Greenspanning SL: Linden keeps the economy humming
By Adam Reuters
SECOND LIFE, Oct 15 (Reuters) - Philip Rosedale and his team at Linden Lab have almost godlike powers in Second Life that Alan Greenspan (right) could only have dreamed of, but they have much the same job managing its fast-growing economy.
With the Second Life economy growing by a red-hot 10 to 15 percent a month, roughly in line with its overall population, Linden Lab is keen to avoid the hyperinflation that has often tainted both real economies and virtual ones.
The company keeps an especially close eye on the LindeX, the booming currency exchange where U.S. dollars and Linden dollars are bought and sold.
“Our goal is in general to keep the exchange rate as close to constant as possible, which is the typical global economic policy concern that most countries have,” Rosedale said in a telephone interview. Just like a real-world central bank, sometimes Linden Lab has to take money out of the economy, and sometimes it has to put it back in.
Not all virtual world economies are designed for stability. Some go out of their way to create imbalances that will make
gameplay more exciting.
“I don’t want a perfect economy, because they’re boring. Economies that are fun to play — that’s the first thing I think
about,” Sam Lewis, a game designer who was trained as an economist and is now working on a Cartoon Network game in South Korea, said in a phone interview. “The guys at Linden have struck an even balance.”
VIRTUAL ECON 101
Linden’s policies are broadly in line with standard economic dictums about inflation.
“What they’re doing is monetary policy, there’s no question about it. All the standard theories of micro- and macroeconomics absolutely apply,” said Indiana University professor Edward Castronova in a phone interview. He is the author of “Synthetic Worlds: The Business and Culture of Online Games,” and has extensively studied virtual economies.
“Our basic understanding … is there’s inflation when there’s more money than there is trade,” he said.
So far, per capita growth in the Second Life economy has held steady, partly due to the ingenuity of its residents.
“People are coming with clever ideas and competing to come up with compelling products,” Rosedale (right) said. “Something like a pair of sunglasses or a watch, something interactive, those types of items are subject to intense competition in the marketplace, so those items are becoming more interesting and the prices are going up.”
CENTRAL BANK TOOLKIT
So what’s in the Linden Lab economic toolkit?
– Stipends, the primary source of new money introduced into the economy. Raising and lowering these directly affects the overall money supply.
– Buying and selling currency on the LindeX. Selling Linden dollars “has the weird side effect of making money for Linden Lab, so it’s very important we do all this stuff transparently, because you could argue we’re conflicted in that sense,” Rosedale said.
– Introducing new “sinks” to remove money from the economy, such as increased upload fees.
Crucially, the Linden economic team is lacking the lever that central banks use most: the ability to raise and lower interest rates. If you’ve forgotten your Econ 101, raising interest rates causes companies and consumers to borrow less, reducing the money supply; lowering them causes the opposite.
But that situation is likely to change soon, Rosedale said.
“We don’t lend money, but we’ll probably start doing that. We could loan money, set up a federal banking rate, where we lend money to individuals or banks at 3 percent. Then we’d have the traditional control the federal government has,” he said.
Before long, the central bankers of Second Life may have all of the tools of their real-world counterparts, plus the
powers conferred on all Second Life residents. Even Alan Greenspan might envy the ability to fly.
(Click here to hear an audio interview with Philip Rosedale on managing the Second Life economy.)
