Just a little announcement but a big discussion

9 05 2006

Yes, I am speaking about the announcements that Linden Lab is going to change the TOS in order to be able to sell L$ over the LindeX. So in other terms that means that they are allowed to print money in “the context of smart economic policy”. As you can imagine this immediatly started a huge discussion in the forums.
I am no expert on economics but I will try to understand what’s going on nevertheless.

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So let’s look at that a bit. Apparently the fears are high now that this will lead to an enormous downgrade of the Linden Dollar. And from what I’ve heard many people are now starting to sell their L$ immediately. This in fact will for sure lead to a downgrade of the L$ as this is usually how the market works. So it’s sort of a self fulfilling prophecy right now. Of course some speculators might jump in (although I wonder if the market is really big enough for these to jump in but probably it is) and start buying again at some point but it’s unclear when this will happen (and everybody might wait how far it will drop).

But haven’t they be printing money already but distributed it by other means than the LindeX? I would say they have if you look at the incomes and expenses of the system. Let’s look at that in detail. On the expenses side we have weekly stipends, one time boni, dwell and developer incentives. On the income side we have premium account fees, land tier, various fees (upload, rating). The question now is if they do match all the time.
But to compute this correctly is maybe impossible as real world and SL economy are a bit mixed here as it’s not really clear which money goes in and which not. We e.g. need to take into account that real world bills have to be paid for HW, people and so on. And we must also see that the premium account fees or land tier fees are not bound to the value of the $L.

So let’s look at an example: I pay my premium account annually. This makes US$6/month. I get L$ 500,- stipend per week, which sums up to L$ 2000,- per month. If we assume good times and the L$ is at L$250/1US$ then this would result in US$8/month I get from Linden Lab. And even with L$300/US$ I get more than $6 out.
So all in all they pay me more than I pay them (part of that might go as upload fees of course again to them again). As not everybody pays annually this might be ok in the mean value but still you need to count in the free accounts which basically receive free money (not much though).
Then we to take into account the real world bills. Of course land tier fees will add to that and these are probably the ones which bring the real money to LL. But if we substract all the real world expenses from that it is still not clear how the rest is converted into Linden and at what rate (or I haven’t read about it yet).

People are demanding though that they should buy L$ from the residents instead of using the rest of the fees as earning and thus the market would make the “true” price. But this might not be an option for LL as they need a way for controlling the market somehow (you can imagine that speculators might go crazy about this and LL would need a way to control things). And after all every real country is printing money as well and doing their best to do this in terms of clever economy policies. OTOH I have no idea how a real economy actually runs as I am no expert as stated above ;-)

So if we assume that the balance between in-world expenses and income has not been even anyway I would say that money always has been printed and given out as stipends. It just has not been sold on the LindeX yet. We also need to take into account the fact that dwell and developer incentives are going to be removed or already have. So this means that actually less money is going into the economy thus the L$ actually should rise. So I would see this TOS change as move in trying to simply get a better control of the market or as doing this in exchange to the removal of dwell. They also said that they will only use it in the context with smart economic policy.

Smart economic policy? When looking at the announcement on the community page you do not see directly what this might be and of course people started to wonder what this actually means. But when looking in the actual forum you at least have some PDFs attached to the post which might bring more light into it. OTOH I wonder if there can be anything like smart economic policy in this world. When looking at real world economies it seems that there isn’t as most of them are more or less having problems these days. People might also argue that SL is different in being a more closed economy. I don’t know though if this makes any difference.

Another point people are telling is that LL never spoke about this before (iirc) so one might wonder if the townhall meetings are of any use if such important steps are not announced or discussed there.

Well, all in all you cannot really say (yet) if this decision is good as time will tell. It also depends on many factors (although it’s more or less closed and maybe it isn’t even that close as one might expect). I also still have to read these PDFs if these give any hints on the actual policy. But at least from quickly looking at them one can already tell that these theories in there are also widely discussed in the real world if they do good or not. One can at least say that hopefully people will not starve in SL because of the wrong economic policy (although the bigger business might suffer actually).

Another aspect to many residents is probably that they see it more as a game. And in fact it usually is for them unless they are trying to do (serious) business within SL. Then of course it directly gets very serious which is quite obvious from the forum discussions.

So maybe a game without economics is the better place then? But however, it’s YOU who decides what you actually do in SL!

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27 06 2006
Anonymous

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