Taxes and Social Programs

Discussion of the Economic Model in SR2010

Moderators: Balthagor, Legend, Moderators

Message
Author
jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

Taxes and Social Programs

#1 Post by jhawk8810 » Jul 15 2006

Hi, I have had the game for quite a while, and love the game. I'm a huge fan of strategy games like Civ and Command and Conquer, etc. and SR2010 combines many of the great things i like about all of those games into one, which is fantastic. There are also a few other things that i would like, like some of the features left out, but so does everyone, can't wait until you guys make a new game with this concept, it will be out of this world. I have been surfing this forum, reading the topics finding and resolving my own issues or questions, but never posted, but now I have a couple questions. First off, I can't get my stupid date of post on the side of the index where it says when the last post was made on to read correctly, it always says 07.09.06...I don't know how to fix it, lol, but my question is I know they are supposed too and probably do, but how and how much effect do taxes and social programs and domestic sale prices really have on the economy and your people buying products? If you lower taxes will the people spend more money elsewhere? (ex. if you lower property tax will your income tax increase because of more avaible money being spent? or if you lower personal taxes will they buy more consumer goods and your sales tax increase along with domestic goods?) what has an effect on what and how much? As far as social services welfare, pension, and enployment ins. if you underfund this will you have a high unemp rate? will your GDP/C fall? Will your domestic sales decrease because these freeloaders no longer have the free money to spend on food and electricity? How much of an effect does each service have? and as far as domestic sales if you lower your rate does it effect the demand for it? Because from an earlier post from Eric Larsen and input from the devs and tkobo I believe about water consumption, it was determined that demand is dependant upon the population and GDP at an avg. of 21000 so if that is the case and every person needs 1 agr. per day your dom sales arent gonna increase or decrease if its a 7% markup or 35% because that person still needs that 1 agr. per day? Is that the case? I hope not, but I don't know..Any help or information would be great, I tried searching for answers to these questions in this section and the research and social services section but couldn't find anything. Thanks guys, you have a great game here!! and I love the support you have, I have never seen developers so committed to their game and their fan base. Keep up the great work!!

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

#2 Post by Il Duce » Jul 16 2006

Anatomy of a Pushme-Pullyou - or SR2010 economy.

First off, there are some great articles here and on Wiki.
Second off, assuming you are in the contintental phase of the campaign, each continent, and each region thereon seems to have their own curves in the model.
Third off, SR2010 economy is NOT a model of anything like reality.
Fourth off, your style of play has a significant effect (or let's call this your level of skill and familiarity with the model).

That said, here's some other points to consider.

As you've mentioned, some of the commodity items are rather linear - that is, there's a certain amount of water, food, timber, etc. for each person, regardless of price (inelasticity and diminishing returns).

On the other hand, some of the commodities have deviously deep ties and harmonics, notably consumer goods, which incorporates raw and finished materials, which finished goods also demand raw goods. Demand for c-goods represents disposable income and luxury items. So there IS a commodity that has great elasticity with respect to GDP. There is a large spread of demand for c-goods relative to GDP: DAR increases when you are able to not only provide the 'neccesity' c-goods, but the luxury c-goods. There are also situations when raising the price on c-goods to bump up social services will improve your DAR. Sometimes it's the other way around. I believe that this also has some bearing on cultural preferences and government type... Just like certain regions won't tolerate conscription (although I believe these effects are not so pronounced as they were in older versions - but this is just a belief).

There are also cultural preferences for a certain profile in social services. Sometimes it is not enough to just bump up the global setting for socials, but to identify which one needs bumping. To get this set up early on, I often let the Interior minister have control of the socials - without any directives! - for about the first six months of the game. Then I lock 'em up and pretty much manage the big lever only, although this does not always apply. It is important to understand that the services play as much a role as the goods in determining the welfare of your populace - so from a budget perspective, there is a need to calibrate Goods, Services, Defense, and Offense.

I think of the military budget as having two (maybe three) components, in that way - diplo would be a third aspect to how the goverment disposes of cash. Defense is essential - but the defense forces may not have anything to do with the forces of conquest. These are, in many ways, a luxury expense for the government.

Pulling the econ levers in SR2010 can be bewildering. Personally, although I disable all other ministerial activity, I have had considerable benefit from selecting a reliable minister for treasury and giving it the 'fight inflation' directive. The effect of this is simply to monitor taxes so that you don't hemmorhage into the red - it will NOT get you a sophisticated set of responses to limit inflation, but it does minimize some of the moment to moment effort (treasury minister does not have access to commodity or sevices allocation levers).

Consumer prices, are, in my methodology, best used to control demand [as opposed to profiting from margin]. Also in my method is the maintainance of a certain amount of underutilized, or even better, offline, resources - I start building another when I bring an offline resource online. While real-world econ sees a relationship between inflation and production utilization, this does not seem to be the case in SR201 - it's just a matter of convenience - I'd rather build when I don't need but have the money and time to do so. I suppose this is the crux of 'ruling' instead of simply conquering: making appropriate choices for your domain, and it is why play style does matter. [N.B. Selecting a few 'right' tech tree choices can also GREATLY affect your economy for the course of the game - look these over very carefully.]

Perhaps the most bewildering aspect of the commodity levers is that thing called 'efficiency.' I have my ideas about how it works, but no-one, including me, has ever adequately explained it. To be sure, efficiency is a real good place to discover diminishing returns. The way I use it - and I prefer to avoid it and keep it at zero whenever possible - is to baseline my production costs to maintain parity with the published WM prices. There's no point in producing something that you could buy cheaper, but as a leadership goal, I look for self-sufficiency. Therefore I try to get my production prices somewhere close to what the rest of the world is paying (or selling them for). There is of course a relationship between production costs, domestic markup, and inflation. Finding that balance is almost as challenging (for me) as determining how you will develop and execute your military conquest. The two are inseparable. That is the point of the whole game - without the ability to fund and build your army, your military genius and panache is irrelevant (it's a debate between your inner Eishenhower and your inner Patton).

Hope this helped, or at least entertained.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

#3 Post by jhawk8810 » Jul 16 2006

I'd say about 33.3% help and 66.7% entertaining :P I already knew most of that, but thanks anyways. But so consumer goods, industrial goods, military goods, and some types of electricity are the only produced goods that really have any effect on the GDP/C and that is only because they need other produced goods in their production correct? So how does raising the domestic sale markup lower the demand? It doesn't really raise the demand when you lower it..If it is determinate upon the ratio of units/per person and that never changes how does it affect demand? I at first tried using the ministers, and they would fluctuate rates and everything all the time and i could never find a minister who worked the system like i wanted him to, so i just do everything myself. I adjust all the rates individually, I believe I read somewhere before (sorry I don't remember where or from who) a post saying that if you zero the property tax and user taxes then your sales tax will skyrocket and will make up for that, I would like to know if anyone can confirm this, and if so why does this happen? Right now I am playing the Russian campaign and I am Western Siberia. As far as cutural preferences, have you tested this? I have not and have not even thought about it, so in areas like the US and Western Europe education has a bigger effect on you DAR than it would in poor African regions? As far as effiecency I try to keep it realitivily high but not too high, generally so my cost of unit prices are at or just below world prices. As far as power plants, I think in another post it was determined that if you have the resources coal and petroleum are the best power plants to have because overall they will be cheaper. I checked out my stats on coal and pet. plants and discovered that pet. is cheaper than coal, but why is the cost per unit for pet. so much higher? is there anywhere or anyway to determine how much one type of power is going to cost you even say at 100% effieciency, because all coal power is generally at or around the world avg. but pet. I'm at about $205 per unit. So why is this?
Thanks a lot.
Chris

BigStone
General
Posts: 1444
Joined: Dec 22 2004
Location: Holland

#4 Post by BigStone » Jul 16 2006

One short comment ... never ever use petrol- or coalplants for your energyproduction.
(except when you have an abundant pet/coal production..)
Why ?... those two types of rawmaterial are "strategic" recources...
NO MORE NOISY FISH [unless they are green & furiously]
I HAVE STILL A FISH IN MY EAR

jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

Uh huh

#5 Post by jhawk8810 » Jul 16 2006

Well I do have a current abundance of both of these, and in a former post by Tkobo I think he researched it and discovered that these were the cheapest power facilities to use, so IF you DO have an abundance then these are the best plants to use, but my question was why is the per unit cost for petroleum so high? And is there a way to see per unit costs for a particular type of power, (i.e. Petroleum power: $197.34 p/u, Hydro: $157 p/u) is there a list anywhere or has anybody researched this?
Thanks

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

#6 Post by Il Duce » Jul 16 2006

Clarifications -

[BTW, Jhawk, I also play WestSib frequently]

I can no longer find the manual, but if you check in the menus for each commodity, you will see a listing of inputs (what production consumes), and outputs (who is consuming it). C- and M-goods both use raw and finished (I-goods) as inputs. I-goods Also uses raw goods, so it is not always easy to see the exact amount of coal, ore, electricity or petro that goes into a unit of C- or M-goods.

Reducing the price of the relatively inelastic goods [agriculture in particular] may have a dramatic effect on demand insofar as it tends to be a magnet for immigrants. It's not just the residents who eat. So - try dropping agri down two clicks and see how much consumption [don't think of it as demand] will increase. What effect does this have on GDP and/or DAR? Depends - try adjusting immigration to REFUSE refugees, versus taking them all and integrating them - cultural effects? yes. Depending on these you may see DAR rise or fall, apparently relative to the adjustment on agri: sometimes a downtick on price will bump DAR up [they like smart, healthy, rich immigrants], or drop it [because those damn refugees clutter up the place and they don't speak our language].

It ain't linear.


Basically, demand moves inversely to supply, and price represents supply. So raising the domestic markup effectively tightens the supply [by limiting the amount you can buy with your disposable income - like gasoline today or tomorrow]. For inelastic demands, bumping markups on food, water, timber above tolerable threshholds [consumer's percentage of GDP or 'household budget'] will cause DAR to drop. It will also cause demand for other commodities to drop indirectly [If I have to pay more for gas, I don't get to go to the movies as often - which has nothing to do the quality or price of the movie]. Pretty simple. Raising the price on petro not only causes the populace to pay more for gas, it also raises the price on c-goods - so you've hit the consumers twice. We see the same things in real life -not only does it cost me more to drive to the store today, it costs more to get the goods to the store so I can buy them on my reduced budget. It's not that I want to buy less.

More complex - in a situation where you want throttle c-goods demand without causing inflation [i.e. raise prices overall], try dropping agri two points for every uptick you put on c-goods. Or try similar formulas using using timber or petro or water. Remember - when you bump petro, coal, or ore, you are also indirectly bumping i-, c- and m-goods. So it's kind of self-defeating to bump c-goods up and drop petro and electric. See how it works?

The ministers are utterly incapable of grasping this. Forget about them entirely.

Before you make any changes, think through the repercussions of the change - that's my best advice. If you can't identify them, save the game and test alternatives until you get the effect you want. At some point you'll develop a gut feel for what works.

Here's one more interesting effect: ticking Taxes down a notch [generally] with a simultaneous downtick on global services. This usually gets a DAR uptick - until you reach the bottom - where you run into a deficit. Then you have to figure out how to get taxes and services back up to where DAR will stabilize. This is an exercise in re-scaling your tax base, and in some cases you can end up with a substantial reduction in taxes, lower inflation, and a stable DAR with services well below the 'recommended' number - IF you find the one or two critical services that have to remain at the 'recommended' level. Worth an hour or two of save-and-retry.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

#7 Post by jhawk8810 » Jul 16 2006

Thanks Il Duce, I didn't realize that the price of products affected your immigration rate, although at the time being i don't have a problem needing to raise my imm rate. Is this the same with all the inelastic products? or just agriculture? Another point you brought up which I had not thought about or considered but brought up another question or probably answered my previous question in fact, but for clarification, does the domestic markup affect the cost per unit of other products that use that product? Ex. If I'm using coal power plants they use coal, which is not used by the people so there is no domestic markup, so the coal used in power production, is it bought by the power companies or gov, w/e at the cost per unit of coal? or is it just given and consumed without paying for the coal? So in petroleum power plants, cons goods, and indus goods, etc. Is the pet. used in production without purchasing it? or is it purchased at the cost per unit? or is it purchased at the domestic markup price? If it is the latter that could solve my question on why my pet. power plants cost per unit is so much more expensive, because I currently have my domestic markup on pet. at 35% (haven't reduced it yet). Can you or anyone confirm or clarify this??
Thanks a lot

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

#8 Post by Il Duce » Jul 16 2006

...Cost of transfer goods.

That is what's known as a good question. Dunno. We've never really gotten an answer on this - and it has been asked a few times, in various ways. Presumably the cost of incorporated raw materials must be 'wholesale,' i.e. the power plants can't really pay retail for fuels - but this margin is transparent and uncontrollable - so following 'rule 6 [an inside joke]: don't worry about what you can't control.' [rule 7 outlines what you can't control and is too lengthy to enumerate here.] So while it is a good question - for me the answer is another question: "Who cares?" Regardless of the transfer price, the only control you have over that is the efficiency slider - and that is a whole 'nother topic. [hate those things - unlimited liability - like selling short.]

While SR2010 is not an econ sim per se, it does have enough relationships to make it feel that way. You will have to work out for yourself the micro- and macroeconomic impacts of each metric - mostly by observation. There are also internal and external factors. For instance, since you are playing the petro-rich WestSib, have you considered the impact of dumping, say, 20 million barrels of oil on the market at costs well below all other sellers [even at a loss, because you have oil coming out of every orifice and then some]? After about a year or so, westsib is usually capable of sustaining a 4-5Million barrel corner on the petro market daily. Use this with great caution or someone will come along and take it away from you.

What about a region that is barely squeaking by - selling just enough oil to keep out of deficits and keep socials up. Now you come along and wreck that for a week or two. You have probably driven that region into a deficit - they can't sell oil, thus they can't fund socials, thus people start leaving or DAR goes down. How does that region respond? Dumping oil like that in the months preceding an election could have serious effects - on someone other than yourself. And it's really hard to see the effect that this has on Belli [which we haven't discussed at all in econ terms]. But it does.

As far as which commodities have which effects - I leave that, as they say, as an exercise for the reader. Certainly food, water and timber are similar in that they are not incorporated into finished goods - and they have consumer markup sliders. Ore and Coal are 'special,' in that they are intermediate goods only. Petro is the killer - used directly [has a consumer price], and consumed as a first-, second- AND third-order raw good (that is - used in power to make everything, used in i-goods which also uses power, and used in m- and c-goods, which also use power, and i-goods.) Coal also has some of the same load, but no consumer slider). Power is consumed and incorporated - and can't be stored - great.

Uranium is a sort of no-op, unless you really have to have nuclear power. I usually try to eliminate nuke power and shutoff uranium. It is rare that uranium prices make it worthwhile to mine it profitable - it's a nuisance, mostly. I think I had one really bad experience a long time ago using nuke-power (as given) with insufficient u-mines. About a year into it all uranium markets dried up and I went bust. Never again.

If you are trying to control inflation/GDP/DAR/unemployment (and who isn't?), finished goods are usually not the first place to start. In this regard, at least for me, in the starting year of the game, once I get the price of c-goods under control (that is, capping consumption by price), it's pretty much a matter of getting everything else to line up so that overall development can take place. For instance - as a rule, don't start building a zillion units in the first month - turn off buildcap and focus on diplo while your buildcap is low. Get your demands [sinks] under control so you can tune your supplies [sources] to obtain a general harmony.


Economies are like grammar - they leak.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

One last clue

#9 Post by Il Duce » Jul 16 2006

...all right, all right, I know.

About those efficiency sliders.

CAVEAT - I have no clue what the goats really intended with these - so this might all be smoke, but here it is anyway.

As stated, the econ model is NOT a true econ sim. However, it was necessary to account for factors like investment, capital shifts, savings, speculation, futures, bonds, derivitives and lines of credit - in short, the banking system and capital markets. This would be difficult enough to model on a national basis (ask the federal reserve - that's what they do all day, every day), but on the global scale, including things like forex and international fear and greed, well, let's just build some nukes and be done with it.

However, it wouldn't be much of a game then would it?

So the efficiency sliders provide a very simplified way of influence the cost of goods produced (and by the way, the cost of R&D) by providing some liquidity to businesses. That's pretty much it. In theory.

The part I hate about these is that when you alter an efficiency slider, rather than adjust the effective percentage of a markup slider, the actual price of consumer goods moves inversely. Huh?

Here's an example - if you tweak the efficiency slider on petro DOWN, and watch the domestic markup effective price - it goes up over time. In my opinion, what should happen is the effective margin should be adjusted to leave the previous price in place until you want to change it. And of course, there is no inverse calibration - a tick down on efficiency may have a single or multiple UPtick effect on markup. This is what makes them so dicey.

Back to the petro example - ticking the petro efficiency DOWN a tick has the effect of -
1) Increasing the cost of goods produced.
2) Raising the consumer price of petro (same percentage applied to the new cost).
3) Raising the cost of anything that use petro (such as power) -regardless of how transfer price is calculated.
4) Raising the consumer price of anything that uses petro as an input.
5) Raising the cost of anything that that uses petro at the second level (specifically I-goods, that gets an uptick in petro as an input AND in power as an input)
6) Raising the cost of anything that uses I-goods as an input.
7) Raising the consumer price of anything that uses I-goods as an input - specifically C-and M-goods, which take petro AND power AND I-goods as an input.

There's a line from an old Wall of Voodoo song that explains this phenomena:

"Don't touch that - you'll blow this place up!"

Be real careful about jerking this particular slider, o.k?

All of the other sliders have similar impact - such as coal and ore. Push coal up all the way, and watch a small downtrend manifest in everything that uses coal. This is kind of nice, except you can only do it once and then what do you do?

By the way - it appears that efficiency is calculated as a percentage of Volume produced. So if you have allocated, say, $20Million to invest in petro, and then you increase the amount of petro produced (either by adjusting the production slider, or bringing a well online), the total efficiency investment increases (on a per unit produced basis). Thus my reference earlier to an unlimited liability. Say you build a an airstrip or road near some wells - guess what starts producing more oil - and sucking down efficiency dollars you hadn't planned on? Or let's say you just get greedy and bump up production to exploit a unptick in WM petro prices - It may cost you more than you make! pushme-pullyou. I'm seious about that.

Also remember that the $$ indicated on the efficiency slider are an EXPENSE to your government (since there are no banks, the cash has to come from somewhere, eh?). The WM is a limited investor, as they will underwrite your bond issues, acting as an investment bank if you will. Otherwise that's it, unless you are playing in MP mode with savvy investor/trader types who will make you diplo loans. Problem is, there is no enforcement or punitive measures for defaults. No Moody's or S&P to rate your instruments. That's a different game.

So while I like the idea of free markets - the simplified model used here is tricky. Remember, you are modelling multiple concurrent economic systems - such as capitalism coexisting besides command economies that call themselves communist. You also have 'subsidy' behaviors (which annoy me on principle in the real world).

Keep it simple. If you can't zero an efficiency slider (due to the need to obtain cost parity), make a point of checking those efficency expenses frequently, and don't take out your cost overruns on your populace by raising taxes!
Last edited by Il Duce on Jul 16 2006, edited 1 time in total.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

red
General
Posts: 1271
Joined: Feb 14 2004
Location: New York

#10 Post by red » Jul 16 2006

Il Duce wrote:...Cost of transfer goods.

That is what's known as a good question. Dunno. We've never really gotten an answer on this - and it has been asked a few times, in various ways.
George has answered that internal commodity transfers are done without any cost or markup (or so I remember).

jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

#11 Post by jhawk8810 » Jul 17 2006

Ok sorry, I may be slow to getting this, lol. Um just focusing on pet. here for now. So you are saying that internal commodity transfers are done without any cost or markup. Ok...so then in your unit cost, lets focus on pet power plants, is the price of production of pet. factored into your unit cost? or is that left out? I would assume it is factored into the unit cost, but I could be wrong. However that does then bring back up my question as to why the unit cost of pet. power plants are so much more expensive. It has been established that pet and coal power plants (IF YOU HAVE THE EXCESS PRODUCTION OF THESE GOODS) are the best route to go because they are cheaper. So then why is the unit cost of roducing pet. power so much higher than the other power plants?

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

#12 Post by Il Duce » Jul 17 2006

may I suggest that you are focusing on the wrong number?

Unit cost of power production is "what it is," and with the exception of adjusting efficiencies (and, if applicable, the fluctuation in costs of imported fuels - but let's not go there), there ain't much you can do about it - except adjust inflation. For a given region, you can examine the relative unit cost of power production (by looking at the operating cost and output of each plant type - using a prospective build to get those numbers), and there you are.

The unit costs that you are seeing - notably with westsib - incorporates inflation as a factor. THAT is the number you really have to be concerned with. (in update 5 westsib starts at inflation about 3.5% but rapidly converges to 8.5% or worse and remains there unless you do some SERIOUS micromanagement). This accounts for the unit cost phonomena you are seeing. All things being relative, the same inflation factor is applied to any powerplant type you pick.

Going back to the cascade of costs that I outlined above - yes, the cost of petro is factored into the cost of petro-power. Reducing inflation will both reduce the cost of the fuel (the oil coming out of the pipeline, if you will), and the cost of processing of that fuel into power (capital equipment and labor) - resulting in a lowered cost of power all around.

Try it on a test game. Just start the game up, notice the initial values of petro and your power plants, then save it. Then, just jerk the petro efficiency up about ten clicks, and watch the effect on power prices. Then restart the whole thing again, and this time, jerk both the petro and the power efficiency sliders up about ten clicks.

These are really the only controls you have over power unit costs. How they are charged to wholesale consumers (which as red iterated above is apparently a straight pass-through) is pretty much irrelevant, as you have no other control over it.

Don't worry - be happy.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

jhawk8810
Sergeant
Posts: 12
Joined: Jul 09 2006
Location: St. Marys, KS

#13 Post by jhawk8810 » Jul 18 2006

Ok..but the unit cost of petro power is still more than all the others...lol.. but anyways inflation in the game still confuses me.. you're right with west sib inflation is high, right now I'm at 10.7% I know it increases the cost of everything...the value of every dollar goes down so everything costs more...damn!! I loved those root beer floats for a nickel! but how do you really control it.. it seems whenever my economy is on the rise it rises, and when it is doing bad it falls...which i dont want my economy to do bad, why would i want my gdp/c to fall?? So what factors directly affect inflation? I noticed that lately it has very very slowly been increasing, but it has steadily been increasing my surplus every day and my gdp/c every day, and then jus a lil while ago it dropped from 10.8% to 10.7%, not a significant difference, but still. Why did it do this? I didn't change anything..everything economy wise was still rising..why did my inflation lower a tick? I am not sure how it works..lol any help would be great thanks a lot.
Chris

Il Duce
Brigadier Gen.
Posts: 576
Joined: Aug 10 2005
Location: Venice - the Doge's palace on the Pacific.

#14 Post by Il Duce » Jul 18 2006

You have asked and answered the question - inflation influences the cost of everything. For the sake of simplification, think of your high cost of petro power as a reflection of both the high cost of petro, and of the high cost of labor for both fuel production and power plant operations and distribution (there's that 'infrastructure' social service). That just puts a real-world touch on it. GDP is a metric. An excessive GDP (relative to the real value of goods and services produced) is a measure of inflation. A dropping GDP is a good sign of deflation (but it may also be a symptom of other things). Dropping GDP with steady or rising DAR is a very good indication of inflation under control.

A few posts back you indicated that you weren't particularly concerned about immigration. Ah, but you are... You see, the only way to get labor costs - a very inflationary factor - down, is to increase unemployment, and to do that, the most direct route route is to increase immigration. Even more so than in the real world - in SR2010, Inflation, at the gross level, is the inverse metric of Unemployment. Low Unemp = High Inflation, and vice versa. Curiously, immigrants are conjured out of the ozone - they are not necessarily reflexive of a drawdown of another regions populace (this has been discussed by the devs). Abstracting this to absurdity - immigrants are the nearest thing to a free lunch that there is.

When trying to deal with the concept of inflation [in the game and in the real world] you need to view it as a process, not a state [for example, the term 'inflationary spiral']. So we come back to lowering the price of those basic commodities - food, water, timber, power, ... but carefully, as you need to keep some cap on c-goods. When you indirectly or unintentionally lower the cost of c-goods, you will have to satisfy the increased demand, and before you know it you're running out of i-goods, and overbuilding power plants and pumping more oil in an inflation-increasing and employee-gobbling way.

There is no simple or absolute answer to the question of how to control inflation - like when you ask a magician how he does a trick, the answer is always "very well."

I have suggested a few exercises to help you identify the effects of major control factors. I hope you try them. You might think of a few more. One I like a lot is to 'transfer' efficiency outlays between commodities. For instance, once you get agriculture prices under control, instead of simply dropping the efficiency on it, tick it down on ag and simultaneously up on water. In this way, the cost increase that will occur in ag (which will cap demand), is offset by a cost reduction in water (which will continue the immigration rise that your ag cost reductions started), but it won't really effect GDP (which I prefer to think of as disposable income), and the deflationary effect of dropping water costs will offset the inflationary rise in ag costs as efficiency is removed.

As a general principle, dramatic changes to the economic fabric of your region will tend to kick off inflationary spins. Small changes over time permit you to identify negative effects and counter them before they get out of control.

Taxes also have an interesting effect on inflation - as from the consumer's point of view they erode disposable income, just as high prices do. But raising taxes to generate capital to apply as efficiency investments is rather like chasing one's tail - it's dizzying and you have to know when to stop.

Another clue: when you are trying to cap finished goods demand - by increasing prices AND increasing taxes - to absorb inflated dollars back into the treasury [it's called a recession], you will get love letters from interior telling you that "CONSUMER COSTS ON ____ ARE TOO HIGH!" the proper response to this email is DISAGREE. This will stop the emails, although you will still get greentext messages. The point is, this was the desired results of your activity. Don't panic.

[That is - GDP MUST be reduced, to reflect the 'real' value of the actual goods and services. Quiz: what is the real value of a gallon of water independent of its price? If you are in the desert with ten people and one gallon of water, upping the price of that gallon will not make it any more effective at quenching more than one gallon's worth of thirst.]

After your deliberately induced recession has had its effects, lowering taxes will help to control deflation [you don't want to turn your recession into a depression] but you have to be careful about investment in socials when you do this. As I believe I mentioned previously, there are times when you may be lowering taxes simultaneoulyy with decreases in services outlays and observe that GDP is dropping while DAR is rising and services outlays are well below the 'recommended' level - rescaling your economy. This is a good thing, but you have to plan for how this phase will end, as you can't do it forever.

Economies are tidal - either growing or receding. They can never be steady state. Your role is to exploit the opportunities of each phase of the cycle, and to dampen or smooth out the process.

One last clue - you may occasionally note a tick-down in DAR when everything else looks pretty good - services at recommended, prices reasonable, you are reducing debt, etc. Learn to read your populace -they are telling you you that an inflationary wave is beginning. Just say NO to increasing services. (Gee, it's too bad we don't have Nancy Reagan as a minister choice, isn't it?)
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

User avatar
Lightbringer
General
Posts: 2973
Joined: May 23 2006
Location: Texas

#15 Post by Lightbringer » Jul 19 2006

Actually IlDuce, unless I'm way off base, the efficiency concept is fairly simple.

Lets say you have one oilwell. For our example, at 100% efficiency it produces 100,000 barrels of oil. At 50% 50,000. The workers, lease on the land, cost to run and maintain the equipment, all the factors that go into "cost per unit" stay roughly the same, you just get twice as much product for the same overhead.....hence prices go down. The concept being that the efficiency cost + overhead for one well, is less than the cost of building/running two wells at 50%.

It also works from the other end of the stick...total barrels produced might stay the same, but overhead is reduced by increased efficiency.

I'm not an economic genius in this game and I could be dead wrong, but the general concept of efficiency works this way. (I'm not attempting to be a smartass... but your earlier post sounded a bit mystified at how increased efficiency lowered end prices and vice versa)
"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” -Winston Churchill

Post Reply

Return to “Economics - Treasury Department”