Economic Armageddon (or How the Hell Will We Ever Recover?)

Day 822, 22:48 • Published in USA USA • by PigInZen


OK, some of you are probably wondering just where the hell I went. I admit, the last presidential campaign sucked some life out of me. I needed to lie low for a bit and I did just that. President Josh Frost asked me to continue working on the National Database project and I've been focusing on that. In the meantime, a current issue caught my attention...




First, a Review of Basic Economics

Here are some of the terms I'm going to be using in this article:

1. Law of Demand. When a product's price is low, demand is higher. When the price increases, demand drops.

2. Law of Supply. Increased supply will drive down prices. Conversely, market scarcity will drive up prices.

3. Elasticity. How the price of a product affects demand is called Elasticity. Products that are necessities are inelastic - people will generally pay whatever is necessary to get them. Food is an inelastic good in eRepublik. Weapons, gifts and moving tickets are more elastic (and in that order too).

4. Market Equilibrium. The intersection of demand and supply.

5. Deflation. The overall downward movement of prices for goods and materials.

Consider this chart:



The demand curve is in red and denotes a relationship between price and quantity that is easily defined as "more will be bought the lower the price is." The supply curve is in blue and denotes a relationship between price and quantity that is easily define😛 "costs increase the more you produce." The intersection of the two curves, the "equilibrium" is the current selling price.

OK, ready? I can already sense your collective eyes glazing over... HANG IN THERE! Grab a cup of coffee, a diet Coke, a Ritalin pill just stay with me here!


OK, Mr. Know-It-All, What Do You Say Is Going On With Our Economy?



I'll tell you what's going on. It sucks. Wages are near rock-bottom lows and still dropping. Finished Goods and Raw Materials prices have been dropping as well. There seems to be no market bottom in sight.

Tell us something we don't know, Pig! (I'm getting to it...)

I believe I've identified several causes that have led us to our current situation. In a nutshell there is decreased demand and stable to increased supply compared to market conditions a month to three months ago. The three main presidential candidates from two weeks ago (Josh Frost, Joe Newton and myself) were all aware of this situation to a degree and it formed a basis for our collective desires for some warfare as a means to stimulate demand.

Well, that warfare came and failed to stimulate demand as was expected. Let's point out that this was a wanted war, a war that we've talked about for months on end, one that was highly anticipated. The idea was that war would serve to increase demand and reduce available supply. According to the Law of Demand and the Law of Supply, prices for goods, in particular weapons, should have increased. Yet they did not. Why not? Well, we were unable to stimulate demand enough.

Reasons for Reduced Demand

Let's think about why demand didn't increase enough to affect weapons prices. Here are the ideas that come to min😛

1. Population reductions. In the eUS we've seen an overall reduction in both the absolute population number and the population of higher-leveled, wealthier players. I won't get into why this is happening, that's a whole 'nother discussion. But population decline is a big part.

2. The availability of a substitute product has affected weapons elasticity. That substitute is Lana and strength training. This is drawing off disposable income to such a degree that it affects aggregate (i.e., total) demand.

3. Military self sufficiency. For those not aware, the US military has been establishing companies on a large scale in order to produce weapons for military use. Members of the military are mandated to work at a designated company for a specific amount of time at a reduced wage. In essence their labor is subsidizing the production of weapons - the only cost is the minimal wage plus the cost of raw materials. Market demand for weapons has been suppressed by this practice on a large scale, effectively replaced by the fruits of the labor of the military.

In short, we're in a cycle of hurt and our traditional methods of shifting the demand curve no longer work. If we consider how pricing or equilibrium changes in economic models it is affected in two manners: increasing demand (aka "shifting the demand curve" to the right) or decreasing supply (aka "shifting the supply curve" to the left).

Let's revisit our friendly supply/demand chart from earlier, this time considering how a demand shift affects price:



It's quite simple, increased demand results in increased prices. OK, so far so good. What about a supply curve shift? Well...



OK, this is stupid easy, right? As supply increases the price drops. So how does this play into what we have here? Look at both charts again. Consider what would happen when BOTH demand drops and supply increases? Right. A precipitous drop in prices. Tie this in with an ill-timed change in USD/Gold exchange rate (the peg) and you have a recipe for deflation.




Deflation? Is That Like Inflation?

It's the complete opposite of inflation. Whereas inflation is an overall rise in the cost of goods and materials in relation to the value of currency, deflation is an overall decrease in the cost of goods and materials in relation to the value of currency. I our case, our USD is buying more now than it did two weeks ago, a month ago, three months ago.

Wait, that's a great thing! Stuff costs less, we can buy more stuff, right? Not if the deflation trend continues. That's when things get very bad. Here's why and it's what we're currently facing:

Decreased population, the substitution of stregnth purchases for weapons, and the removal of military weapons purchases leads to descreased aggregate demand. Under normal conditions this would lead to decreased production and supply. But we're not seeing any dent in the supplies of goods and materials. This is the killer; the price decreases are forcing a drop in wages. When wages drop the potential for further decreases in demand are possible, resulting in a deflationary spiral where prices chase wages all the way down.




So What the Hell Do We Do?

There are only two ways out: increase demand or decrease supply. We've already tried to increase demand through warfare. The other way, I assume, would be to increase retention rates and recruitment. That's a bitch and a half though and would compound the issue at first since new citizens don't have much purchasing power yet produce goods. That leaves...

Decrease supply. People could shut down companies. But again, that would suppress aggregate income in the short term as people lose wages and shift jobs to lower paying job offers. But there's a serious downside to this - we could face the potential of serious permanent job losses. We cannot consume everything on our market, the demand isn't there. But we cannot continue to feed the deflationary spiral.

A Potential Solution

Increase import taxation and chase off supply from foreign producers. This runs counter to all of our assumptions over the past year, commonly known as "stuff > gold". I think the challenge of reducing supply is more daunting than most realize - it's far too easy for business owners to drop some REAL dollars on some gold and subsidize their operations in the hope that prices will rebound. I'm guilty of this practice myself - I've been hoarding my production for about a month now. It would be far simpler to force this decision onto foreign producers. Let them make the decision to subsidize operations and sales on our market.

Keeping production in the US, keeping jobs in the US and raising wages in the US is vital to our national security. Domestic production results in income tax revenues. Foreign production does not. Why should our consumption supply tax revenues to foreign governments? They shouldn't. These taxes pay for our MPPs, our attack costs, tanking costs, and numerous domestic programs. The absolute last thing we want to see is a precipitous drop in tax revenue. This would put us in a dangerous position of having too much to protect without enough money to do so. This is a national security issue.

I never thought I would be saying this - but it's a different world than we faced this past summer and fall. We need some flexibility in our economic policy. I campaigned for the US Presidency by suggesting we might need to raise import taxes and now I am convinced that we need to try it. We can reverse the tax increase in short order - a mere 24 hours. Here's my proposal:


This Is Bound to Cause Some Rage

Raise Import Taxes as follows:

Weapons - 15%
Food - 15%
Gifts - 15%
Tickets - 20%

Grain - 15%
Oil - 15%
Iron - 15%
Wood - 15%
Diamonds - 1%





E Pluribus Unum. From Many, One.



I'LL SAY IT AGAIN: Together we have strength beyond measure. Do your part. Follow DoD orders. Fight with weapons. Maintain your wellness. SUPPORT THE CAUSE.