Economy

Since GC trade is dead, I think it's actually fairly easy to describe the simcountry economy...

Let's say you have a country with 1 corporation and 90% employment.

There are three types of consumption this country may participate in:
(1) Monthly, the permanent of loss of products from the market by both the population and government use.
(2) Player War, the permanent loss of products from the market by direct military attacks against players.
(3) Infrastructure, the permanent loss of products from the market by constructing facilities.

These share similar traits that make them "sinks" that other types of spending do not share. First, the products are removed from the possibility of ever being traded. Second, the products are not creating other products (like corporation supplies) or adding value to existing products (like military upgrades). Third, the products are not turning on a different kind of faucet (like C3 warfare).

Products Sold		1,999.67M SC$	Turnover last month
Salaries Paid				364.40M SC$	Salary Cost
Raw Materials Used				684.02M SC$	Cost of Material used
Fixed Property Cost				207.80M SC$	Fixed Cost
Maintenance Products Used				68.95M SC$	Maintenance Cost
Interest on Loans				0.00M SC$	Interst paid
Country Resources Used				0.00M SC$
Total:		1,999.67M SC$		1,325.18M SC$

Back to the single corporation country, using this sheet as an example... let's use "asset-value" to combine all the products since that'll make it easier to understand. This corporation creates ~2.00B "asset-value" in products and consumes 0.75B "asset-value" in products, meaning all told, it generates a ~1.25B "asset-value" in products. Now, it is important to note that salary payments neither add nor remove anything from the market so this is effectively null. Interest payments are the same story as long as the loans are held by players. Country resources just redirects money so it is the same story. However, fixed property costs permanently remove that cash from the economy. So in summary, the net effect of this corporation is:
(1) +1.25B "asset-value" in products
(2) -0.21B "asset-value" in cash
In other words, it permanently increases the world supply of products and decreases the world supply of cash.

Now, let's look at what else is going on in this 1 corporation country. The population is paid out and the corporation makes a profit resulting in the government being paid out. These two places have their own consumption... consumption that permanently removes goods from the economy.

Because this is a hypothetical 1 corporation country, we can easily integrate government spending into the corporation calculation. The corporation in fact represents 100% of the wealth generation and 100% of the spending of the country. Anyway, this means that the corporation revenue (via government) is paying additional salaries to government workers and social security recipients. So the total salaries paid to all workers can be grouped as 1 unit. As the government is also consuming products and taxing individuals, it's consumption can be treated alongside population spending.

The important thing to take away is that the corporation is effectively supporting 100% of the consumption of the country. This has some consequences which will be reviewed later.

A quick look at the Spending tab of the financial index page shows this. Those salaries will find their way to either the country (taxes and contributions), investment fund, housing, pensions, or population consumption.

Now, the country exchanges at 1:1 "asset-value" the products for cash to find the remaining effect. (It now has 1.04B "asset-value" in cash.) I would assume that all lines of government spending go to products or salaries and all population salaries are accounted for 100%. This isn't actually the case so any discrepencies will be listed on a line as a cash sink.

Anyway, I mentioned pensions, investment funds, and housing... given game functional usage... pensions can either end up being a sink or faucet because the actual fund is more or less a non-functional lie, investment funds remain tradeable so the "profit" there ends up being a faucet, and housing money is a sink simply because houses are not tradeable assets in simcountry so that money disappears.

So as mentioned earlier this money winds up after changing hands a few times between government and people in these places so here's a list of sinks and faucets within a country:
Product Faucets:
(1) Corporation Production

Product Sinks:
(2) Corporation Consumption
(3) Population Consumption
(4) Government Consumption

Cash Faucets:
(5) Investment Fund Profit (Non-Dividend)
(6) Pension Profit

Cash Sinks:
(7) Fixed Property Costs
(8) Housing Investment
(9) Pension Contributions
(10) Spending not tied to Products or Salaries

This sinks/faucets description is important because it shows where "asset-value" is added or removed from the market.

Anyway, using my own country as an example, let's scale down the spending and stuff to get an idea whether this corporation is a sink or a faucet in cash and assets. I have over 90% employment of with 22 corporations, meaning a 1 corporation country with the data presented earlier would have all national values divided by 22.

So for products, we have 2.0B in corporation production, 0.75 in corporation consumption, and 0.67 in population and government consumption. This means that the net result is +0.58 "asset-value" faucet for products.

On the cash side, the total of investment fund profit and pension profit minus contributions is a pitiable 0.002B faucet, which is actually below what I'm rounding for. Fixed Property is 0.21B and Housing Investment is 0.05B so this means -0.26 "asset-value" sink for cash.

In either case, it means 12.5% of the GDP of this hypothetical country is unconsumed. In the end that unconsumed GDP winds up as the cash stockpile of your country.

This is a good example of the behavior of highly profitable countries with high indexes. My welfare is 128, my military is 0.75% of the population and consuming high quality ammunition, and my Ppc is ~2,600. The corporation chosen is pretty profitable.

In other words, a profitable, well-run country is creating products and destroying cash.

However, we can assume another thing... all countries are cash sinks. there is no attainable way for the cash faucets within a country to ever offset the sinks. Higher population countries will have pensions functioning as cash sinks, and investment funds function as faucets cannot realistically keep pace with fixed property costs. My country was 1:100 IF faucet to Fixed cost sink. The IF would need $3T in sitting cash per corporation offset fixed costs. At it's current growth rate, it would take over 1 year before it offset the cash sink of the first corporation... and I have 21 after that.

Anyway, the next post if I have time later will look at the sinks and faucets of the gamemaster in the world market and discuss infrastructure, player wars, and C3 wars.

tl;dr
You need to create more products and cash than you destroy products and cash to produce an overall profit.

I think I can do this next one pretty easily actually. This will be about the gamemaster's influence on the world market.

Okay, so for the example country, I produced an "asset-value" of 2.00B, but I produced it at a quality of ~225. The corporation consumed an "asset-value" of 0.75B, but at a quality of ~180, the country consumed 0.55B of it's "asset-value" at ~125 quality and 0.12B of it's asset value at ~305 quality. if we treat sales to the market as the "standard" of quality which is reasonable enough... we get 0.75*2.25/1.8=0.94B in consumption if the product was purchased from the market at the price it was sold for the corporation supplies. Because of the way the transactions on the market work, it is an effectively if not technically accurate description if I say I sell 225 Q goods to the GM and buy 180 Q goods from the GM. In other words, the GM is effectively printing cash to cover the discrepancy.

This is probably why the country previously destroyed so much cash. Just looking at the corporation supplies we've seen the gamemaster create an asset-value of 0.19B in cash and destroy an asset-value of 0.19B in product. Extending to the rest, we see 0.44B shift from product to cash for pop/govt consumption and a 0.03B shift from cash to product asset-value for the high Q military consumption. which means overall, the gamemaster will have generated 0.60B in cash and destroyed 0.60B in product. This pretty much explains where much of the cash in the game comes from and much of the product in the game goes to.

Once this is taken into account, the overall effect of the country on the world economy is to destroy 0.02B in product and create 0.34B in cash.

tl;dr
World Market trading is effectively a cash-printing factory when dealing with countries consuming lower quality products and producing higher quality products.

Notes:
(1) Where I said 12.5% of the GDP was actually 11% come to think of it.
(2) I said selling to gamemaster and buying from gamemaster... but I realize now that some people could confuse it as the cash simply coming from other players with that so let me expand, when you sell 225 Q good to the world market and other players buy at say 125Q, you get paid for the goods at 225 Q and they pay for the goods at 125 Q. It is this phenomena that I'm describing.

I also forget to mention the other GM influence on the economy... in the event of huge shortages in a product category, the system will automatically generate product to sell on the world market. In other words, a huge market shortage that causes the system to intervene is a 1:1 product faucet, cash sink. In all likelihood, this system in the long run offsets the aforementioned cash faucet, product sink caused by the systematic quality discrepancies that account for most players existing cash.

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C3s wars are actually very complicated and a lot is a mystery since the country looks to have the goods created from nothing, but statements from the gamemaster would indicate appropriate orders are placed after the fact by the GM. Complicating this, any leftover military assets are destroyed when you take over the country.

Because it is easier, I will make several assumptions:
(1) Every product created for the war level of the C3 eventually is taken off the market.
(2) Every product removed from the C3 after the war is eventually added to the market.

With these assumptions, we can identify the faucets and sinks associated with a C3 war. It is important to note that when you declare war on a C3, all of it's existing cash is deleted and cash appropriate to it's war level is created.

Aside from this, we also have the sinks associated with general war. Infrastructure destroyed (like forts and bases) technically are removed from the market at time of purchase so they shouldn't be double counted here.

Let's have a look:

Product Faucets:
N/A

Product Sinks:
(1) Destroyed/Used Weapons and Ammo
(2) Destroyed Corporation Supplies
(3) War Damage Repairs

Cash Faucets:
(4) Cash added for War Level

Cash Sinks:
(5) Cash Prior to War

So for a War Level 3 war ($1.6T cash), if you were to attack a C3 with $600B in cash before the war, the net effect if you win is a $1T cash faucet. This, however, does come with product loses. Importantly, even if you profit, it is likely that more product was destroyed than cash generated. Say for example you were to expend $1T in assets conquering the C3, the C3 will have lost weapons (and especially ammo considering destroyed units have all ammo destroyed) approaching if not surpassing that amount. Depending on how you go about fighting, you could conceivably rack up loads of negative construction in the country. So the cash faucet is offset by a huge product sink.

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The only real difference between a player war and a C3 war is there is no ambiguity about it being a huge product sink. In a player war, there is no cash faucet, no product faucet... not even the chance of a hidden one. There is only a huge product sink. The same can be said of infrastructure (which would include schools, hospitals, roads, production plants, airports, or any one-time expense that doesn't increase the value of a tradable product)... however, the associated increases in welfare index actually make it technically an investment since it increases the value of factories.

I feel reeeaaaly stupid right now...

ditto

To be fair, I don't know if there are existing economics terms similar to the sinks and faucets. This understanding comes from years of playing these types of games. That is to say, it is a completely informal understanding. In either case, it should still hold up as true.

To help explain what I was saying:

Sink = place where an exchangeable asset is removed permanently from the economy.

Faucet = place where an exchangeable asset is added to the economy.

These are meant to look at the whole economy.

Something I probably did that may or may not be weird is to take a look at more than just the game currency, but also at product. The reason for this is because of my understanding that inflation is caused when the currency to product ratio becomes larger, with deflation being the reverse.

I described product with "asset-value" instead of numbers because obviously, there are so many products available and they need some conversion. The problem with "asset-value" is that this number will change from month-to-month and is only useful for imagining the scenario within the month. Why is it a problem? Price increases/decreases really shouldn't be treated as increases/decreases in what I termed "asset-value" because the amount of product remains the same. I merely used this term for looking at changes within a game month so it is more to help conceptualize.

Take for example these situations:
(1) More cash faucets than cash sinks and stable product.
(2) More cash sinks than cash faucets and stable product.
(3) More product faucets than product sinks and stable cash.
(4) More product sinks than product faucets and stable cash.

Situations (1) and (4) are effectively the same thing. More cash as compared to product available for exchange. This means more SC$ are chasing fewer goods, which I'm sure when phrased that way, you can identify as a situation that causes inflation.

Situations (2) and (3) are the reverse. More product as compared to cash is available for exchange. This means fewer SC$ are chasing more goods, which is pretty clearly deflation.

I would like to point out again that the previous posts were merely a description... I mean that, there wasn't a point in them other than to describe the way the simcountry economy works. If you think you're missing the point, don't worry, you're not.

Anyway, I posted this for anyone interested in investigating the simcountry economy to help give some perspective.

I guess the standard economics terms for a faucet/sink would be production/consumption for products... so sink/faucet exists more for game currency since it operates like a product in virtual economies, as opposed to real life where it would be inappropriate to treat it as such.

Faucet/sink is like supply/demand, but excludes stockpiling, unloading stockpiles, spending, and saving. This difference makes faucet/sink more important to understanding the future of the market.

For example, you could say that some market bubbles are caused when stockpiling (i.e. for speculation purposes) drives the price of the product up. However, the product is not consumed and the cash supply remains stable. Generally, high price is the signal for investment... meaning production of the product will likely increase (product faucet on). The cash to product ratio is shrinking every day. According to how I said thing earlier, it is very clear that this situation should cause price decreases in that particular product category. Supply/demand explains why prices are the way they are. Once people stop stockpiling, the reality of the product faucet being left on takes effect. Faucet/sink explains why prices will be the way they will be.

If you look back at the corporation example, the difference between the "asset-value" of corporation production and the "asset-value" of corporation consumption is what would be taxed by a VAT IRL. So you could say that has some precedent in real economics.

Something that may be weird is my treatment of inflation and price increases (or vice versa, deflation and price decreases) as fundamentally linked by the same causal force (changes in cash to product ratios). I didn't learn this in school, so I have no idea if there's even precedent for it. Maybe someone with real economics knowledge can tell me it's wrong, haha.