A -real- economic discussion about 2.0?

[Azurymber]

It's clear the economy is a serious issue in the game. But most threads seem to be people stating "I think this is true so therefore it will happen", rather than actually having an educated discussion about the economy. As an economist (specializing in neuro-economics) I'm probably more interested in this game's economy than any other aspect of it.

So I'm going to try to lay out the "economic conditions" existing now, as well as the future challenges -from an economic perspective-.

And I would love to get some educated opinions on it. (Please no "this happened before so it will be fine now" arguments. Use models, math, economic theory, behavioural theory, etc)

I also tried to rewrite my points in more basic English in light blue. If you understand them or know basic economics you can ignore anything This Colour

How the game is now:

Inflated Money Supply
Currently, every server's economy has an inflated net money supply (henceforth referred to as gil supply), relative to the current attainable rates.

English translation: People have large amounts of gil, that they would not be able to attain if servers were restarted today.

Why?: Because when the game was released, there were a large amount of gil-inflows. Put another way, you could make 30k-40k per leve, and making a mil in newly-created gil, was fairly easy compared to today. I would estimate that the current gil-inflows are about 1/10th what they were at launch.

English translation: When the game was released you could force SE to create X amount of gil per day, thus increasing the games economy by X. Now you can only get X divided by 10 per day. That means that the economy is probably growing 10 times slower.

Lack of Price Indexes
At the moment, the unsophisticated market ward system has created an economy where a great deal of price-strategy is guesswork, as there are no price indexes for materia-melded-products. While high-demand products like relic-weapon requirements do reach equilibrium price, the majority of materia-melded equipment is priced high and slowly reduced until it sells.

English Explanation: If you have a triple melded piece of level 40 armor, you wouldn't be able to look at a price history and see what its worth. You would have to make an educated guess based on the current costs of materia, demand for that piece of equipment, supply of similar products that can be substituted for yours, etc. This leads to a lot of products that just sit on the wards and never sell, and discourages melding non-mainstream equipment. It also causes players to be weary about buying melded gear are forced to guess a "fair-price" and can't be sure if it is overpriced, under-priced, or if they can ever resell it at all.

Hoarding and Absentee Reserves
At the moment a lot of people have hoarded gil. They essentially realize that in the future much of the current equipment may be useless (see the next section on uncertainty), and as a result, spend almost none of their gil. This essentially creates a market situation where the current equilibrium prices are not indicative of the actual money supply. If for some reason all those hoarders decided to spend their money overnight (in trade, not a gil-sink), all prices would most likely rise ten-fold or more.

Absentee players, who may have quit or gone to another game, are also hoarding a large amount of gil. For example, I was one of the first to hit 50 on my server when the game was released. Most of those I leveled with had well over 10 mil. And nearly all no longer play. If those players suddenly came back *cough cough 2.0*, a lot of gil will be re-introduced to the economy.

English Translation: A lot of current players have max gil, and a lot of people who quit have multi-millions and would be considered rich. If 2.0 draws them back, a great deal of extra gil will be introduced to the economy. This means prices of everything would increase.

Uncertainty
Since SE doesn't seem to like discussing the future of their games, nobody knows what equipment will be worth gil in the future. For example, if they increase the level cap a year from now, most of the current equipment will become useless. Since there is a lot of uncertainty, most players who have amassed gil are smart enough to hold onto it, until they can convince themselves that spending it won't be a waste, or only result in temporary benefit.

Real Money Trading
In Final Fantasy 11, a phenomenon called "Rusty Cap Fishing" occurred. You could essentially stick a bot in Rabao (a town) 24/7, fish up "rusty caps" and sell them to the nearby NPC. As a result of this, RMT's gained very large sums of gil. Now RMT's are for-profit businesses. They had more gil than they could sell, and wanted to generate profits. So they had a sale at christmas selling gil incredibly cheap. And the result was hyper-inflation. Prior to hyperinflation, 1million gil was "A lot of gil". Peacock charms were probably worth around 8mil lets say. After hyperinflation, they shot up to around 80mil. Essentially, all the extra gil entering the economy that had been hoarded by RMT from rusty cap fishing, caused nearly all the prices on most servers to increase 10-fold. (note: i may be over-exaggerating this a bit, but I am certain some high-demand items did increase 10-fold for a good few weeks)

I'm not going to argue this will happen here. But if anyone has visited cedarwood, you know there are a large amount of people there. Further, it's pretty clear that botting in this game (craft-botting next to an npc and selling things for profit) has essentially been allowed to occur. If you are skeptical about this, search the forums for "botting" or "RMT" and you will find countless accounts of players who have witnessed the same person crafting 24/7 next to the same npc non stop. Or fishing non-stop for weeks. You can also discover this by searching for the players you suspect of botting on lodestone history and seeing the very random times they level up and the continuous nature of it.

The main point here is that we don't really know how much gil RMTs have stored up, and I doubt SE knows, as it is probably difficult to separate out the bots from real players when looking at data in a database. If we were able to amass 100's of mils, it is possible that RMT have been able to as well. And if they decide to create a sale when 2.0 is released or shortly after, it may have some very serious economic repercussions.

What Will Happen in 2.0

The 1/10th Gil Reduction
Reducing the amount of gil everyone has by 1/10th will do nothing, IF the current gil inflows remain exactly the same. The chance of this happening are low. How this policy effects us will fully depend on how easy or hard it is to make gil in 2.0. If it is easier to make gil in 2.0 than it is now, the economy will benefit a lot, as new players will feasibly be able to catch up. However, it will anger players who spent hours amassing 999mil (99.99mil now). And if it is harder to make gil, new players will have a hard time affording anything for quite a while.

In the long term I would argue that the reduction in gil and npc prices will have the psychological impact of long-term steady equilibrium on basic item pricing. Or put another way, Items will gain a value, and people will stick to that value, with minimal undercutting or overpricing. For example, spruce logs may be worth 5000gil. A few people will price it at 4950 and a few at 5100, but 90% of the time they will be 5000. This phenomenon happened in FFXI and other games, and is essentially the result of people getting used to a "fair price" and expecting it. By having an economy where 1mil is considered a lot (I'm assuming that is SE's attempt here), people are more likely to psychologically adhere to a fixed price like 5000, 100, 1000, 10000, etc. Note: these are all prices that humans seem to like. Easy numbers, multiples of 10, etc.

Hyper-Inflation and Inflation
If you read the section on the current state of the game you will see my arguments for possible hyper-inflation. Returning players re-introducing stored up gil, current players spending stored up gil, and RMT selling stored up gil, could all result in inflation. Luckily, this game is being released after Christmas, meaning the hyperinflation from RMT christmas gifts is avoided for a year. However, inflation will still be a serious issue, and it could undermine any npc-prices or economic changes made to the game.

Consequences of Server Differences (Effect on Monetary Policy)
To me this is the biggest problem 2.0 faces. By having new servers, you create a scenario where some servers will have a massive money supply, in the 100s of millions, while others will have a money supply of zero. Both economies will on average grow at the exact same rate. So the older servers will always have a fixed difference in money supply.

Since I doubt new players will equally split-up between servers, there is a pretty good chance all servers will end up with different fixed starting money supply.

The main consequence of this is that SE will either be unable to balance out economies via gil-inflows and outflows.
OR SE will have to treat servers differently

Since SE probably can't index all the complicated economic data, there would be no way to truly treat all servers differently but equally. As a result, people would migrate to "easy" servers, where they can get that house they want, that weapon they want, etc.

Overall, it seems like it would create a lot of animosity and criticism.

English Translation:
Imagine a server called Wutai and a server called Fairy
Wutai is an old server and has 5,000,000,000 gil floating around.
Fairy is a new server, and as such it has 0 gil floating around at launch.
The game economy grows on average by x-amount each day, depending on whatever gil-inflows (ways to get money created by the server, like from an npc, rather than through trade with a human player) exist.

So lets say on day one
Wutai money supply = 5,001,000,000
Fairy money supply = 1,000,000

Day 300
Wutai money supply = 5,300,000,000
Fairy money supply = 300,000,000

The point here is no matter what SE does, Wutai will always have 5000 million more gil circulating than Fairy. That means that you may be able to make 10 times more per log on Wutai than you would on Fairy.

If SE wants to take gil OUT of the economy, they will have to treat someone unfairly. There is no other option. One server will be at a disadvantage.

Will Prices Balance Out?
Yes
I see people in lots of threads claiming that prices will not balance out, people will overcharge, etc.
Economic theory, which can be backed up by logic, and math, and has been backed up by 1000s of studies worldwide, shows that prices will balance out (for the most part).
This is because of supply and demand, and the inability to monopolize items in this game.

There have been societies in the past that were not capitalistic and did not rely on supply and demand as much as now (although I and many other economists would argue that supply and demand played a seriously intrinsic role). For example, Native Americans often traded through cultural ceremonies, where trade was done via gift-giving. This essentially meant that it was really easy for European traders to rip them off and bribe them with alcohol (The Hudson's Bay Company in Upper Canada literally had vats of alcohol and sent emissaries down the river advertising it as a bribe for trade).

However, anyone who plays this game lives or has experienced capitalism. The fact that you bought this game and pay monthly for it shows that you understand the concept of capitalistic transactions and supply and demand. As such, supply and demand will apply to this games economy just as much as real life, and prices -WILL- balance out. (At least on items traded a lot and items with a trading/AH history)

Anyway, If you have some counter-arguments or alternative ideas about the economy I would really love to hear them. Please try and keep it "scholarly" and use real arguments or models. And state your assumptions so they are clear

[Ruisu]

But most threads seem to be people stating "I think this is true so therefore it will happen", rather than actually having an educated discussion [/COLOR]

So it's okay for you to make threads about this shit, but then you mock other people when they attempt to make these threads?

Also all of your points are extremes. As usual. MMOs usually have fluctuating economies on various servers, it's common for this to happen.

[yukikaze_yanagi]

based on this argument, every time WoW released a new Recommended server, they would put custom npc prices, which never happened and people dealt with it.
If worst happens, they'll just cut requisites like Ragnarock (but remember, that happened just because ragnarock have few people, not because was a different server)

[Ryans]

As you mentioned, we can't really have a discussion about the economy in the future until we know how fast gil will be obtained (and taken out) in 2.0. Unless there are major gil sinks (I.E. Dynamis) there are going to be people with hundreds of millions (I suppose tens of millions in 2.0) because there is nothing for them to spend it on. Its going to be the same situation we have in the current economy unless there is a huge inflation amongst the average player. Prices for more commonly used items are going to be set to what the average player is willing to pay because they are the majority of the demand and some triple of higher melds are going to be set to what the incredibly rich will pay.

It is as simple as that; it doesn't matter if there is a small portition with more money than the rest combined because they cannot control the supply in the market (unlike real economies.) I suppose the only real problem would be if those rich people actually started having a reason to participate in the economy and the wealth got spread around to the majority with no gil sinks for them to waste it on.

I'll close by saying that I believe the economy will stay the same until there are items that are worth a ton of gil but obtainable by any level (new, average, or hardcore) of player at a low drop rate. If we get items like Peacock Charm, an item that a fairly low level person could potentially get and not having multiple pumped into the economy every day, then we might actually see a problem with inflation but as it stands now, there is nothing worth buying (how easy stats are to cap is one of the reasons items aren't worth buying as well.)

[ShinigamiKayla]

I just don't care anymore I don't see why people care I just see it freaking pointless to worry about... screw the economy I just want to play the freaking game... get over it people...

[Zenaku]

I just don't care anymore I don't see why people care I just see it freaking pointless to worry about... screw the economy I just want to play the freaking game... get over it people...

tell me about it they don't even wait for 2.0 to come out to see how things going to be. i

[Dragonheart]

Solution? Wipe all character gils. But ppl will cry and will announce mass suicide for this.

[Catapult]

The impact of immigration policy will be interesting to observe. In this case, I'm treating different servers like different countries and a server transfer is essentially immigration/emigration.

When an existing player leaves an existing server, they will take a good deal of wealth with them, reducing the amount of gil lying around that SE has to worry about. Conversely, when they arrive at the new server, they bring that wealth with them.

It's like a wealthy Englishman during the colonial period arriving in India and being able to buy a mansion for what it would cost him to buy a small cottage back home in England. The Englishman quickly becomes master of the local estate and the defining element in the local economy. He can afford whatever he desires among these comparatively unwealthy people and drives prices to become what he consideres affordable and everyone else considers F**ing expensive. Regardless of how much wealth the peasants have relative to each other, they are still peasants and it would take them a long time to mortgage themselves out of that position. Only you can't take out a mortgage in XIV...

I believe this is why SE is prohibiting server migration until such time as it is no longer against the new server's interests to welcome a wealthy landowner from abroad. Although there will no doubt be a shock when the gates are eventually opened, the economic shock is being clearly mitigated.

[seuki]

Solution? Wipe all character gils. But ppl will cry and will announce mass suicide for this.

If they were to do that, everyone would buy out the stuff that stacks and sells for the most right before the shutdown.

[Lacavi]

The problem with most of these analysts is infinitely complex and beautifully simplistic.

People are greedy.

They are going to get whatever they can from whoever they can when they can. Reducing overall gil isn't going to stop that, especially at the start of 2.0. All this is going to do is create a top heavy economy, granted, we have that now, so essentially it's not going to change a thing.