The eUS Economy Part II - A New Day, A New Plan (or How We Will Recover)
PigInZen
In my last article I outlined some of the market forces at work that have led to our currect economic state. I proposed raising import taxes in most sectors. In this article I'll refine that previous article and make some broader suggestions regarding changes to our tax policies that we should consider to make our economy even more functional, profitable for companies and maximize tax revenues to the US government. I am certain that this will cause another stir but having this discussion is VITAL to our collective future.
Things Have Changed
Yeah yeah yeah, I know you all know that things have changed, you can see it for yourselves: manufacturing employees are battling falling wages, manufacturing companies are seeing reduced incomes from falling prices across the board, people are running around with their hands in the air screaming ARMAGEDDON! And yeah, I tapped into this national sense of malaise myself. I own three weapons manufacturing companies, two gift companies and a moving ticket company here in the eUS. My skill is in manufacturing too. So I've seen this first hand. The question I'm going to answer is WHY we're currently hating it. It's not too difficult to grasp, allow me to lay it out for you all.
PiZ Thinks He's So Smart, Eh? Tell Us What Changed, Then, You Douche
1. The US military has implemented widespread production of a wide host of raw materials and manufactured goods for their own supplies. This production is subsidized by military members' labor and has removed a large segment of demand from our market for weapons primarily. I'll discuss this first.
2. The eRepublik admins introduced the ability for citizens to purchase additional strength for gold (aka "Lana"
😉. This has reduced the amount of money available for purchases of manufactured items such as weapons, gifts and moving tickets. Everyone needs food daily so the impact of this hasn't hit food consumption as badly as the other manufacturing sectors. I'll discuss Lana in detail second.
3. Our population has fallen from its highs. Citizen retention and recruitment is a hot button issue and affects our economy. I'll discuss population and demographics third.
4. We acquired a high iron region in Karnataka. Granted, the US government is currently leasing it from the Indian government, so we pay an ongoing price for the privilege of domestically producing iron over and above the cost to our economy. I'll get to the impact of high iron last.
Military Companies and Their Impact
Let's remember our economics lesson from last week. Markets naturally and automatically adjust to "equilibrium" - the point at which the supply and demand curves intersect. Equilibrium is the price of the given good or material. What we've seen happen gradually is that the military is no longer purchasing weapons off the market with tax revenues supplied by the US government. This has caused reduced demand. Reduced demand shifts the demand curve to the downward left causing a shift in price downward. This is all basic economics and was outlined quite nicely in my last treatise.
The root of the problem with military companies is that they make sense policy-wise and economically speaking in the long term. The up-front costs to build the infrastructure (i.e., buying the companies) and the hit to our economy from the reduced demand impact our economy brutally by forcing the remainder of the market to compensate and find a new equilibrium. Considering that the military is our country's largest bloc of weapons consumption we need to think about the impact this is having on the nonmilitary members of our society.
Lana and Gold for Strength
I'm sure many of our citizens are aware of the mantra "stuff > gold." I joined eRepublik when this idea was coming into vogue. Essentially "stuff > gold" was used to illustrate the importance of using your money to fight with weapons instead of using it to tank with gold. Everyone could recognize that getting military rankings up would result in higher damage - there's a 20% gain in each rank. The faster we could get people to that next rank the better it was for our national collective damage.
"Stuff > gold" changed when Lana was introduced. Suddenly people were spending 1.8 gold for .12 strength points. It was perceived as a godsend by some who see Lana as their ticket out of strength doldrums. The problem is that 1.8 gold equals 64 USD. 64 USD can buy you 23 weapons at the current price. That's four days of five fight training to rank up. We've removed a great deal of this demand from our market as well. "Stuff > gold" still applies, Lana is a raw deal for those that choose strength over weapons. For those at Field Marshall level, however, Lana is the shiz. Lana allows them to maintain parity in strength with their foreign tank counterparts. This is the new reality.
Population and Demographic Changes
A growing population demands more goods. A falling population needs fewer. Again, this is a demand shift and we're seeing the impact of it. There are many arguments as to why people are losing interest in eRepublik and I could write probably ten articles on separate reasons for this. The bottom line is reduced demand for products. It hasn't been new citizens that aren't returning, either, it's higher leveled citizens. These citizens are prime income earners and their demand is higher than low-level citizens. When they leave it hurts our economy more.
High Iron - the Holy Grail
The impact of obtaining a high iron region in Karnataka has had a profound effect on our economy. Previously the highest wages were to be found in manufacturing. This is no longer the case. Now the highest wages are found in land and the introduction of iron, a raw material in high demand, has pushed land wages up. We need to encourage this development, not fight it. Whereas we could make our bread and butter off of manufacturing before high iron, we're a land country now, our income will come from producing iron, oil, grain and wood. Increasing production in these sectors will only be good for our economy and goverment revenue.
Solutions to Halt Our Impending Doom
Let's not be like the dog in this pic...
1. Protect our most vital economic sector - LAND. We need to jack import duties up to the maximum on oil, grain, wood and iron. 99%. Domestic production of these materials is where it's at, we have an advantage here and we should exploit it. We don't need people exporting these materials here, we need to be producing them domestically, expand our employment ranks and reap the income tax from mass land employment.
2. Encourage countries that have no land resources to export to us. Look, let's face it. Anyone can manufacture weapons, tickets, gifts and food. (Constructions is separate and already an ailing sector... another discussion). Those countries without Land resources actually have an economic advantage in producing manufactured goods. We should let them do so and sell on our market. To this end, we should leave import duties at 1% across the board on all manufactured goods. This is going to piss a bunch of people off but this is the hard and fast truth - manufacturing will have to play second fiddle to land.
3. Drop the Income Tax rate to 10%. We need to stimulate domestic demand for manufactured goods. USD is the primary medium for purchasing weapons, moving tickets and gifts. Putting more USD in consumers' pockets will allow them to buy more. The goal here is to increase aggregate demand (i.e., the sum of all of our residents' demand) to stimulate the market. I did some quick calculations yesterday and for a skill level 4 land employee this will be about .75 USD a day, or almost two weapons a week. For manufacturing employees it's a little over one additional weapon a week. (Manufacturing employees make less).
4. Leave the VAT rates where they are. The idea here is to make the US market the biggest and fastest. The more goods sold here the better it is for all of us. The goal here is to have the lowest price on manufactured goods worldwide. This will encourage manufacturers to drop goods on our market and foreign buyers to use an organization to purchase goods here and donate them back home. We reap the VAT from these sales. This already happens and it's larger than you would think - some estimates put it at 20% of our domestic tax revenue per week.
5. Encourage exportation of raw materials. This too is a no brainer. The more raw materials we can sell overseas the better it is for our nation. We earn capital off of foriegn companies that have a real demand for these materials and are able to employ more citizens in the sector, reaping tax revenue from wage income.
WAIT WAIT WAIT, You're Effing Crazy, Man!
Actually, I'm not. Hear me out here: we're no longer demanding manufactured goods at the level we were before. Domestic manufacturers are taking it in the shorts. The only good sector in our economy are the land companies producing raw materials. Wages are high in land. Does this mean we abandon manufacturing? No, it doesn't. There will always be a way for domestic manufacturers to compete in the market but it won't be as profitable for owners or employees as those in land sectors. We should acknowledge this and maximize our potential. This means preventing foreign raw materials producers (except for diamonds!) from selling products here first. It means exporting RMs. It means keeping our manufactured goods sector open to keep prices as low as they can be. It also means we're going to go through a rough transition.
We have several advantages in this scenario - foreign manufacturers ALREADY sell goods on our market and foreign purchasers already buy goods off our market and donate them back home. The more of that the better - this is FREE MONEY to our government. We have the lowest import duties on manufactured goods in the world. Let's use that to our advantage.
Finally, the military needs less money. They're no longer buying as many weapons and other goods off the market. This was the primary argument for keeping income taxes at 20%. When I joined eRepublik they were at 15%. It's time for us to acknowledge the future is back and drop income taxes again. This time, however, we won't be hitting our military as hard by reducing government tax revenue as they're supplying themselves. The VAT from our market activity will make up some of the difference.
OK, So You're Pissed, Right?
I realize that my last article talked about jacking import duties across the board. Manufacturers (remember, I'm one too!) probably saw me as the point man for protectionist policy and they're probably correct in being upset now that I have backed away from that previous stance.
I've flip-flopped. I admit it. I originally saw wisdom in protecting our manufacturing market in order to protect jobs and income tax revenue from that employment. After looking at wages in the land and manufacturing sectors yesterday, however, the difference struck me like a two-by-four to the forehead. Land wages are high because raw materials are in demand and manufacturing wages are in the shitter because manufactured goods are not in demand. Instead of fighting the market, we need to work with it.
To Summarize...
We have crappy domestic demand for manufactured goods due to military self-sufficiency, lana, declining population and the introduction of high iron. We're tried traditional stimulus of war. That failed. Wages in land are 25% higher than in manufacturing. Any country can manufacture, only a few can produce iron, oil, grain and wood in quantity. Our market is already extremely active for weapons and we gain a great deal of tax revenue from the VAT.
To me the solution is simple: build ourselves into a land economy. Those that want to try their hand at a rougher manufacturing industry are free to do so. But land industry should be protected and encouraged. It is our future.
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.
Comments
tl;dr
Havent watched "Get Smart" forever, good stuff.
donadamsmaxxx
nice even-handed article explaining the situation 🙂
Interesting read.
tl;dr
A chicken in every pot and a Q2 hospital in every state!
Interesting article.
Throughout most of V1, everyone praised the Manu salaries because of how unbelievably high they were... made my choice of being a Land worker pale in comparison.
Now all shall tremble before my mighty wood-hacking axe!
A very well-written article, I will certainly give you that 😃
Dropping income tax to 10% would have not change a thing tbh.
The real pity: I don't see any thinking as coherent as PiZ coming out of our actual government. 🙁
Glad to see you have stepped into the light.
Interesting
Phenomenal article -- good job!
I agree with what you are saying for the most part. Great article.
Income tax should be lowered, i don't know if i agree with a 50% reduction, but maybe 15%. The government needs money right now though. That war with the eUK was very very expensive.
As a manufacturer, i hate the fact that the land sector is growing exponentially, while manufacturing is declining rapidly. I recently just shut down my Moving Ticket company until prices rise and wages are appropriate.
Great stuff, needs moar Guiness.
tl;dr. word by word. the lack of manufacturing companies is making us vulnerable ?
So what do you propose people with Manufacturing job skill do? Retrain, or move?
Great article, PiZ! While I don't agree with absolutely everything, I do with most of it. Thanks!
So what happens if we have to give back our high iron region, we lose it, or V2 completely changes the way RMs work? I see the advantages to specializing but it sounds so dangerous especially with all the possible things that could change the situation.
Interesting... what about EDEN being a partly economic alliance? Won't raising taxes across the board in the Land sector harm our alliance as a whole?
Votad.
I would support a gradualist approach to adjusting import and income taxes. I would also continue letting the USD value slip so that eUS products will be more affordable in export markets.
You can see my views here: http://www.erepublik.com/en/article/eus-taxes-are-upside-down-1148561/1/20" target="_blank">http://www.erepublik.com/en/article/eus-[..]1/20
I hope V2 allows us to set varying import tax rates per product per country. That would let us fine tune our trade policy to suit our diplomatic and economic needs.
You have high iron, thus you need to raise import taxes on grain? Economics fail. Pig, I respect you, but these proposals are ridiculous. Lower VATs, lower import taxes.
Good job
Just because the military is more self-sufficient doesn't mean we don't need the budgets we have. We're hoping to grow, not stagnate.
TLDR
PiZ for pres
Excellent article! Here's hoping you'll run for prez again!
There are a lot of dangers in secializing in land and being at the mercy of the world for your manufacturing. The way trade is messed up with wars and the fact that Karnataka may or may not be US in the long term makes this very risky.
I do applaud you for this theory though. It makes more sense than the free-for-all we have going now. If this is to be the stated purpose of the government (to become land based). Then we need to enact tax policies that encourage people to comply. Raise Income taxes in manufacturing relative to land to push workers from the industry. Raise income taxes in diamonds to their maximum level to prevent any useless med region production. Raise import taxes on iron and wood to encourage exports. Keep grain and oil lower because they are more prevalent in the world and the point is to be the most efficient land country we can be.
So in summary....either do it or don't. The current policy isn't allowing any sector of our economy to reach it's potential.
Interesting article to say the least. I have one thought though. Doesn't importing most of your manufactured goods put the country in a risky position? Suppose war causes American allies to be unable to export manufactured goods to the eUS, or that company owners simply stop doing it, where do the massive amounts of food and weapons that the eUS population needs come from then? I like the idea of protecting the American land industries with higher import taxes, if you can produce something in your own country you should, but to essentially alienate the domestic manufacturing sector seems risky if situations in the eWorld change. Still, good to see someone thinking outside the box and challenging the long held American economic policy.
I dont get it. The manufacturing companies are hitting a point of less demand. Doesn't that mean supply is building up and all these land resources are going to go through the same phase? Already global grain prices have dropped over 15% in the last month. Global iron prices have fell nearly 40%. Oil's down 20%, wood is down. The only thing not trending down is diamond prices. Or at least according to the ereptools data. When the bottom line is over supply of every single purchasable good in erepublic, how is anything you do going to make a difference?
Another thing is this, why do I want to work or own a business in eUSA when I'm losing 20% of my profits when I could manufacture or resource outside of the eUSA for much cheaper and import it for nearly nothing?
The market is making these shifts by itself, so is it really necessary to try to encourage this by messing with taxes? Suppose a month from now land wages tank and manu starts climbing, yet our tax policy is set to try and work against this. I say hold out another month or so, let us see how a prolonged period with military self-sufficiency effects the market and if it somehow doesn't tend towards an equilibrium, then start with these changes.
PiZMAXX!
i do not completely agree with this
2 points for the get smart pic.
Thanks Piz ... I've been yelling about the Army companies disrupting the economy for weeks, in all sorts of comments.
One more aspect of that ... I make $4 or $5 a day in the Army company as opposed to $15 to $20 in the free market (land skill 😎. So these wages means a *lot* of money ain't there anymore! And because the Army companies are Q1 and Q2, we buy cheaper food, therefore depressing the food economy.
Can't say that I agree with everything that you wrote PiZ, but at least you have a set of ideas that could possibly help solve our economic situation.
Are testing the waters on a bid to become the next POTUS? Inquiring minds want to know. 😉
voted
so basically leave the us if you are in manufacturing
as you will get crappy wages
One question, why do the tax changes have to be so drastic? I mean it's 1% tax and we should just make it as high as it can go, 99% just like that. I'm not criticizing, I'm just wondering where the hell the numbers come from.
i think it's too late to talk about any reforms now. the best strategy for any economy now is to conserve spending, hike tax, close down companies (into dormant mode) and save gold. Save them for v2.
Good article but I don't think the Income think rate should be changed, I also don't think it would be a good move to raise the income tax past about 10 on land which is where it should be at.
Very interesting. I like. Subscribed!
comparative advantage for the win
Closer, Supply = demand My supply of what I produces is my demand on the market. I am totally against communism but communes that produce and use their own goods only pay less in taxes. They also seem to encourage noobs to be content with products. They have no net change in supply or demand because if they were a part of the economy they would both add to supply and demand. Adding to supply means more stuff for everyone. High import taxes on land that we can produce well is redundant. You want us to produce stuff for us and other nations but not buy stuff from them. You will just make the game more frustrating because people will have to use orgs to pull in some Iron while that slowly adjusts. I have seen this policy in Romania and I can't say it didn't affect things but it simply favored land over Manu and over allies. There are really very few actual policy decisions available in this game regarding economics. We are doomed One good policy is spending little, we need to go back to the era of infighting. Enouraging people to seek profit is usually pretty good. There is a mechanism of the Monetary market that should be taken advantage of.
Why don't the admin create a job for excavating gold so that peopl get money when they buy gold
About time someone starts talking sense about our economy.
Very interesting. I'd hold until V2 is released...but your points on raw materials import duties are very well taken.
Here's my more detailed take on the situation: http://www.erepublik.com/en/article/i-find-your-lack-of-faith-disturbing-1221023/1/20" target="_blank">http://www.erepublik.com/en/article/i-fi[..]1/20
I'm kinda surprised sydiot hasn't published something about this lately but suppose it's just a matter of time.
Nice pics to illustrate and good ideas mentioned!