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the other side of inflation.

Author
JitaJane
Science and Trade Institute
Caldari State
#1 - 2011-11-15 16:50:57 UTC
I've been reading a lot of threads on inflation in MD and well everywhere lately. Most seem to focus on isk sinks and faucets. Which is really only half of the equation. Sinks and faucets determine the money supply. But inflation is an imbalance between the supply of money and the supply of goods. Most people are seeing the current inflationary trend as extra money seeking the same goods. But the opposite holds true. In a static money supply a decrease in goods also causes inflation. So what goods-side affects could be contributing to inflation? I don't have the last QEN on hand (at work on cell) but what changes in manufacture and other resourse production could result in decreased item availability. SuperCaps are likely a big sink for capital good (remember on this side of the equation sinks increase inflation, faucets decrease inflation). A lot of warfare would also act as a sink. Just polling the audience here...

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Vmir Gallahasen
The Scope
Gallente Federation
#2 - 2011-11-15 17:09:47 UTC
JitaJane wrote:
I've been reading a lot of threads on inflation in MD and well everywhere lately. Most seem to focus on isk sinks and faucets. Which is really only half of the equation. Sinks and faucets determine the money supply. But inflation is an imbalance between the supply of money and the supply of goods. Most people are seeing the current inflationary trend as extra money seeking the same goods. But the opposite holds true. In a static money supply a decrease in goods also causes inflation..

No it doesn't. Inflation is a decrease in the purchasing power of a given currency. Consider this scenario: I want a hot dog. I need a hot dog bun and a hot dog for this. Sadly, a horrible generic disaster has wiped out all the wheat fields. There's a sudden dramatic drop in supply for hot dog buns. Their price increases.

Hot dogs on the other hand suffered no such catastrophe. Their price remains the same--or arguably decreases. Purchasing power of money unaffected. Value of hot dog buns increased
JitaJane
Science and Trade Institute
Caldari State
#3 - 2011-11-15 17:19:16 UTC
Umm actually no and your example is perfect. Due to the wheat devistation there are less sources of feed for all the animals in your hotdog. And there are less of every other food grain goes into producing. So there is the same ammount of money, the same ammount of hungry people, and much less food. Food prices go up. This is because grain is a capital good (a good used to produce many other commodities). If through some game mechanic trit was half as available as it is currently the purchasing power of isk would decline. Roll

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Zions Child
Higashikata Industries
#4 - 2011-11-15 17:30:57 UTC  |  Edited by: Zions Child
JitaJane wrote:
Umm actually no and your example is perfect. Due to the wheat devistation there are less sources of feed for all the animals in your hotdog. And there are less of every other food grain goes into producing. So there is the same ammount of money, the same ammount of hungry people, and much less food. Food prices go up. This is because grain is a capital good (a good used to produce many other commodities). If through some game mechanic trit was half as available as it is currently the purchasing power of isk would decline. Roll


If he chose a product which does not intimately affect many other products, then his example would be fine. A decrease in the availability of Morphite, for example, would not affect the prices of a large quantity of items on the market, as it is not involved in their production. Morphite, and thus morphite derivatives, increase in value. The money used to purchase morphite is still the same value, more is required because morphite is a more valuable resource.

Trit is a poor example because of how involved in the production of everything it is, and how it can easily be used as a currency of exchange.
Vmir Gallahasen
The Scope
Gallente Federation
#5 - 2011-11-15 17:39:35 UTC
Sorry, shouldn't have chosen wheat. I just happen to have a hot dog at the moment and didn't think it through.Big smile
JitaJane
Science and Trade Institute
Caldari State
#6 - 2011-11-15 17:57:05 UTC
I used trit because it was closer to wheat (wheat was an awful choice because of the casscade. Food cost rise increases cost of living for everyone in the chain of production it just gets ugly from there). Morphite would have a limited effect in that it is a minor component in many items that are high value (T2 is honestly the only thing I have ever used it on so I can't be sure) I was thinking of broader areas to be honest.

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Zions Child
Higashikata Industries
#7 - 2011-11-15 18:04:59 UTC
JitaJane wrote:
I used trit because it was closer to wheat (wheat was an awful choice because of the casscade. Food cost rise increases cost of living for everyone in the chain of production it just gets ugly from there). Morphite would have a limited effect in that it is a minor component in many items that are high value (T2 is honestly the only thing I have ever used it on so I can't be sure) I was thinking of broader areas to be honest.


Indeed, but the concept is still similar. Yes, if trit increased in value, by halving in availability, then isk is not inflating, the value of trit is increasing. Sure, it might be involved in most production, and thus, most items might increase in value, but its still just an increase in the value of trit. The end result is similar (More isk required to purchase the same thing) but is different in nature.

Scratch that, inflation is an increase in the cost of goods and services. However, monetary inflation (which is what people generally talk about) is an increase in the money supply devaluing money. However, increase in the prices of goods generally are short term effects.
JitaJane
Science and Trade Institute
Caldari State
#8 - 2011-11-15 18:16:45 UTC
Not an increase in the price of trit. A decrese in the availability. With no change in the currency supply the result is inflation. Because the same money is seeking half as many commodities the purchasing power of the currency is reduced. I think people are used to looking at it as a currency issue because so much real world inflation is caused by currency manipulation. But it is not deterministically so. If the enire econmomy is made of 10$ and 5 apples $2 an apple is reasonable. If you double the money supply 4$ becomes reasonable. If you destroy 3 apples with no change in money then 5$ is reasonable. Either of the last two scenarios are inflationary.

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Kara Books
Deal with IT.
#9 - 2011-11-15 18:38:34 UTC
Save you the wall of text, Your point is valid.

+1
Zions Child
Higashikata Industries
#10 - 2011-11-15 18:39:13 UTC
JitaJane wrote:
Not an increase in the price of trit. A decrese in the availability. With no change in the currency supply the result is inflation. Because the same money is seeking half as many commodities the purchasing power of the currency is reduced. I think people are used to looking at it as a currency issue because so much real world inflation is caused by currency manipulation. But it is not deterministically so. If the enire econmomy is made of 10$ and 5 apples $2 an apple is reasonable. If you double the money supply 4$ becomes reasonable. If you destroy 3 apples with no change in money then 5$ is reasonable. Either of the last two scenarios are inflationary.


A decrease in availability increases the value of something. If half the gold on the plane disappeared, gold would suddenly be valued twice as much. Also, second part of my post agrees with you, we're talking about inflation, not monetary inflation.
JitaJane
Science and Trade Institute
Caldari State
#11 - 2011-11-15 18:45:32 UTC
Right. So I was looking at possible causes in there. I admit I had not played for a few months and am still getting up to speed on the current state of the game. And again on a phone with limited acess to data. So I was looking for general impressions from our MD experts. Drone regions seem like a capital good faucet but that would deflate which was why I was considering SC as a resourse sink.

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Callduron
Dreddit
Test Alliance Please Ignore
#12 - 2011-11-15 19:11:46 UTC
The main problem is the lull in nullsec combat. It's bad for the economy but even worse it's boring.

I do think that this new expansion will largely fix that by encouraging people to take out large blobs of battlecruisers and kill/die in great numbers.

I write http://stabbedup.blogspot.co.uk/

I post on reddit as /u/callduron.

Vmir Gallahasen
The Scope
Gallente Federation
#13 - 2011-11-15 19:50:08 UTC
JitaJane wrote:
If the enire econmomy is made of 10$ and 5 apples $2 an apple is reasonable. If you double the money supply 4$ becomes reasonable. If you destroy 3 apples with no change in money then 5$ is reasonable. Either of the last two scenarios are inflationary.

I'd still argue the apple has increased in value than money decreased in value because there are substitutes for the apple. If you destroy 3 apples, I'll go pay $2 for an orange instead. I see where you're coming from though. If apples were the only thing to eat and some jerk just destroyed 3 of them, that specific scenario would qualify as inflation--but only because it's a general increase in the price of goods. If half the trit supply were to dry up overnight, trit would theoretically double in price but not count as inflation unless other, unrelated goods also increased in price. If trit goes up but isotopes are unaffected, it's not inflation for example. Trit is just twice as valuable
Akrasjel Lanate
Immemorial Coalescence Administration
Immemorial Coalescence
#14 - 2011-11-15 20:46:52 UTC
Only CCP knows the ammount of ISK in EVE and can say if there is a inflation, other is only speculation about it.

Therefore send me those ISK to decrise the inflation.

CEO of Lanate Industries

Citizen of Solitude

JitaJane
Science and Trade Institute
Caldari State
#15 - 2011-11-15 21:01:40 UTC
Vmir Gallahasen wrote:
JitaJane wrote:
If the enire econmomy is made of 10$ and 5 apples $2 an apple is reasonable. If you double the money supply 4$ becomes reasonable. If you destroy 3 apples with no change in money then 5$ is reasonable. Either of the last two scenarios are inflationary.

I'd still argue the apple has increased in value than money decreased in value because there are substitutes for the apple. If you destroy 3 apples, I'll go pay $2 for an orange instead. I see where you're coming from though. If apples were the only thing to eat and some jerk just destroyed 3 of them, that specific scenario would qualify as inflation--but only because it's a general increase in the price of goods. If half the trit supply were to dry up overnight, trit would theoretically double in price but not count as inflation unless other, unrelated goods also increased in price. If trit goes up but isotopes are unaffected, it's not inflation for example. Trit is just twice as valuable

I siad where apples are the only commodity. It is an extreme example but I was trying to express that currencies only have value inrelation to goods. Otherwise they are meaningless. Hence fluctuations in capital goods directly alter the value of capital. Let me roll with your example. If the supply of trit is cut in half it most asuredly will affect isotope prices. First reverything produced from trit becomes more scarce. Next the isk price of such commodities raises. This is isk that was previously free to alocate to non-trit products (like isotopes) so while isk is experiencing a trit shortage other capital goods suffer an isk shortage. Mush like the wheat case. Not just bread but all food costs rise. The extra capital now dedicated to food is deprived from other markets. *whew*
A currency is a means of exchange, a sort of omni-commodity. Rather than trading trit for isk then the isk gained for isotopess (just to keep us in the same milleu) one could simply trade trit for isotopes. So variation in capital goods will in fact affect currency values because currency is nothing but a representative of the ratio of value between goods. Blah.

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

AureoLion
The Scope
Gallente Federation
#16 - 2011-11-15 21:20:50 UTC
Quote:
Hence fluctuations in capital goods directly alter the value of capital.

Your point is more than valid, i've actually been trying to make it for a while.
If 500b of ISK enters EVE daily, and 500b-equivalent of goods enter the economy, the value of currency is stable.
Which seems to be the case, PLEX apart.
JitaJane
Science and Trade Institute
Caldari State
#17 - 2011-11-15 21:32:44 UTC
PLEX really just shows the exchange rate between isk and other currencies anyway. It is fairly seperate from the rest of the economy. As I remember PLEX prices tend to drop on holidays when students have free play time and money. At least I am hoping that trend continues I only PLEXed through December figuring to grab some student's Xmas money.

90% of of the time my posts are about something I actually find interesting and want to learn more about. Do not be alarmed.

Vmir Gallahasen
The Scope
Gallente Federation
#18 - 2011-11-15 22:57:16 UTC
JitaJane wrote:
If the supply of trit is cut in half it most asuredly will affect isotope prices. First reverything produced from trit becomes more scarce. Next the isk price of such commodities raises. This is isk that was previously free to alocate to non-trit products (like isotopes) so while isk is experiencing a trit shortage other capital goods suffer an isk shortage. Mush like the wheat case. Not just bread but all food costs rise. The extra capital now dedicated to food is deprived from other markets. *whew*

But you're assuming demand for trit (or whatever commodity) is going to remain the same. If trit suddenly doubles in price, every account that has a barge character will be out in the asteroid fields mining away. People who used trit extensively would no longer be consumers, as they're out in the fields as well (or are forced out of the market altogether to make isk elsewhere). A shortage would last a matter of days and suddenly there would be excess trit on the market within a week. Then market equilibrium will take over again as consumers-turned-supplier become consumers again as the trit economy stabilizes

For instance, the isotopes example I gave earlier: some players who manufacture items (especially t1) may find that mining isotopes becomes more profitable than dealing with the trit spike. More supply in isotopes = reduced price for isotopes, assuming demand is met of course. Price level for isotopes might decrease. Yes, trit could potentially influence isotope prices. But it won't, because any shortage wouldn't last long enough to exhaust the mass reserves of trit players are holding on to

Even if a sudden shortage of trit did occur, supply would rapidly meet the demand again because, like you said, it's so integral to so many aspects of the market. I don't think you can call it inflation even if a significant portion of the market spikes for a handful of days before settling back in to the normal routine
Adunh Slavy
#19 - 2011-11-16 00:15:54 UTC
Everything has a relative value to everything else. The only thing that makes ISK different is that it is the one commodity we consider money, mainly because CCP set up the market that way.

Forget about ISK a moment, how much is mex worth in trit terms? If there were suddenly 50% less mex available, it would likely cost more trit to buy mex.

In Eve, there is, except a few tournament things, Christmases presents and discontinued things, an unlimited amount of stuff. What gives this stuff value is how much stuff can be generated per unit of time compared to other stuff. The other stuff we tend to measure with is ISK because CCP set up the market that way. Instead of a market, or "natural evolution" of a money in Eve, CCP has forced the issue, forcing ISK to the be the most sell-able commodity, which is fine, makes life simpler for most.

If the overall production of StuffX becomes more or less, then it will change in relative value to all the other stuff, regardless of it being ISK, trit or Officer Modules.

The OP is right, where these conversations go awry is too many different definitions of 'inflation'. Be specific, if someone can't handle that, call them on it.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt

Vmir Gallahasen
The Scope
Gallente Federation
#20 - 2011-11-16 01:38:19 UTC
Adunh Slavy wrote:
If the overall production of StuffX becomes more or less, then it will change in relative value to all the other stuff, regardless of it being ISK, trit or Officer Modules.

That doesn't necessarily mean inflation though. Suddenly there's 50% less mex but the same amount of trit, yes it'll cost more trit to buy mex but trit's cost isn't going to change. This scenario illustrates mex's value increasing (short term), not inflation. If mex and trit were the only two tradeable commodities, both would have to increase in price and remain at an increased price to indicate inflation
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