Eight Problems with Testing Economics in EVE Online
What is EVE Online?
For those not in the know, 'Eve' is an MMO - the same kind of game as World of Warcraft.
Eve Online has earned a reputation for its market mechanics; it follows Neo-liberal economic theory, going so far as to hire its own regular economists - who write quarterly reports on the in-game economy and suggest changes to manage inflation.
Players often refer to it as 'spreadsheets in space'; a game where the richest play by speculating the market.
Do you Play Eve Online?
Real-World Economists are Taking Note?
Aside from the economists employed by CCP, (the developers of the game,) the idea that Eve can be used as a testing ground for economic theory continues to repeat itself in reputable and popular news outlets.
The Wall Street Journal wrote this piece discussing its utility in studying Metal Index's; with various institutes mentioned and CCP's CEO claiming that economics is 'just a game with rules,' (instead of a game with hard limits.)
Here in the Financial Times, professors and economists speculate on how they can analyze tax and insurance policies with the game.
Over here the Canadian Broadcasting Corporation - one of the most reputable news institutions in Canada - devotes a segment on the stability of the in-game economy compared to real national ones.
The 'why' is fairly reasonable. On the face of things Eve has had a relatively stable economy, year over year, since it came into existence. It is seen as a perfect sandbox for experimenting with different theories and policies. From management of inflation to distribution of goods, the game provides a totality of data that is impossible to come across in the real world. Every movement, sale, and purchase is tracked and ready for analysis.
Yet every article to date fails to mention the glaring differences between the real economy and the virtual one. Fundamentals so obtuse to reality that - unless brought under consideration - threaten to rob any value from studying the game.
In this article we examine each of these key differences and how it distorts the data.
- Full Employment
- Free Education
- No Energy Costs
- No Obsolescence
- No Hunger, Homelessness, Sickness Nor Death
- Zero Monetary Inflation
- Free Property
- The Hand of God Protects Fair Play
Skill-set, location and connections only limit the profitability and efficiency of what you do; every field is available to you and someone is always hiring.
Pretending Labour Market data and Geography don't exist.
There's no unemployment in Eve. It doesn't matter what skills you've developed or where you are located in the game. Every corner of the virtual world has regenerative resources that any player can exploit and profit from regardless of their craft.
What's more, every worker in Eve is in high demand, without exception. Every business in the game struggles to advertise themselves as the best place to work, and has to outbid other businesses in talent and pay in order to build their ranks. Size has a direct correlation to the generation of wealth in Eve, and 'paying' a player is never a problem, since the players themselves always add to the company's revenue stream. Each player in effect a 'freelancer', paying only a small portion of their earnings to the business and retaining the majority or their income.
Additionally, for every assignment completed, a player's value and pay-grade climbs - both in relation to the game and to other players.
No real world economy has full employment, and the ones that have striven for it in the past, such as the Soviet Union, came into serious problems of indebtedness and inefficient allocation of labour.
Unemployment has its causes, but even at the best of times, people get sick or disabled, are too young or too old, are mentally unwell and can only take on specific, limited forms of work. Others are simply in areas where there is no real work to be done or resources to harvest - mining towns that are out of minerals.
In the real-world, businesses actively cut their employees and payroll to stay lean. They hire as much as the company needs, with rare exception. If a local economy is not exporting goods and services to balance its imports, it stagnates and struggles. Eve doesn't stutter in this fashion, all the basics of an economy are always in place and functioning at their peak.
Any study of activity in Eve needs to factor in the reality of Full Employment and the game's total freedom to choose one's line of work without financial repercussion or fear for finding work. Choices may set you back - but a player never goes without.
It is the real world equivalent of being able to go anywhere on the globe and choosing to manufacture microchips - by yourself. Such class mobility and security is scant on Planet Earth; analyzing Eve without this consideration is the equivalent of ignoring Labour Market data.
All people can learn all skills with ease; and work in any industry can be understood within a few hours of familiarization.
Pretending that basic human preferences are non-existent, and that people can adapt to economic change within minutes, rather than years.
Every player of Eve has the opportunity to advance their skills, free of any difference of mind. The only limitation is a nominal fee (of in-game currency,) and a short span of time to acquire the skill, the shortest of which take 7 minutes to ascertain, and the longest taking over three months.
The matter of not being able to pay tuition or be certified by some institution does not apply in Eve. A skill may never be utilized - but it is never forgotten and can never be lost. Except for the time spent, there is no consequence for learning one thing over another. Skill in Eve is banked and learned regardless of one's activity.
The reality of 'full employment' means a player can utilize any of the skills they aggrue and use them to turn a profit.
Back on planet Earth, the choice to specialize in a field, be it the Sciences or the Humanities, is a life-changing choice with serious consequences. Knowledge and experience takes years to develop and can be undercut by changes in economic demand. Moreover, the shape of the knowledge is affected by arts and culture. To match Eve, we would need the equivalent technology of downloading genius into our minds.
By ignoring the aspect of 'free education,' an analyst would have to pretend, quite simply, that every human being is an ultimate 'renaissance man'; capable of filling every fissure that appears in the economy. Charting changes in the market and how people respond in Eve belies the fact that the real world is not nearly as adaptable.
Time is the only factor in transportation costs, and what one chooses to produce has little bearing on how much energy they consume to do so.
Pretending that the geo-politics of energy don't exist.
No Real Energy Costs
Eve does have some energy cost factored into its play; manufacturing and exceptionally large ships use disposable fuel for their operations. These are consumed on a per-use or per-day basis, rather than bearing any relation to distances traveled or the intensity of production.
All other energy needs are non-existent. Heating and Cooling are absent, and there is no Eve equivalent of gasoline.
Once a ship is acquired, transportation is free. The daily commute and the cost of bringing goods to market does not factor in; and thus any commodity can turn a profit if a player is willing to travel the distance to deliver it. It takes a player anywhere from two to eight hours to manually drive themselves to the other side of the universe. This time-factor is Eve's closest correlation to fuel as we know it.
In the real world economy this is a 'Mr. Fusion' in every vehicle, plane and locomotive; reality demands that: if a commodity can't be brought to market in a cost-effective fashion - or the raw materials can't be delivered in the same - then the site of production itself has to move. If it doesn't, a better situated site will out-compete it on the simple basis that it is wasting less energy to do the same amount of work.
Since Eve has no real energy costs, an analyst can ignore how electricity and gas prices affect the location of buildings and services, when in reality the cost of power is enough to shutter an economy. Removing this factor is like saying Iran has access to Canada's hydroelectricity. Moreover, that there is no competition for fuel or power at all.
While Eve does have price wars of a sort and territorial fights over resources, every factory is capable of immediately re-tooling itself to less risky endeavours.
Every product is useful to all people (and thus can be sold.) Any product that falls in profitability can be recycled into entirely different commodities.
Pretending that production requires no real risk, commitment or investment - and that there are no serious consequences in choosing to make the wrong things. Essentially one can safely ignore what the market demands.
No goods in Eve expire, break down, or become obsolete. All things in the virtual economy have utility to all users, and all commodities can be speculated and sat upon to turn a profit.
This is in stark contrast to the real world economy, where goods and commodities lose value over time due to rust or rot, or can be made worthless with the innovation of some new technology. While Eve does feature more refined versions of its various products, these offer slim advantages over the old - not obsolescence.
Further undermining the real-world correlation of Eve's economics is the fact that all commodities can be reconstituted into the materials that went into their manufacture. If a particular product falls in (but never loses) profitability, it can be broken down and sold off or remade into the desired goods with only slight (if any) loss of material.
There is no garbage in Eve. The only time a commodity is destroyed is when the amount of work to bring it to market is deemed not worth a player's labour. Even then, players can be contracted to ship the goods to market for a fee. Unlike our own world, there is no problem of specialized facilities or radioactive by-products.
In the real world an investment in a property, vehicle or commodity carries with it 'depreciation,' (the gradual loss of value due to wear and tear,) and the risk of total obsolescence.
An investment may not bring a strong enough return. The buyer may be stuck with their property, unable to recoup their expenses. In Eve, a player is guaranteed, until the end of time, to get some of their money back on any purchase they make.
Thus purchases can be made with more impunity, less caution.
No basic fact of human mortality exists to sway peoples' decisions. The closest analog is the loss of hard-earned assets.
Ignoring the impact of illness, family, sustenance and shelter's effect on where and how we work.
No Homelessness, no Hunger.
Neither Sickness nor Death.
In Eve everyone is an Internationalist and has a place to stay. Healthcare is free and totally effective. There is always food on your table. A player cannot die.
In effect, the Eve economy has none of the trappings of being human.
In the real world a person usually pays rent, insurance, taxes and/or labour to have their shelter. Food is mainly accessible by working for pay, and work is usually tied to health services.
All of these things motivate our participation in the world economy regardless of our personal preferences.
Sickness, injury and death are absent in Eve; yet these three factors hold tremendous influence on the lines of work people are willing to do, and where they choose to live. Death in the family will move you somewhere, money be damned; it's another missing piece in the virtual world's puzzle.
Money does not lose value over time.
Unlike the real world, there is no consequence in not re-investing one's money into the economy. The most basic engine of modern day capitalism.
Zero Monetary Inflation
It should be said out right that price fluctuations do exist in Eve. Commodities rise and fall as different lines of work (utilizing different types of equipment) fluctuate in their profitability. Goods are manufactured to an extent by players of the game, and their focus effects the glut or rarity of goods on the market.
For example, Tritium, the most ubiquitous resource in the game, has slowly risen in price year over year. This is because more and more players are producing goods, while mining has remained somewhat unpopular. The simple laws of supply and demand come into play: increased demand means an increase in mining, until the profits returned no longer outweigh the sheer boredom of the work. The work is always boring, so the price of Tritium keeps rising.
Yet, unlike real world economies, a dollar is always a dollar in Eve. The amount your money can buy never depreciates.
In the real world, a country will continually expand its money supply as the economy chugs forward. The more money there is circulating, the less each bill is worth, and this is called monetary inflation. Nations do this on the basis that a bit of inflation compels people to continue working and innovating - since their existing savings lose buying power over time.
This is considered preferable to 'deflation,' where the same amount of money can buy more over time. Economists fear that deflation will encourage people not to buy things, as their dollars are able to buy more and more. Meanwhile businesses would go belly-up and the system would eventually crash for lack of activity. Thus inflation is considered the lesser of two evils.
Eve does not deploy this effect in its economy. The money supply does increase constantly, but it is always engineered relative to the amount of trade going on in the game. Artificial payouts for certain activities (the equivalent to banks handing out grant money instead of loans) expands the money supply. Counter-acting this a system of taxes and other 'sinks', which remove and destroy just enough currency to maintain the buying power of the in-game dollar. [Interestingly enough, the Mercantile age of Britain had a similar system to this.]
The result is that a buck is always a buck in Eve.
The difference between Eve and Earth here is dramatic. Inflation is why Unions must constantly fight to raise wages. It's why people invest in stocks and property rather than sit on their cash; if we don't, our buying power drops.
A world of zero inflation is dramatically different than the one we live in, and thus all activity in Eve, such as the principle one of amassing billions of dollars, happens in a totally different context.
Land is both free and always available. Only commercial real estate exists, and its price is not tied to size.
Property Management can be ignored entirely in all economic considerations. (With exception to locating player-owned factories.)
As one might expect from a game set in space - there is no limit to the amount of space one takes up. Every location has infinite storage for one's possessions, and they can be brought to market from those spots.
The exception to this is the player-owned stations out in the hinterlands where, quixotically, the abundance of territory translates into a scarcity of storage space, since players have to provide their own.
It should go without saying that ownership of land, a home, a depot, is a primary factor of economics. Land is finite, and the busiest places of the world command the highest prices for real estate. This in turn sets limits on 'what' exists 'where' in the world - since any renter or buyer has to make a return on their investment.
So not only can one go anywhere, work anywhere, in any field, immortal; but they also have free housing, free storefronts, and free storage for anything brought with.
Competition for land is a fundamental tenant of modern day capitalism - where one lives or sets up shop is inextricably bound to what they can afford; Eve has no such limitation.
No one resource can be monopolized to the point of economic warfare.
Eve is unable to mirror the realities of the real world's economy.
God Protects Fair Play
The image above highlights the impact of the 'Odyssey' expansion of the game. It shows the sudden fall of the price of Technetium.
'Technetium' is an in-game material that, up until a few months ago, existed in only one area of space. It is rare and necessary for the construction of more advanced and qualitative ships and goods in the Eve economy. It was also monopolized by an alliance of corporations. Immensely profitable.
A real world equivalent of Eve's Technetium is Lithium, the primary component of today's batteries - without which we could not power things like smartphones, tablets, or Tesla's electric cars. Half of the world's Lithium reserves are in Bolivia, a geo-political fact that the country benefits from, and the rest of the world must grapple with.
In Eve however, they simply create more Lithium.
In order to break the monopoly of a group of players and keep the game dynamic and competitive, the location of strategic resources was tweaked to make control more difficult. This is where the price drop of Technetium came in; it was engineered by the game developers. The virtual economy can forever be tweaked to promote fair play in a way the real world can not.
The realities of economics on planet Earth are repeatedly removed from Eve's virtual economy.
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The Real Bottom-line
Eve Online is often painted as a ruthlessly capitalist dystopia, in reality it is the opposite:
Immortality, homes for all, a Green and unshakeable economy with unlimited resources; no rot, rust or innovation, total class mobility, and the hand of God itself balancing the world on its fingertips.
Eve is an anarcho-communist utopia, one where Gaia can be complained to, where capitalism and warfare can be relegated to a game.
It is economics if economics meant nothing.
It is virtual worlds like this, devoid of any of the tribulations of time, space or humanity, that economists are increasingly turning to to test their theories. Anyone who appraises Eve's economy for real-world application must accommodate the facts listed above, otherwise the lessons extracted could be misled.
© 2013 Daniel Adaszynski