This post will receive a major rewriting in days as my opinion changed a lot due to comments and resulting further research.In WoW there never was a single economic crisis, despite the extremely hefty markets. When expansions hit, the markets turn upside down, high-end materials turn into cheap stuff, hundredths of new items emerge, prices jump to the sky and fall to the dirt. When a major patch hits, prices can still change with several hundred percents. Such a magnitude can rarely be seen in the real world. People reach money cap in weeks while others grind for their repairs.
While many people lost their money, it could not escalate into a full-scale economic crisis in WoW, Blizzard never had to intervene by giving gold to (or taking it away from) bankrupt guilds and people.
Such stability despite all odds is anything but obvious and must be explained. One could claim that the advantage of WoW over RL is the lack of bills to pay. Even with 0 income you can live on. However there are several countries where people who cannot pay their bills or buy food simply let to starve, still they are affected by the crisis. So the "necessity" of saving people is a bad reason.
Others may claim that in WoW Blizzard controls the money. However in RL the treasury also controls the country's currency.
The reason is simple: in WoW no player can control gold itself. Of course you control your gold, but you cannot touch other people's gold. You depend on nobody to make purchases and sells with your money. The transaction only need two players (or a player and an NPC): the buyer and the seller. You can only lose your own money by being stupid and not others's money.
In real life the money is transfered through banks. When you pay with your card, the money is transfered from your bank to the seller's bank. If these banks go bankrupt or any way out of business, you could not use your card, you could not access your own money and others can also not pay you. Knowing that they are crucial for basic transactions, the banks became bold. They know that the government cannot let them go bankrupt, therefore they have no motive to take care of their business. If profit comes in, they get rich. If losses come in, the government will help and they can keep paying premium to the managers.
I think this problem could easily be fixed if handling the national currency would be national monopoly. There should be a national account bank that does nothing else but handling the currency. Everyone (people and companies alike) would have an account there and our card would be issued by this bank. The bank pays no interest and charge no fee for its service, just like the cop does not charge you for catching a burglar in your home. You could pay from and receive payment to this account. Since this bank does not do anything risky, it couldn't have financial problems. It's not even a real bank, it's just a money-managing system, just like the programs on the WoW servers that handle gold.
Obviously real banks would keep on existing and you could have connections to these banks. You could wire money from your account to any banks to have a deposit for interest. If any banks would give you loan, they would also wire this money to your account.
This way no private firm would have control over your money (except if you gave it to them willingly), so their bankruptcy would make your everyday life impossible, just like the bankruptcy of the local bakery. Granted, you could still lose your deposits, but hey, it was you who risked your money for the interest.
It's surprising that such a simple system as WoW can teach us so complicated things.
Libertarians tend to believe that governmental systems are naturally inferior to private ones. I agree with them in the case of decisions. The owner is motivated to make good decisions while the bureaucrat is not. However this is an automated system with no decisions to make. They just have to handle the technical background, all decisions are made by the owners of the accounts. Granted such system could be more expensive (due to the too many bureaucrats) than a private, but it is not a high price for the safety of our money.
One could say that this way we would have to actively wire our money to a bank for interest, while currently we automatically get (a low) interest for our account. Well, we pay badly for this "automatic interest", our money is under the control of a private company. The people has to understand that there is no investment without risk, even such a simple one as a 3 months deposit. By actively driving their money to a private bank, they would notice (and would be notified by the system) that they are signing a contract to give their money to the bank for interest and there is a risk of losing this money if the bank goes down.
PS: obviously I don't claim that the lack of such system caused the crisis. However without it the governments are the hostages of the banks, who caused it all. (as no government would risk to leave the people without their own money).
Others may claim that in WoW Blizzard controls the money. However in RL the treasury also controls the country's currency.
The reason is simple: in WoW no player can control gold itself. Of course you control your gold, but you cannot touch other people's gold. You depend on nobody to make purchases and sells with your money. The transaction only need two players (or a player and an NPC): the buyer and the seller. You can only lose your own money by being stupid and not others's money.
In real life the money is transfered through banks. When you pay with your card, the money is transfered from your bank to the seller's bank. If these banks go bankrupt or any way out of business, you could not use your card, you could not access your own money and others can also not pay you. Knowing that they are crucial for basic transactions, the banks became bold. They know that the government cannot let them go bankrupt, therefore they have no motive to take care of their business. If profit comes in, they get rich. If losses come in, the government will help and they can keep paying premium to the managers.
I think this problem could easily be fixed if handling the national currency would be national monopoly. There should be a national account bank that does nothing else but handling the currency. Everyone (people and companies alike) would have an account there and our card would be issued by this bank. The bank pays no interest and charge no fee for its service, just like the cop does not charge you for catching a burglar in your home. You could pay from and receive payment to this account. Since this bank does not do anything risky, it couldn't have financial problems. It's not even a real bank, it's just a money-managing system, just like the programs on the WoW servers that handle gold.
Obviously real banks would keep on existing and you could have connections to these banks. You could wire money from your account to any banks to have a deposit for interest. If any banks would give you loan, they would also wire this money to your account.
This way no private firm would have control over your money (except if you gave it to them willingly), so their bankruptcy would make your everyday life impossible, just like the bankruptcy of the local bakery. Granted, you could still lose your deposits, but hey, it was you who risked your money for the interest.
It's surprising that such a simple system as WoW can teach us so complicated things.
Libertarians tend to believe that governmental systems are naturally inferior to private ones. I agree with them in the case of decisions. The owner is motivated to make good decisions while the bureaucrat is not. However this is an automated system with no decisions to make. They just have to handle the technical background, all decisions are made by the owners of the accounts. Granted such system could be more expensive (due to the too many bureaucrats) than a private, but it is not a high price for the safety of our money.
One could say that this way we would have to actively wire our money to a bank for interest, while currently we automatically get (a low) interest for our account. Well, we pay badly for this "automatic interest", our money is under the control of a private company. The people has to understand that there is no investment without risk, even such a simple one as a 3 months deposit. By actively driving their money to a private bank, they would notice (and would be notified by the system) that they are signing a contract to give their money to the bank for interest and there is a risk of losing this money if the bank goes down.
PS: obviously I don't claim that the lack of such system caused the crisis. However without it the governments are the hostages of the banks, who caused it all. (as no government would risk to leave the people without their own money).
15 comments:
A large percentage of the wealth of our country lies in the fact that those private banks took risks and created money making oppotunities.
We are not the industrial country we once were. We are rich and powerful because we are creative with the money we have. While true that these managers overstepped their bounds, got greedy and ultimately have lost our money.
I believe this has more to due with the unregulation of these large companies that took place with reforms introduced through regans and bush sr.'s administration.
Let us also consider how the government done such a good job in the past too, I mean look at Freddic Mac and Fannie May....
Miy
That sort of system wouldn't work in the real world. The money should be properly invested. And depositing something in an iron box is NOT proper investment. Some government will not invest them properly. One central bank that controls ALL the money is just another way to put some bastards in the position of power, more ways for abuse etc. The money is there to work, if its not the economy is hurt as the it tends to require money, so extra money is issued. But one day all those bills from under your pillow (or whatever deposits you have) will suddenly appear on the market. BOOM. It's just like your expansion hit, but it's a real thing. Most of the money should always be 'tied up' in the production activities.
Speaking of crisis actually. The crisis is a normal course of events and it's not just something you learn your first year in university studying economy. The economy develops non-uniformly so the crisis will happen every cycle. The more you try to artificially control the economy the harder the crisis will hit in the end. USA economy is not actually a healthy one. Some economists claim that as much as 25% of that GDP is artificial and is only possible due to the government issuing more "free" currency to invest in worthless activities. However what USA economists are good at is the control of economy... The debt is enormous (both internal and external) yet they manage to issue new bills and get away with it. One slip up is all it takes. And it just happened.
The recent banking crisis has been an excellent illustration of your tragedy of commons - everyone in banking knew it couldn't last, everyone's job depending on milking the system as hard as possible before it inevitably collapsed.
I don't see how simply controlling the payments system would stop this kind of greed.
In the system you're proposing people can still invest unwisely. Money can still be lost.
And the reason the governments bailed out the banks was not a matter of payment system functionality. They didn't rescue any bank so that your payslip could still be processed as you seem to think. If that was the only problem you could simply have opened a new bank account with someone else and been paid there.
They rescued the banks because they all owe each other money and lack the liquidity to survive a run from their deposit customers. So if Northern Rock (for example) had gone bankrupt in the course of pursuing its assets its auditors would have been calling in debts from other banks at a time when ordinary men and women would be taking money out of their accounts and hiding it in biscuit tins under their beds. More banks would have gone bankrupt and in the end all banks would have gone bust in a domino effect.
The saddest thing though about the whole fiasco is that the system will inevitably cause this to happen again. The real problem is that much more money has been spent than really exists. Every country has a balance of payments deficit pretty much - who we all owe this debt too is hard to say but in any event it's not payable.
That's the real difference between WoW and RL. In RL we have created and spent wealth that doesn't actually exist, you can't do that in WoW
The simple answer on why there never could be an economic crisis in WoW is simple:
There is no job market in WoW - you can never get "unemployed" (in the "making money" sense) and be unable to pay your repair costs.
Even if the whole server hates you and nobody would ever invite you into a guild, an instance run or buy your goods from the AH ... daily quests will always be there for you!
Ironically enough, we already have this system in place. It's called cash. We generally choose not to use this system for the same reason that the system you suggest would not be welcomed. It's terribly inefficient.
Causing all financial transactions to run through a national money management firm merely increases the number of transactions without adding economic value to the transaction. And it's not cost free. Even if the system did not charge a direct fee for its service (which would actually be preferable) it would have to be supported by some other tax. So adding the system would directly reduce the economy by way of taxes.
On top of that, very little would prevent the government from deciding to tax the transaction going through the system itself. Very soon you would find the government skimming off the top of each transaction in addition to the tax they charge for the service itself.
In short, you can't improve on cash.
In order for the economy to be comletely fixed, we need to drive to the heart of the problem: US currency. Its only value is based in faith in a bureaucracy that that continuously mismanages its budget, whose only coningency is printing more money. Until the government regains control of its own resources, it has no business assuaging the greed of privatized institutions. Return to the days where every dollar bill states that it is redeemable in gold at the US Treasury is required. Only then will I regain confidence in the US government and its ability to handle the fincial stability of this nation.
@Kevin:
Exactly.
Please stick to WoW economics, because you clearly have no idea what you are talking about when it comes to real life.
You are suggesting a very large scale socialist program without having really thought much of it out. There are always unintended consequences to any government meddling in the free economy.
The foundations for your suggestion are also flawed. I quote:
"They know that the government cannot let them go bankrupt, therefore they have no motive to take care of their business. If profit comes in, they get rich. If losses come in, the government will help and they can keep paying premium to the managers." Incorrect on several grounds.
First, many banks have been allowed to fail, only the larger have been bailed out.
Second, lots of bad things have happened to the banks that have been bailed out.
Third, I highly doubt that anyone at AIG or Fannie Mae or wherever was sitting around saying, "Gee, let's just do whatever we want, the government will give us money if we fail." No, they just made idiotic loans - they did not want to end up in this position, but here they are.
Anyway, stick to what you are good at - taking monopoly money from people who do not care about monopoly money. But please educate yourself before your dip your toe into real economics, where the money actually matters.
Let us not make the mistake of assuming the banks in the US are without regulation. They are very heavily regulated, even to the extent of their investments.
For instance, under President Carter, a piece of legislation called the Fair Housing Act was passed. Even though the intentions may have been noble, the affect were Banks being forced to take subprime loans. If they didn't, they would be taken before Congress. This was buttressed during the Clinton years. The banks were given incentives (both negative and positive) to take more bad loans. Also, at the same time, the heavily government controlled Freddi and Fanni was the king/queen of this suicidal financial system.
So you see, it wasn't the free market that caused the problem, because our banking system doesn't work exclusively under a free market.
In the end, my opinion is this: Our problems stem from people reaching beyond their means. We knew we shouldn't have bought X, because we couldn't afford it. So, we bought it using a loan we couldn't afford. That is just plain bad economics.
Again, that is all my opinion. Flame at will.
Z
Hopefully you will consult an economist as I am not an expert but a point to consider is that most of the money supply is created by "banks" (lots of things act like banks these days) under the control of the government. In the US, actual currency is called M0. M1, M2, and M3 are broader definitions of money. Banks are required to have assets to back a very small portion of the value of the loan. In the US, the federal reserve changing that % is a huge deal. Take a bank with one billion dollars in assets: changing the % from 5 to 4 would mean they could immediately be allowed to lend 25 billion instead of 20. The monetary supply - and growth/inflation - are much more driven by this "money" - than actual dollars issued by the government.
Re "investment without risk": There is a term in business called the risk free rate of return - in the US that's short term US government securities. ( E.g. expecting to earn 10% on an investment is a lot less attractive when the RF% is 8% vs 3%) Yes, there is some very slight chance the US government won't pay (in the short term - long term issues are another matter) but if the US can't pay next week's treasuries, then you are probably better off investing in shotgun shells than any financial instrument. Also changes in expectations regarding inflation greatly affect long term bonds but not next week's notes.
The federal reserve already provides this central clearinghouse for transfers.
In the real world, physical gold is probably the most stable kind of money existing. This is due to the fact that it is physical limited. All the gold currently smelted can be put in a box of 18x18x18 meter. In wow, one can with some little effort create gold out of the blue, by questing and killing mobs. The total gold supply on the other hand has also a gold sink, gold that leaves the economy. If total gold supply is greater then all the materials farmed, you'll have inflation. When the opposite happens deflation happens.
In the real world, money can be created out of the blue, due to 'fractual reserve banking' It means that if I ask for a loan to pay it back later, the bank can just write an amount of money on my personal account. Only a fraction of that money (10%) needs to be on the bank savings account. With the current system banks can borrow 9 times more money then they have on saving accounts.
The Federal reserve bank is goblinish morale put into the extreme. This bank is contradictory not owned by the federal government, but by a few wall-street bankers. They control the dollar supply, and by controlling that, they enslaved the american people and the rest of the world.
By controlling the money supply, one controls the value of all the existing money in relation to all the goods and resources available in the economy. The extra tax you have to pay them is inflation, (which are not increasing prices due to the 'rat race' of wages and goods) money supply exceeding the total value of all physical products and resources available in the economy.
The only alternative to this monetary fractual reserve system is a resource based economy. It was proposed in the 30's, but rejected by bankers who then created the FED and confiscating all physical gold in USA (having physical gold was criminal in the US between 1933 and 1973, not that the federal reserve abandoned the gold standard in 1971, making this rule obsolete).
Most of this info I got from 'zeitgeist addendum' (watchable on youtube) and a dutch book called 'als de dollar valt' (when the dollar collapses)
The main difference between a WoW economy and a RL economy was touched on in your last post with the Tragedy of the Commons. In WoW, the land will always regenerate.
How many noobs have been sent out by the guards of Northshire Abbey to kill the local wolves, kobolds, and Defias? Yet they are still there. How many times have you re-ran that instance gathering drops? You can gather and sell without fear because there will always be more tomorrow.
When trading in WoW you give someone money because of something they are giving you right now. When trading in RL you give someone money in the expectation that you will yield more in the future. What happens when the real life borrowers go AFK?
[Bank]: Mr. Petersen, this pst is to inform you that you are past due on your mortgage.
[Mrpetersen]: sry, gotta log. cya 2morrow kthxbye
Mrpetersen has gone offline.
[Bank] yells: NOBODY LOAN TO MRPETERSEN!! HE NINJA'D HIS MORTGAGE WITH ME!!
And now the banks are opening tickets to get their loot restored.
I've got a question.
What if you're gold reset to zero every night? So that you had to clear your money by buying things before logging off?
What basket of 10 WoW commodities would you use to store your weath in?
I think this is a key diff between wow and rl... money can't quite disappear in wow the same way as in real life...
Or as one wit put it over the present crisis...
A lot of pretend cash is going to money heaven now...
in WOW economy people get an important share of gold by selling items to NPCs. what would happen to the WOW economy model (which you tend to admire too much) if NPCs wouldn`t accept all the grey items, soulbound stuff, things enter in the 'vendor trash' category ?
I usually agree with your opinions, but the problem is that the system that you considerate is really symplistic.
And, like all the other major goverment controlled systems its going to lead to major bureocracy slowness, and for being able to move money fast, it just wont cut it.
That and its going to seriously corrupt (money and power corrupt fast). And really hard to implement.
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