[War_ooc] Activity requirement?

[Dan Garcia]

Inflation is not caused by growth or vice versa.  The line of reasoning you proposed would imply that the economic conditions of the 1970's were impossible, when there was little growth and lots of inflation.  Inflation is caused by the supply of money increasing faster than the supply of goods and services and is thus solely a matter of monetary policy.  Now, it is often true that periods of growth coincide with periods of fast monetary growth (because the use of credit increases to support and extend the economic growth).  Growth and inflation can influence each other, but are not linked all that strongly.

That being said, to actually judge the inflation rate based on player activity in any rigorous way would be difficult as those policies which can lead to inflation often have caveats.  For instance, running fiscal deficits can cause inflation if the central bank ends up buying the debt (T-bills, etc), e.g. monetizes the debt.  This does not happen very often (though it *is* happening at the current time, leading many people [myself included] to fear that in a year or two we will see a big inflation) as most of the time there are plenty of investors willing to buy the debt (but the more investors spend on debt, the less they have to invest elsewhere in the economy, lowering growth, making "stimulus packages" which rely on big debt issuances an iffy business unlikely to provide benefits as large as often expounded by politicians...).  Other policies which encourage (or discourage) inflation have similar caveats and subtleties.

My advice on the subject would be to wing it.  Use it for game balance, use it to keep people from running gigantic deficits, or so on.  Inflation in practice is slippery enough to give the GM a lot of freedom.  But for the most part, unless someone is doing really weird or crazy things economically it should be in the 2-4% range, fluctuating with the rate of economic growth.

Anyway, my two cents.

Dan Garcia








________________________________
From: Dylan de Valk <dylandv at gmail.com>
To: war_ooc at esteroic.com
Sent: Saturday, July 11, 2009 7:08:06 PM
Subject: Re: [War_ooc] Activity requirement?


ok well regarding inflation:
 
the faster an economy is growing, the higher the inflation.  when an economy is struggling, there is little pressure to increase production which means little to no inflation.  If you want an economy to grow fast, lower interest rates.  but by lowing the central bank's key interest rate, you encourage inflation as a side effect of growth.
 
the perfect inflation rate is around 2-3%.  any higher, and prices spiral out of control as the economy heats up too much.  any lower, and you are facing economic stagnation and deflation.  the way our free market system is setup, inflation is a natural by-product, which while controllable, cannot be eliminated without reforms.
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