you're doing what most armchair economists do, and ignoring the great and interesting complexity involved in these processes.

The "armchair economist" crack strikes me as a little unnecessary. Why not just make your point and let it be? Ultimately, there's nothing in your post to indicate that you aren't one either.

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