Its the economy, Stup..!!!!

Day 804, 18:30 • Published in USA USA • by Edward Bongsworth

Allow me to introduce myself. My name is Edward Bongsworth, I have been on eRep for several months now and mostly kept to myself. However, one thing has drive me to buy a newspaper and start making a difference in the eUS. That thing is economics.

In specific: The 1% import tax.

This is a ceterus paribus analysis of our current import tax system. (just an FYI for any economics majors out there. Theyll know what that means.)

Many eAmericans have tried to defend this policy. The primary argument: The low income taxes create a friendly business environment for foreign companies, who then sell their goods on American markets, and this massive gluttony of supply drives down consumer goods prices on important things such as food and guns to the point that it justifies the gold drain.

Wait, the gold drain? What's that?

Well its simple. Take this example: A Romanian company sells a Q5 weapon on an American market at the current price of $22.09. Removing the VAT, we arrive at $20.45 as the revenue for the good. Of this, we get $0.20 in income taxes. However, that other $20.25 goes to the Romanian companies' bank account, which then goes to their employees in the form of wages. American companies, however, can not do the same to the Romanian market. Their 99% import tax makes this impossible since no company could make a profit selling in Romania at this rate.

The end result? We have two scenarios:

1) The Romanian company sells the product and we lose, at bare minimum, $20.25 from our economy that we'll never see again. At current, thats about 0.57 gold disappearing every time. In addition to this, every sale going to a foreign company produces less revenue for our government.

2) American company sells the product and the economy grows, the money gets recycled, and the government makes more revenue than it otherwise would have.

More Gov Revenue = more ability to wage war = MORE DEAD REDCOATS

BUT WAIT!!!!!!!!!!!

I'm about to blow your mind America.

I did an analysis of the markets of America and three of our EDEN allies. It was to try to test the commonly held believe that lower import taxes create lower consumer goods prices through increased supply. I used a sample of Q1 & Q5 Food, Q1 & Q5 Weapons, and Q1 Moving Tickets to create a consumer price index, using gold, with current echange rates, as the measuring stick. I gathered price data from the US, Romania, Spain, and Poland. The data that follows is the price of one of each in local currency converted into gold, using the conversion rates and prices as they existed as of 15:15 on Day 804.

USA: 0.0151 Gld (Q1Food) + 0.1283 Gld (Q5Food) + 0.0899 Gld (Q1Weapon) + 0.6194 (Q5Weapon) + 0.1596 (Q1 MT) = TOTAL OF 1.0123 Gold (import tax rate: 1😵


Romania: 0.0137 (Q1F) + 0.1313 (Q5F) + 0.0806 (Q1W) + 0.5696 (Q5W) + 0.1581 (Q1MT) = TOTAL OF 0.9533 Gold (import tax rate: 99😵


Polan😛 0.0138 (Q1F) + 0.2157 (Q5F) + 0.0810 (Q1W) + 0.6103 (Q5W) + 0.1506 (Q1MT) = TOTAL OF 1.0714 (import tax rate: 99😵


Spain: 0.0167 (Q1F) + 0.1389 (Q5F) + 0.1069 (Q1W) + 0.6841 (Q5W) + 0.1981 (Q1MT) = TOTAL OF 1.1447 (import tax rate: 10😵


WHAT THIS DATA MEANS:

This conclusively shows that there is no correlation between lowering import taxes and getting cheaper consumer goods. Some would argue it has to do with the pegging, but Poland has a low peg (1 gold = 33.33 PLN) and Romania has a high peg (1 gold = 52.63 RON), yet both have comparable if not lower consumer goods prices.

Why did we think this was the case at one point? Well for a good reason: It works in RL economics. This is how Walmart and many RL companies have made their profits. But the one imporant thing that was NEVER factored in is something call ECONOMIES OF SCALE. It is an economics term that basically says that more of a product you produce, the more efficient you become at it, and the cheaper you can then sell it for. It is the basis for supply-side economics. BUT IT DOESNT WORK IN EREPUBLIK!!!! and here's why: There's no economies of scale in eRepublik!!!!!! I will say that again for emphasis: THERE IS NO ECONOMIES OF SCALE IN EREPUBLIK, SO ITS IMPOSSIBLE FOR SUPPLY SIDE ECONOMICS TO FUNCTION. That is to say, you get the same increase in productivity in going from skill 4 to 4.02 as you do going from 20 to 20.02. Do the math yourself using the porductivity formula, its true. And any company owners can tell you, no matter how many goods you make it is still the same cost for each additonal item. This doesnt work with raw materials, but with manufacturing in eRep it holds true. Thats why this article is addressing manufactured goods and not raw materials.

CONSEQUENCES OF THIS REALIZATION:

So if economies of scale don't work in eRep, and that's what we're basing our 1% import tax philosophy on, what is the effect of this economics error on our government? Well I'm glad you asked.

1) Government loses revenue. Increased money going to foreign companies, means less profits for American companies so they have to pay lower wages, which then means less revenue for the government in the areas of Income tax (lower wages creates less tax revenue) and VAT (lower wages leads to less consumer spending and thus lower VAT revenue).

And remember.... More Government Revenue = more war = MORE DEAD REDCOATS

2) Hurts player retention. The gluttonous market has created a situation in which it is almost impossible for upstart Q1 companies to make a profit. I challenge you to go do the math. Imagine this: If its been the goal of someone's eLife to create their own company, then they buy one after finally spending the months needed to collect 20 gold (or worse yet, spending RL money to buy it) , then only to realize that their own government has created economic conditions that make it impossible for them to prosper. Its rather demoralizing. Foreign companies often have the luxury of income taxes below 10% and VATs lower than 5% at home, along with domestic markets that are safe from foreign competitors. American businesses enjoy no such advantages.

C)The dreaded gold drain I mentioned earlier. Our economy is leaking gold slowly.

WE MUST ACKNOWLEDGE OUR ECONOMIC SHORTCOMINGS. WE MUST ADOPT THE BONGSWORTH PLAN.

What is the Bongsworth Plan? It's Simple. Raise Import taxes to 10-12% (on manufacturing goods only). This would accomplish a number of goals:

A) Create Government Revenue

😎 Bring Profit back to American businesses, thus improving both profit margins and domestic wages.

C) Still gives us the foreign goods we need! If an artificial price bubble is created in an industry or there is a shortage of supply, the foreign company can still jump in there to fill the void and make a healthy profit.

D) MOST IMPORTANTLY, It would stop the gold drain and improve our eUS economy.


The best ideas for improving the economy are player retention and more warfare, and thankfully both major candidates seem dedicated to these goals. BUT, they are easier said than done, and this is something that can improve the economy in the mean time. I have messaged both major candidate asking for opinions on this plan and will present to you a follow up article with their positions, and (possibly) an endorcement. Subscribe if you wish to see their responses!!!!!!!!


Cheers,
Edward Bongsworth
Editor-in-Chief, The Bongsworth Chronicles