Econ Chat: Inflation in EVE

Just a brief point on a topic that annoys the hell out of me: Inflation and its role in EVE. To start, a brief citation of Wikipedia on the topic:

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. […] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

[…]

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. […] However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Further on in the article, it distinguishes “price inflation” (which is what was being talked about in the above snippet) and “monetary inflation”, which refers to the increase in the money supply in an economy. While the original meaning of the word referred to monetary inflation, these days most economists use it to mean price inflation.

So let’s take a look at this in EVE, then. Most players, or at least anyone who has read devblogs or used to follow CCP Diagoras’ Twitter feed, are aware that the amount of money in the game is increasing at a rather significant pace, with a net faucet of something like 20-30 trillion isk per month1. In other words, EVE is undeniably experiencing monetary inflation, and has been for years. The increase in supply is something like 5% a month right now 2 which sounds awfully high. Surely we should be experiencing some hyperinflation?

Well, no, not really.

While CCP’s in-house economist, Doc E, is mostly quiet on the devblog front these days, CCP Recurve (who I assume to be his minion) is not, and occasionally posts devblogs with price indices and other interesting numbers. His last was back in December, and helpfully includes those indices clear back to the beginning of the game, in 2003.

The number we’d be concerned with is in purple; it’s the Consumer Price Index and is what Doc E always refers to when he’s talking about inflation. That’s not really the graph you’d expect if we were experiencing hyperinflation driven by a balooning money supply, is it? Of course, there’s movement there, but my feeling is that it has little or nothing to do with the amount of money in the game. Let’s just add a few annotations to that graph…

Indices_2012-10

The point is that you can identify several major events that contribute to the rise or fall of one index or another, all of which ultimately feed into the Consumer Price Index by affecting the cost of the goods that it’s made up of. In a market where anyone can get into manufacturing with only very low barriers, and where almost anyone can collect almost any raw material, and demand is driven by constant war and destruction, whatever inflationary effects may be there are fairly well drowned out.

As an interlude, it’s worth noting that the CPI does not and, to the best of my knowledge, never has included PLEX. And PLEX, certainly, appear to be a strong argument that inflation matters somewhere. Except, you know, for the part where they’ve spent the past few months falling, after previously having spent a couple of months on the single largest and fastest rise in the history of the game. Coincidentally, the start of the rise coincided with the revamp of faction warfare, which allowed pilots to earn an income that dwarfed anything Incursions ever offered, but with much less effort. Equally coincidentally, their fall started with the nerf of that very same system. I’ll elaborate more about PLEX prices another time, but I’d like to point out that the FW system was (and still is) an isk sink.

Back to price inflation, specifically, how it isn’t significant. There’s very little reason to worry about it, very little reason to care. The question, then, is do we really care about monetary inflation? That’s probably a yes. So what to do about it? I’ll leave proposals for where to add sinks or remove faucets for another article. Instead, I’m going to pose a question, the answer to which is necessary to make such changes effective.

Where (or with whom) does all the isk from these faucets end up?

I’ll answer that one a little later.

 
1: An isk faucet is something that adds new isk to the game, such as bounties, mission rewards, incursion rewards, NPC buy orders, and insurance payouts. An isk sink is something that removes isk from the game, such as skillbooks, NPC sell orders, insurance, market fees and taxes, and clones (to name a few). If you lose your ship, that’s not a sink, it’s a faucet – isk is created from the insurance payout.

2: Page 103 of the CSM Summit Minutes cites 600T isk in the game, “a little over” 400T of which is on active accounts. While the minutes do not extensively document the faucets and sinks, the numbers that are quoted (30T/mo faucet from bounties versus 6T/mo from skillbooks) are similar to those found in CCP Diagoras’ old tweets. I conclude from this that it’s a fairly static number and 20-30T/mo net remains accurate.

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3 thoughts on “Econ Chat: Inflation in EVE

  1. Pingback: Econ Chat: Inflation in EVE, Part II | The Third N

  2. I agree with “inflation is not really happening,” but think that there is significant risk for inflation to happen and happen suddenly. EVE’s subscription numbers are up, but the amount of ore in belts between downtimes is stagnant. I have heard tell of highsec asteroids disappearing before downtime. If this continues, then minerals would shoot up and long-term speculators would make it sudden and drastic. But the question for Dr. E would be “At what levels would inflation be problematic?” I think it would have to do with how long it would take a newbie to mission run to buy different ships.

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  3. Pingback: Inflation Revisited | The Third N

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