Incorrect Inflation Model

Discussion of the Economic Model in SR2010

Moderators: Legend, Balthagor, Moderators

Post Reply
Message
Author
Eric Larsen
Colonel
Posts: 350
Joined: Oct 25 2005
Location: Salinas, CA

Incorrect Inflation Model

#1 Post by Eric Larsen » Nov 21 2005

What is inflation but an increase in consumer prices? There is inflation for the cost to produce goods and services but it just feeds consumer inflation. SR2010 does not model inflation properly. It seems to be tied too directly to unemployment and that's not the whole story.

It's a shame that the game contains the perfect vehicle for controlling inflation - those wonderful commerce pages that show all the commodities and allows you to change efficiency investment and domestic price markup. That domestic price markup is basically your CPI - consumer price index. It bascially gives players government price controls for commodities. If one raises domestic price markup that should cause inflation, especially if one jacks it up from 20% or 35% to 49% on all products. The PPI - producer price index - is modeled by the production efficiency and as efficiency decreases producer prices increase and that also increases consumer prices even though the domestic markup remains the same. Once again you should get inflation.

It's sad that so many are so fooled by the siren song of supply-side economics. The braindead child of Laffer it is euphemistcially called "trickle down economics" but in fact it is nothing but "piss on us economics". Just ask the million plus Americans who slid into poverty last year thanks to the fallacy of tax cuts for the rich and greedy. Just look at the legacy of those tax cuts so touted for pumping up our economy falsely. Despite record low interest rates, record deficit financing, and those tax cuts that so fallaciously are supposed to drive our economy we only saw a wimpy 3.5% to 4.0% growth of our economy. Meanwhile inflation did not rear it's ugly head even though we experienced steady job growth as we came out of the 9/11 recession.

The reason that all of that inflationary action did not raise inflation is because tax cuts for the rich and greedy do not get spent, they get hoarded. Tax cuts given to the poor and middle class get spent and drive the economy and cause inflationary pressures as demand increases. Please do not be mislead by the siren song of supply side economics, it is not what it is cracked up to be because it is meant only to benefit the rich and greedy. Just look at how the rich and greedy in our country get richer while the poor and needy get more numerous to see the true fallacy of supply side economics.

Just look at the war on drugs to see how false supply side economics is. It has been fought for over 30 years by trying to kill supply. It hasn't worked and will never work because of one simple and undeniable economic fact - supply always rises to meet demand. As long as there's demand for drugs there will always be supply as enterprising entrpreneurs know they can make a buck supplying drugs.

Please fix the economic model to more properly reflect inflation. It is not just tied to unemployment, which can reduce demand and therefore prices, because there are other factors at work here. Inflation in SR2010 must be tied more directly to the domestic markup and production efficiencies so that player's can affect inflation by raising or lowering consumer prices. You've given us great tools for inflation modeling but you haven't really understood how to make them work properly yet.
Thanks,

Eric Larsen

User avatar
Legend
General
Posts: 2531
Joined: Sep 08 2002
Human: Yes
Location: Ancaster, Ontario - BattleGoat Studios
Contact:

#2 Post by Legend » Nov 21 2005

I'll forward your thread to our lead designer and programmer. Thanks for your thoughts on the matter. It is from posts like this that allow us to make our game even better.

Eric Larsen
Colonel
Posts: 350
Joined: Oct 25 2005
Location: Salinas, CA

Hot Dang!

#3 Post by Eric Larsen » Nov 22 2005

Legend wrote:I'll forward your thread to our lead designer and programmer. Thanks for your thoughts on the matter. It is from posts like this that allow us to make our game even better.
Legend,
Thanks for taking my comments seriously rather than turning defensive. I'm truly enjoying learning the game so far even though I know there's a few more patches to go before it's finally done. I'm glad now that I didn't wait until the game was completely finished before buying as now I have some ability to help make this game even better.
Thanks,

Eric Larsen

Wynand Meyering
Corporal
Posts: 2
Joined: Jan 01 2006

Economic Model

#4 Post by Wynand Meyering » Jan 01 2006

Hi.

OK I see the game as game - in other words you can use any model you want to use, but since you seem to be so intent upon improving the model - perhaps I can help.

I've spent thousands of hours in my 20s studying economics. I studied mostly US and UK textbooks. I have monitored the world's economies for a decade because of my interest in stock markets.

I would basically like to note the following:

( I have the original game version - not any updates )

1. The country credit ratings, loans repayment etc. are totally wrong.
( Please refer to www.fitchibca.com / www.standardandpoor.com )
2. Probably the most important issue:
The treasury screen:
Annual income
Annual expenses

Annual trade figures

- This is one concept. You cannot separate the two.
The trade surplus or deficit is part of the Annual income. You can refer
to most standard economic books that describe how to present the figures. Separating the two can confuse users.

There is also a difference between GDP and Government income. Not all
GDP income is taxable / reported to the government. The thing is you are giving users the government's budget, which can be confusing as a measure of economic performance. Total GDP growth needs to be stated CLEARLY to measure year on year GDP growth - the way the entire world measures economic performance...
3. Use of government subsidies.
This is actually the funniest part of Supreme Ruler 2010. I don't know whether any US business school will agree with the way you have used government subsidies to ' improve efficiency '. I think research by prominent economic Nobel prize winners will show quite the opposite effect: subsidies lead to inefficiency and productivity decline.
4. Inflation debate.
I thought inflation was a monetary problem?
The velocity of money:

MV = PQ

Milton Friedman - the formula was enough to earn him the Nobel prize in economics.

I guess there will always be a debate between Keynesian economists and Monetarist's view.

But my personal observation of inflation is:

Inflation between 0 and 15% can be described accurately by Monetary views.

There are many factors that influence inflation - supply and demand side shocks: oil prices, war, currency, stock market movements, labor action,
anticipation of inflation ( major cause ), shortages of commodities and labor etc.

Basically inflation in Supreme Ruler 2010 would be affected by the budget deficit - borrowing money or printing money by the player to 'balance his
spending'.

I think the guidelines for the increase in the money supply growth year on year is
12% max and the budget deficit should not be more than 3% per year -
otherwise inflation with rise very rapidly ( see Federal Reserve guidelines )

The deflation experienced by players in the game - although I can understand the scenarios, would cause significant disruption in GDP. Perhaps a little overdone. :)

5. The size of the private sector, it's growth and contribution: service sector etc. is a mystery. Companies that specialize in statistics would never report statistics the way it is displayed in Supreme Ruler 2010.

Minor issues:

1. The GDP growth does not seem to respond quickly enough to changes in the budget.

Ex.
1. If you lower export duties, export businesses should be able to grow at
a much faster rate.
2. If you raise import duties, domestic competitiveness / productivity should fall.
3. If you raise sales taxes, the income of the lower income individuals
should be negatively affected. ( You have no idea what the income of the various groups are / what percentage earn what )
4. Small businesses are supposed to be potentially the fastest growing sector in the world. Lowering taxes for small businesses does not have
a significant effect upon GDP.
5. Unemployment insurance and pension contributions - you are not informed what is happening to your funds. Is it placed in insurance companies / used on the stock market? - so you have no idea whether to raise / lower taxes.

2. Transport / infrastructure improvements have little or no impact on GDP.

other minor issues: you have no idea what each improvement PRECISELY costs you per year and how much income you derive from it. You have to do some tedious calculations to get a guess.

Other than the above mentioned issues the game is excellent and fun.

But the above issues are not that important. :)

The_Blind_One
Colonel
Posts: 388
Joined: May 28 2005

#5 Post by The_Blind_One » Jan 04 2006

I agree on all of these things, except one.
4. Use of government subsidies.
This is actually the funniest part of Supreme Ruler 2010. I don't know whether any US business school will agree with the way you have used government subsidies to ' improve efficiency '. I think research by prominent economic Nobel prize winners will show quite the opposite effect: subsidies lead to inefficiency and productivity decline.
I think they mean a more incentive based subsidy, that new machine produce's 25% more goods but costs 30% more aswell...the goverment gives subsidies (like 10%) and all the industrialists will try to get their hands on that new machine cause it gives u 5% extra profit :)...increased production and/or efficiency :D

This is what they basictly did in europe with the farming subsidies...very capital intensive and very efficient...very costly aswell ;)

jjbond007
Corporal
Posts: 8
Joined: Jul 04 2008
Contact:

#6 Post by jjbond007 » Jul 05 2008

You made some pretty intersting points.
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”-- Ronald Reagan
http://www.viritix.com <===click and track inflation

Post Reply

Return to “Economics - Treasury Department”