Greedy Goblin

Monday, October 25, 2010

Speculators are evil, right?

I try to solve a very controversial issue in economics, the place and "value" of speculators. These people don't directly do any kind of work (not even as organizers of it). They are simply doing zero sum businesses (which are actually negative sum as the actions have costs that decrease the profit). The common leftist idea is that they are simply thieves, leeches on the society and responsible for the 2008 crisis.

The right-wing thinkers are actually on the defense here. They can't really show why speculators are good. They merely claim "freedom allows speculation and freedom is good, so speculators must be good". This is the same non-argument as "the Second Amendment allows bearing arms, so it is good". Actually bearing arms is good (or not) on it's own and the mentioned legal document merely acknowledges this good (or wrongfully acknowledges something bad).

The only real reason the right-wing has is "countries allowing speculation have better GDP (like US) than countries without (like Europe)". Obviously true, but not more a real reason than "celebrating on July 4th is good for the economy as countries with national holiday on July 4th has higher GDP than countries without it". To prove that speculation is not a (harmful) side-effect, but engine to the GDP growth, we must prove it directly. You can skip the calculation, jump to the bold text.

I believe the glyph harvest allows this proof. Let's introduce the agents:
  • "G300" is a herbalist/scribe who farms herbs and sell glyphs. He got his name from his income expectation. He farms/sells as long as he has 300 G/hour income. He can farm and craft 60 glyphs/hour, making his venture acceptably profitable for 5G/glyph. Otherwise he stops working. His max production is 4 hours/day. Since the patch increased ink costs, after patch he can craft 20 glyphs/hour, 15 G/glyph min.
  • "G600" is the same with 600G/hour income expectation. (10 G/glyph before patch, 30G/glyph after)
  • The speculator wants profit by selling high and buying low. He may or may not exist.
  • IB is the group of intelligent buyers. They are 100 people, they bought 20glyphs/day for re-specing before patch and will need 2500 glyphs on patch day. They are capable of thinking ahead.
  • MS20 is a group of 100 M&S people who bought 10 glyphs/day before patch and 2500 on patch day. They can't think ahead. They are ready/able to pay 20G for a glyph.
  • MS30, MS40, MS50, MS60 are the same with higher buying power.
The two crafters sell for the highest possible price, the buyers buy for the lowest possible. Let's see what happens before and after the patch without speculator:
  • IB needs 20 glyphs/day, MS20-60 all together 50. That's 70 glyphs/day, easily produced by G300. Since he would like to work more (currently 1:10 instead of 4:00), the market is oversupplied, glyphs go for 5G.
  • 1 months before the patch IB start to buy up the 2500 glyphs they'll need. Since it's less than 100/day, the demand is less than 150/day, still craftable by G300. Price is still 5G.
  • Patch day. The demand jumps to 12500 glyphs. G300 crafts as much as he can, 20*4 = 80. G600 moves in too, crafting 80. Since there is over-demand, glyphs sell for the highest demand: 60G. It goes until all MS60 are satisfied (after 2500/160 = 15.6 days), then price falls to 50G and so on.
  • When all MS30 are satisfied, G600 stops crafting, only G300 supplies MS20.
Total incomes/outcomes in the last month and until the end of the harvest:
  • G300: 30*70*5 + 2500*5 + 1250*60 + 1250*50 + 1250*40 + 1250*30 + 2500*20 = 298000. Work done: 30*70/60 + 2500/60 + (1250/20)*4+2500/20 = 452 hours. Income rate: 660G/hour.
  • G600: 1250*60 + 1250*50 + 1250*40 + 1250*30 = 225000. Work done: (1250/20)*4 = 250 hours. Income rate: 900G/hour.
  • IB: 20*30*5+2500*5 = 15500G total glyph price.
  • MS60: 10*30*5 + 2500*60 = 151500G
  • MS50: 10*30*5 + 2500*50 = 126500G
  • MS40: 101500
  • MS30: 76500
  • MS20: 51500
Please note that IB has all his glyphs on patch day, MS60 gets it in one week on average, MS50 in 3, MS40 in 5, MS50 in 7, MS 20 in 11.

Let's introduce the speculator, who does a very primitive approach: he starts buying glyphs one month before the patch for 10G and pour all of them to the market for 30G. One can easily make better scheme, but this primitive one will be enough to show the point.
  • G300 and G600 are working around the clock for a month, providing 2*240 glyphs/day, all together 14400. The price is 10G as the speculator buys up cheaper, don't pay more, and without the speculator the market is oversupplied.
  • 30*70 + 2500 glyphs are bought by end users before the patch, all together 4600. There are 9800 glyphs in the bank of the speculator.
  • On patch day the speculator pours all these glyphs to the market for 30G. MS60, MS50, MS40, MS30 buy them up and also buy 200 glyphs that G300 and G600 crafts that day.
  • Next day the only demand is from MS20, so the price drops, G600 quits and G300 crafts 2500 glyphs over the next 4 weeks.
Total incomes/outcomes in the last month and until the end of the harvest:
  • G300: 30*240*10 + 100*30 + 2500*20 = 125000. Work done: 30*240/60 + 100/20 + 2500/20 = 250 hours. Income rate: 500 G/hour.
  • G600: 30*240*10 + 100*30 = 75000. Work done: 30*240/60 + 100/20 = 125 hours. Income rate: 600G/hour.
  • IB: 20*30*10+2500*10 = 31000G total glyph price.
  • MS60, 50, 40, 30: 10*30*10 + 2500*30 = 78000G
  • MS20: 10*30*10 + 2500*20 = 53000G
  • Speculator: 9800*(30-10) = 196000 G profit, his hours are hard to assess, but if he spent 10 secs for each glyph, it's 27 hours, 7500G/hour!
Let's see the difference the emergence of a speculator made on the other actors:
  • G300: 125000-298000 = -173000 income
  • G600: 75000-225000 = -150000 income
  • IB: 31000-15500 = +15500 cost
  • MS60: 78000-151500 = -73500 cost, got glyphs 1 week earlier
  • MS50: 78000-126500 = -48500 cost, got glyphs 3 weeks earlier
  • MS40: 78000- 101500 = -23500 cost, got glyphs 5 weeks earlier
  • MS30: 78000 - 76500 = +1500 cost, got glyphs 7 weeks earlier
  • MS20: 53000- 51500 = +1500 cost, got glyphs 7 weeks earlier
Ouch! The emergence of the speculator ripped huge profits from the honest (but non-speculating) workers, increased the costs of the non-moronic buyers, and decreased the losses of the morons and slackers. By longer preparation phase the speculator could buy glyphs for 5G only, and by segmenting his sales (selling for 60G on the first day, 50G on the second ...) he could supply all the post-patch glyphs (except the 160 that the crafters create on the first days), practically reaping all the rewards of the work of G300 and putting G600 out of business.

Unlike the transporter and arbitrager, the speculator helps the M&S and harms the non-speculating hard working guys! Real world (over-simplified) example:
  • M&S got subprime loans that they did not pay back. Until they finally got evicted, they practically lived in an expensive home for free.
  • Honest workers had to pay higher prices for homes because the demand from the loan-funded M&S increased home prices. They also lost value in their pension funds because of the poisoned papers inside.
  • Speculators got extremely rich.
It seems the leftists are right. The speculators are the worst kind of evil. Hang them all!

Now comes the big move: The good in speculators is exactly the "evil": they steal from the hard-working and give to the M&S. How could it be good for the GDP? Because the idea "M&S getting something" is unchallenged in the society. The hard-working won't let the M&S starve to death, so one way or another he has to supply them. The upfront way is taxing. Taxing de-motivates work. The shady way is stealing via speculation. The service of the speculator to the GDP is the lie that the hard-working guy gets rewards for his hard work.

The European workers between 1995-2007 was aware that half of every dollar they make is taxed and taken away, so they worked little. The American workers were told a lie that they can keep their dollars so they worked hard. When they finally figured out that their pension fund is worthless and their $500K home is actually a $200K home, they couldn't undo the hard work (GDP) they've done in the previous decade!

According to the above, the speculators should be my worst enemy. They are feeding the M&S with money they steal from the hard working ones! It is as far from the truth as possible. I love the speculators. I see them as the ultimate tool to destroy M&S. But you have to wait a week before I tell you how will they do it.


Anonymous said...

The 2008 Crisis actually proved the Goblin code works. The RL Goblins amde out with fortunes (and still are), while only the M&S and those that enabled them got burned.

Anonymous said...

You're oversimplifying "speculation". You are taking one trait/case of speculation and apply it to all kinds of speculation.

Also, keep in mind that many, many speculators only got away with it because they were bailed out by the governments.

Kreeegor said...

You are assuming with no proof that the life in the US is better then in Europe. Which is statements that needs some clarifying. Because as average quality of life it ranks way way down. And taxes there are not that lower - even small salaries like 50-60000$ USD yearly you leave almost 40% of them in the coffers of local,state and federal governments.

David Caddock said...

I thought you already discussed this Gevlon. Speculators adjust the prices of goods so that people who really want them have access to them while making it less affordable and attractive to those who don't want/need them as much to buy them for their original lower prices. Said in another way, speculators are rewarded for getting goods into the hands of those who want and need them most. It's this act that increases GDP.

Squishalot said...

It's a fairly simplistic scenario. If demand for glyphs was poor, say, only 1000 glyphs per group, then the speculator would end up with 4800 glyphs spare. He still ends up with a profit, but it demonstrates how it can easily turn 'bad' for the speculator.

Also, you have to consider the timing of the sales - assuming a relatively even distribution of sales throughout the 4 hour working period of G300 and G600 on patch day, they should be able to obtain a higher proportion of the 30g sales, driving down the total sales of the speculator once demand from M60-30 have been exhausted.

Otherwise, your calcs look good, if simplistic.

Gevlon said...

@David Caddock: you are talking about instant-time arbitragers. They are good. Now we talk about speculators.

@Daniel: 40% tax for $5-60K is a dream for an European. In Hungary for example (where I have the most up to date data), you pay 60% for 50K.

@Squishalot: If the speculator overstocks, he ends up bad. But it doesn't affect the other parties. The crafters are still working for minimal wage and the M&S is still getting stuff cheaper.

Grim said...

Not sure about USA, but over here in Latvia (Eastern Europe, technically EU, but nowhere near the level of development) the people who are worst off from the crisis are exactly the M&S.

Sure, they got to ride about in bigass SUVs and live in pretty homes for a while, but now banks have them by the balls. And yet, the banks themselves are taking heavy losses.

Meanwhile, the smart people who stayed out of the credit frenzy have approximately what they had before - maybe a flat and a car, maybe none, but definitely no significant debt. Also, smart people still have jobs - when the economy imploded, the M&S were the ones laid off.

As for the honest entrepreneur, they are facing difficulties now, but they also got their cuts from the credit frenzy, because M&S weren't buying just overpriced flats and cars. They were buying everything they could get their hands on.

As for the speculators - some made huge profits, but others are still stuck with a bunch of apartments that they can't sell for anything near the price they paid for them.

In the real world there is no patch-date that is easily predictable. The economy follows a more or less wavelike pattern, but no one can be certain when the current trend will end, so relatively few venture and bet on it. The speculators usually start buying when the prices already start to rise. Thus they themselves fuel the prices and don't stop until the bubble bursts and the ones who didn't pull out in time have to sell their stock for dirt cheap just to cover losses and pay off their own creditors.

If speculators only bought when there is overproduction and sold when there is underproduction, they would be great for the society. As it is, they lag behind and make a mess of things both for themselves and everyone else.

Anonymous said...

The US mortgage crisis was caused by the bursting of a bubble based on *fraud* (banks lying about securities being traded, rating agencies giving AAA ratings to junk, etc). The effect of intense speculation was simply to inflate the bubble a lot faster. The demand for MBSes raised housing prices and incentivized banks to originate as many crappy loans as they could.

Some amount of speculation is good for the market, it acts like grease. But when you have piles of concentrated wealth in the hands of a few, the resulting excessive speculation leads to increased economic instability.

You really can't equate it to glyphs. Seriously, the WoW AH is way too simplistic. I'd say that the WoW economy is to the real economy what Ayn Rand is to a real novelist.

Squishalot said...

@ Gevlon: "40% tax for $5-60K is a dream for an European. In Hungary for example (where I have the most up to date data), you pay 60% for 50K."

What's your net purchasing power in terms of goods and services though? Cash is meaningless if it can't afford anything. All else equal, I would have a higher take-home pay in the US compared to Australia, but goods and services are more expensive relative to average take home pay.

"The crafters are still working for minimal wage and the M&S is still getting stuff cheaper."

It needs to be noted that the speculator is inflating pre-patch prices. He's even-ing out the supply/demand effect over the patch day, and actually providing superprofits to G300 for the month prior.

And I'm glad you're using the term 'speculator' in this blog, rather than 'arbitrage(urs)-through-time' like you did last week.

Camiel said...

In your scenario, there is nothing that stops G300 and G600 from being speculators themselves: if they were as smart as the speculator, they would have stockpiled their glyphs until the patch, instead of selling them for token prices before.

So if the speculator can gain a profit from the producers, it proves that the producers are M&S and by your logic we don't need to feel sorry for them.

Also, the speculator took a risk here. In your scenario he is rewarded for the risk, but he could easily have made a loss. So his profits are the rewards for the risks he was willing to take, exactly as IRL where the majority of the people prefer to put their money in safe saving accounts instead of investing in the more risky stock market.

Gevlon said...

@Zazkadin: if the speculator is the same person as one of the crafters, that does not change anything. Still his profit will come from speculation and not crafting.

@Squishalot: the price elevation before patch because of speculator demand is much smaller than the price elevation after, or the speculator would have no profit.

French Guy said...

I'm always a bit afraid when I see a mix of real life and in-game reasonings. Because we might discuss about the competition of chocolate firms in our economies and forget that our Mars, Snickers, Toblerone, M&M's, etc. are produced by children kidnapped in Western Africa and forced into slavery in Ivory Coast.

Plus if you talk about "speculators", it's not the same as "traders". Speculators created the crisis of 1997 in Asia and non-speculators suffered from the consequences.

Subprime crisis cannot be blamed totally on speculators. There are deeper reasons than that like the fact that growth was gained from a growing debt of households, which is not a sustainable source of growth.

Anonymous said...

>>40% tax for $5-60K is a dream for an European.<<
In Switzerland I don't even have to pay 20% (yearly salary of ~60k EUR).

The problem I see with speculation is that it increases the cost without a direct demand (/use).
That means in your example: People that just have enough gold to get the necessary glyphes for 5g ea can't get any because the speculator drives the price up to 10g ea.

In RL this happens when people drive the cost of food (rice, corn, etc) which might increase the hunger.

chewy said...

I enjoyed your argument until last three paragraphs, the conclusion if you will, where your emotions seemed to get the better of you. How can the statement that "the hard working won't let the M&S starve..." be reconciled with "..the speculators ... will destroy the M&S" ? It suggests that the hard workers will be immune to some market force that will only effect the M&S. I'm wondering if you started with the desire to destroy the M&S and fitted the argument around that objective. I await, with eager anticipation, the explanation of how the M&S will meet their doom at the hands of the speculators.

(Tax at 50% in Europe is a gross over simplification by the way. Unlike the US the EU isn't one country with one set of tax laws).

Sean said...

I'm pretty right-wing and I don't believe in speculation. This is because it's a zero-sum game. I'm not sure whether the "harvest" is a good example, but my personal belief is that speculators compete amongst themselves.

I tolerate them because in a free-market people should be free to make their own mistakes. But the problem was these speculators ended up getting bailed by the govt.

Sjonnar said...

I'll eagerly await your explanation as to how speculators destroy the M&S. For a long time I've realized what you've proven in this post: that they steal from those who work and make life easier for those who don't, all the while getting filthy rich in the process.

The way i see it, the solution to the M&S is not to ninja-tax the productive segment through speculation any more than it is to support them via tax-funded welfare. The solution to the M&S is to pass legislation which takes away their free ride. Then we ants will enjoy watching the grasshoppers starve.

Anonymous said...

@Anon: >>In Switzerland I don't even have to pay 20% (yearly salary of ~60k EUR)<<
You're talking only about main tax, the one you see every year/month. But try to adding those:
gas oil / energy sources' taxes (I'm excluding those from VAT/Excise for a reason)
health care / goverment retirement (plan) taxes
road taxes
various local taxes (for owning dogs, having your own land and home, etc)

Those all (and a few more, depending on country) are taxes, which fuel your country's goverment. If you add all those up, you might be suprised how much you're paying only for being a Swiss.

Anonymous said...

I generally like your articles but your take on speculators, as I define them, is completely wrong.

First let me define the speculator to see if it a matter of definition. My definition is of an agent that is continually monitoring the market and buying and selling goods when his beliefs say this is under/overpriced.

If we agree with this very generic definition, then why the speculator, then they are important because their constant presence in the market brings liquidity. Because they are there buying and selling.

This has a micro and a macro impact. The micro is obvious if I need a good is there now, the macro is subtler. By bringing liquidity makes the market price close to value. Because transactions can happen (and only because there is offer and demand) the price can flow close to the real value at each moment.

This means that the entrepreneurs can know what is the real value of a good and therefore plan better their investments decisions. A very important thing for the whole economy.

Anonymous said...

"The 2008 Crisis actually proved the Goblin code works. The RL Goblins amde out with fortunes (and still are), while only the M&S and those that enabled them got burned. "

No, it didn't. It proved that even in the most free market country, being Goblin or not means nothing if you have the right connections.

If the Goblin code worked to its fullest extend, a lot, if not all, (investment) banks would have gone bankrupt and disappeared. As we all know, this didn't happen. You might argue that being bailed out by the M&S (the gross of taxpayers) is also very goblin-ish, I beg to differ. A real Goblin uses the market, not his connections, to earn his share. Being able to get oneself bailed out by the government is the same as getting welfare support. You leech off the others.

Churrasco said...

Those you are calling speculators...There is nothing wrong with them. Sure they take advantage of the hard-working, buying in at the right and selling in the same matter.

A key to Markets is timing, and to time your buy-in is important. Sure it is a slap in the face to those who work. Dog Eat Dog, its business, and screw the M&S not getting hurt in the process, if you didn't really care about them you wouldn't care what they paid in order for you to make the profit, that is what buying-in is all about.

So, to the "speculators"....I say "Entrepreneurs" through strategic buying and selling...Good On ya!

Yeah, yeah, yeah...all that about the M&S still getting boosted by low prices, whatever, it doesn't matter how low a moron pays, he is still going to die by fire, so who long as they are buying your product.

And that mindset, goes right along with some of the things you say Gevlon. People toiling for hours everyday at some kind of ridiculous job for nearly not enough money while someone else gets on easy street. You have said those kind of workers deserve their fate, well so do the crafter's when the entrepreneurs bought there goods for a profitable resale.

Give the Entrepreneurs some credit, able to buy-in and hit a decent profit margin.

Anonymous said...

Switzerland has lower "state" taxes but you have to take account that you have things e.g. like mandatory private health care expenses (you are required by law to have an health insurance with a private company). In the end the total "unavoidable" expenses the state requires you to pay are a lot more than the "raw" taxes (the fact your money does not get always to the state does not change the fact it comes out of your pockets).

In my opinion:

USA's model (at least until recently) is following the philosophy "you have to pay the bare minimum, if you want more you privately arrange for that. If disaster strikes and you decided not to get coverage it's your business".

Europe's model is more like "we acknowledge most of our citizens are M&S. We need to force them into getting coverages and services they don't think they need because if we leave them to handle such things when disaster strikes they'll demand to get the coverage/services the same because they won't accept to get what they paid for (read: nothing)".

Anonymous said...

Ah ok, yes. You are right, I didn't count the VAT etc. the reason for that is that I don't even count the pension fund etc as part of my salary. The other taxes are also very different from the income tax: they depend on my behavior (driving a car or not) and doesn't grow with my income.
so the more money i get and the less i buy with it, the less tax do i pay (until i get to the tax on assets which is rather small).

Bobbins said...

Your analysis depends on the specualators making the right decisions. It is unrealistic to assume that speculators would make the right decision.

The example of glyphs is more akin to investment rather than speculation as the outcome was determined by reading the patch notes.

Planned economies speculate on what to make and the demand for the goods. Planned economies don't work. Speculation works against the market, it distorts both supply and demand.

Gevlon said...

@Bobbins: if the speculator is wrong, then the game becomes negative sum, the monetary losses appear at him, the worker still sucks and the M&S is still better off than without speculator.

Anonymous said...


I enjoy your blog but you are wrong twice ;) .. the principled argument is, in fact, the only valid argument as everything (good/bad) is subjective. If men are free men they are free to trade as they like and therefore free to speculate.

Remember that speculating is not something magical: it means to buy low in order to sell high. On both ends there is voluntary trade. Someone WANTS to sell low and someone else will later WANTS to buy high, else speculation is impossible.

The utilitarian argument for speculation goes like this:

speculators communicate their expectations of rising prices with the act of buying. The more they buy, the more they bid prices up. This tells suppliers "hey, guy, consider making some glyphs because they are getting more expensive all the time".

Now why does the speculator even have an expectation of rising prices? Here is where the left is wrong because they think that the speculator creates the rise in prices that he himself will profit from. This, of course, is non-sense. The speculator is in fact placing an informed bet on the future, most often with knowledge only few others have i.e. such as that the 4.0.1 patch would lead to a huge demand in glyphs.

In effect the speculator works directly to align supply with demand because he pre-pones some of the price increase that an disrubtive event might cause in the future. At buy-time he bids prices up and, because he hordes instead of consums them, in effect increases the total supply by drawing in more producers. At sell-time he bids prices down with his stored inventory.

This is why speculation is useful!

Anonymous said...

I'm really looking foward to next post. I'm very curious on how is it possible that speculators can wipe out M&S. But at the same time I have a question:

Will it be "worth" for those speculators to slaughter M&S?

Wander said...

The big difference that I see in this case vs the real world is that suppliers often must invest money to start producing goods, upgrading/building factories or hiring and training workers. I actually think that would help the case for speculators being good because they would help show where prices might be going making it easier for suppliers to guess how much they should expand.

Anonymous said...


obviously, if you assume the two extremes

a) output can be increased instantly with low cost

b) increase in output is very expensive and takes a lot of time to ramp up

you see that speculation automatically get's more profitable AND less risky AND arguably more beneficial as you move towards b).

Even in WoW, it is an investment to level a skill and it takes some time, thus the whole reason Gevlon could make so much G.

Phelps said...

This analysis doesn't include the cost of money, which is significant for a speculator, or warehousing.

The speculator provided a valuable service -- he gave cash flow to the producers, and provided stability in their process (rather than having to immediately gear up and then gear right back down.)

Irene said...

Hi Gevlon,

Much as I appreciate your philosophy posts and attitude against the morons and slackers, there is one thing that I wonder how you will take into account: the backup and the moral hazard. I have no backup for failing some glyph venture in WoW, but in real world... hmmm

such as:

aint't it cute :) i would so love to speculate if i had a govt ensuring that money keeps coming, by increasing insurance limits, "printing" money etc. etc.

also, I am from Romania. Here as well, as someone said above, "the people who are worst off from the crisis are exactly the M&S.", and there are also people who don't have problems, but instead are buying the depreciated assets. I'm one of them. So i hardly can say I have anything against speculators, they made my life much easier by bringing this crisis: I could buy 2 houses for the price of one this year, taking advantage of the "poor people who made credits".

But still, without the BACKUP of governments, speculators would fail as anybody else who ventures. Not saying M&S should be protected, just saying it's awfully convenient to have such backup, you know. Ultimately, you risk, you win or lose, but my issue with speculators IRL (and not in wow) is that for them, there is not LOSING option, they make sure of that.

And the real issue is: how far will they go for it? chickens made in laboratory and fruits with no taste (ergo high incidence of cancer like in US but also high profits, land of the brave) AND NO OPTION to buy anything else: this is where we go if we let speculators do what they want, in the idea that whoever can monetize stupidity, should. From a point onwards, they monetize their power.

It is a "brave new world" we are going towards.

Anonymous said...

You left out that speculators take on more risk than the under-cutter, in the attempt to get a greater return or at least a similar return with less effort.

A speculator MUST know the difference between cheap price and true market price in order to stay in business over the longer term. The idiot who simply buys out all his competition in an attempt to jam prices higher will lose if the market doesn't sustain the new price bracket.

A honest speculator buys in glut and sells in famine, he provides liquidity in ill-liquid markets and reaps the benefit of it.

Unknown said...

Woah, there's another Daniel. That's a tad confusing. Anyway, you make another bold philosophical statement here Gevlon.

"Actually bearing arms is good (or not) on it's own and the mentioned legal document merely acknowledges this good (or wrongfully acknowledges something bad)."

While you're correct that just because something is allowed by the constitution doesn't make it good, you're taking a deontological position by saying that the action of bearing arms is either good or bad regardless of the consequences that come of it.

Bristal said...

The 2008 crisis was caused,at least partly IMO, by masses of M&S BECOMING speculators. They borrowed easy money, "invested" in real estate, borrowed more money off the inflated value of said real estate, and spent it on crap.

Blame it on them, or blame it on the casino-owners, I mean financial institutions, who loaned them the money.

In WoW terms, Blizzard gives free Justice points with only a promise to kill bosses later. We buy gems and orbs to resell, mechano-hogs, and Mammoths with our profits to e-peen, but no gear to kill bosses. Why bother killing bosses when we're getting all we want?

Unknown to us, Blizzard actually needs bosses to die to power their servers (taxes). They were hoping that the free points would create more kills.

Suddenly the market for gems and orbs crumbles (less gear to gem, less money to by crafted gear). Blizzard stops giving free points. And because nobody has killed bosses in awhile, heroics are wipe-fests, and few people have the gear.

Fewer and fewer bosses die(unemployment).

Swimming in worthless gems and orbs and Mammoths/Hogs (real estate bust) nobody cares about e-peen, and can't buy anything worthwhile.

The elite, however, continue to get their Lich-King kills.

Bobbins said...

'@Bobbins: if the speculator is wrong, then the game becomes negative sum, the monetary losses appear at him'

You assume getting it wrong does not negatively effect others. This is clearly not the case as speculators would sell at a loss and move on (if they kept stock they would become investors). The appearance of the excess stock dumped would impact the existing producers depressing prices even further. The effect on the medium term producers is uncertain however in the real world if they couldn't absorb the lower short term prices they would close reducing supply in the future.

Kenny said...

I will be interested to see how you can fit Australia, (where I live), Canada, Finland, Norway, Sweden and hell even Germany into this equation.

I honestly don't think you can fit these countries into this understanding. Looking forward to next post on this topic!

Anonymous said...

As much as i enjoy playing the AH is as much as i despise speculaters irl. The financial crisis did show us one thing - privatize the profits and socialize the losses. I actually consider it unfair earning billions of compensation for doing a poor job. If you can't afford the risk/consewuences for yourself - don't speculate.