Tuesday, February 07, 2006

Lordfly's take on the $L compared to the US Dollar.

Crossposted from the forums, but I think it's vaguely important. To wit:

Okay, seriously guys, gals, alts and trolls.

Let's have some thinking.


The yearly cost of a premium account is $US 72.00.

In a year, a premium account will accumulate $L500 * 52 = $L26,000.

$L26,000/$US 72.00 = $L361.

So, the "true" value of the $L is roughly $L361.

Obviously it's not there (yet). Why, you ask?

From version 1.2 onward (January of 2004), the driving force of the $L has been land demand and land novelty.

When land was in extremely short supply, the price of land shot through the roof (we're talking average prices in the double digits per square meter here) as the Lindens scrambled to meet demand. As a result, during this time the value of the $L against the US dollar rose dramatically as everyone was pushing against the money supply to get some land. High land prices meant a high demand for a lot of $L in your account at once to pay the land barons (who, by sheer coincidence, were then selling the $L right back on the market, and the cycle repeated itself).

The moral of this story: When there's something to BUY, the price of the $L goes up.

Eventually, the Lindens got a hold of the demand problem, and the price started to skid. But lo! The snow sims came out, and suddenly there was a mini-rush of snow land. A slight spike in $L prices again! Alas, no one wants snow land now; it's dead territory.

Anyways, the price of the $L goes up when there's an incentive to buy things.

Currently there is STILL a higher pressure to buy things than there is money in the economy. That's why it's at $L280/$US 1.00 rather than $L361.

There are other factors, too; a burgeoning amount of basic accounts is keeping the price up, at least initially, as people pay money on the exchange to satiate their spending habits.

Eventually, though, the current economic climate of SL is what is dooming it to its slide towards the magical "floor" of $L361. That is, there's almost nothing you can't get for free, including $L.

Want a house? Gnu store. Vehicle? Tons of free ones. Clothing? Geez, there's so much free clothing it's sick. Scripts? Lots of free ones, or sandbox kiddies who love to tinker for you.

Entertainment? You're kidding, right? Who charges for events?

And if you want $L, all one has to do is camp on the camping chairs or play Tringo until their head explodes. OR both at once, I hear that's popular nowadays.

So here we are; the constant push for things to be affordable and free in SL has forced the $L on a downwards slide. That, coupled with the fact that there really isn't any compelling need to buy $L20,000 at once, means the value will continue to slide down.


1) The Lindens cut premium stipend (unlikely, given that would anger even more people than last time)

2) People stop handing out things for free (will never happen, probably a good thing for the SL culture, but bad for the SL economy and, possibly, indirectly affecting LLAbs' bottom line)

3) People stop providing $L sponges to satiate dwell desires (will probably happen once the Dwellclubs go under because of DI going away)

The $L is going to continue marching towards $L361.

Some other things:

1) Basic stipend isn't going away; that doesn't make any sense for anyone for any reason, and don't let the economic trolls/alts on ehre tell you otherwise. If basic accounts didn't get any sort of stipend, the economy would grind to a halt, and the $L would deflate so quickly your head would asplode. Also, no one would have any customers because -- gasp -- they have no money to spend.

2) The Lindens have no plans to implement any sort of tax, investment bank, income tax, property tax, land tax, or land price cap. Why? Because that's a ton of insane variables to tweak every week.

Taxes were tried once to curb prim usage: it was a complicated failure.

Investment banks don't make any sense, because you're just adding to the inflationary nature of the $L.

Income tax? Easily avoidable by gaming any sort of system you kids can come up with.

Land tax? Hurts the economy by forcing Land Barons to charge more to cover the land tax, and hurts smaller land sellers unfairly.

Land price cap? Un-capitalistic, and entirely subjective; it breaks the lassiez-faire capitalism that the market currently works under.

Other factors that may or may not affect the $L price: People gaming the Lindex, people dumping millions into the market at once (hi Anshechung.com), the actual strength of the [B]US dollar[/B], the sheer number of basic accounts vs premium accounts, and the affect the economic money sinks have on the money supply vs what's coming in.

For those of you keeping score at home:

Money Sinks: Upload fees, classified ads, anything paid to a Linden, the defunct land auction process, dormant accounts, deleted accounts, banned accounts

Money Creators: Stipends, Traffic, Linden payments (for services rendered), Linden prize money, Linden promotions, referral bonuses, ninjas

So there we go: A crash course of SLeconomics 101 by someone who's been here since before the $L was worth anything, and public land was plentiful.

$L361 or bust, much to our chagrin. Get used to it.



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