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The Inflation Blame Game


by teaspill

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Everyone knows about inflation, and in knowing about inflation, everyone knows its cause. The Neopets Team themselves even addressed the question, providing a very nice definition of the problem (or boon) in the Neopian Times Editorial of issue 377. For those who missed that issue, or those who simply want a refresher course: Inflation is the tendency of prices of items to rise as more neopoints proceed into the economy. You see, the more neopoints exist, the less each neopoint is worth, and hence the more neopoints are required in exchange for any particular item on the site. Now, what produces neopoints out of thin air? That’s right: Gaming, and nothing but gaming. Restockers, inasmuch as they restock, are only exchanging neopoints from one sector of the economy to another. Hence, it seems perfectly clear that gaming is the only cause of inflation.

But here’s the sticking point: It’s not. I’m here to tell you the rest of the story.

One of the great questions of economics is one that seems simple on the surface: How much is an item worth? No matter how many discussions about supply, demand, or labor theory you may indulge in, you’ll quickly find that every system proposed affords exceptions, and these exceptions require explanation if we are to understand the true roots of the economy.

The labor theory, that each item is worth the amount put into it, can be seen employed on Neopets by pet traders. A Plushie Draik, for instance, is worth roughly sixteen million neopoints, while a Biscuit Kougra is worth less than 100,000 neopoints. Any exchange of neopets generally happens on roughly equivalent price lines, or “values.” Of course, even this has a wildcard, and I’m not speaking of unconverted pets. The wildcard is the name of the pet in question. A well or very well named pet will be “worth” exponentially more than a badly or very badly named pet. What are these good or bad names, as they are called? I’m not certain that it’s terribly well defined. The line between “well” and “very well” named pets seems particularly fuzzy to my infantile brain. And yet, any pet trader can tell you that the name can make or break any trade, no matter what the objective neopoint value of a pet may be. Clearly, then, the labor theory of item valuation has notable limitations.

Next up is supply and demand, or the rest of the Neopian economy. This one can be seen quite readily throughout the site. The “supply” side is particularly pronounced, as generally the “value” or “worth” of an item tags along quite closely with its rarity. The higher the rarity, the higher an item’s price tends to be set. The “demand” side determines how hard or easy to sell an item is at the price proposed, as well as how much the market will bear at the high end; i.e. how high a price may be set before people simply stop buying the item.

To put the matter briefly: supply and demand comes down to a presumption of worth on the seller’s end, and whether and how that presumption is checked on the buyer’s end. Ultimately, this boils down to the notion that items are worth however much people are willing to pay for them.

Now a new question arises: exactly how much are Neopians willing to pay for any given item? Neopia’s a funny ol’ economy, which makes the answer to this question particularly interesting to ponder. The easy answer is, of course, “No more than the amount of neopoints they have.” But here lies the interest! How many neopoints does your average Neopian have?

This site has a few distinct income brackets; there’s no denying that fact. And anyone who’s been on the site for a while can tell you that restockers are at the top, and gamers are at the bottom. So let’s take a look at these two groups separately as we answer this question, shall we?

Gamers, the ostensible source of inflation, can go first. Judging by several periodically surfacing topics on the Help Chat, the average gamer makes about 20,000 neopoints per day from gaming. There are those who may make more or less, but this seems like a good, average figure with which to work. Given consistent gaming, a few extra plays here and there, and no neopoint expenditure, this would lead to a monthly income of roughly 600k (that is, 600,000 neopoints). Alternately, you can think of that as 7 million neopoints per year (yeah, I knocked off 200k, but really, who doesn’t spend at least that much in a year on Neopets?).

At this rate of earning, our average Neopian gamer, if he buys nothing else, can buy a Draik egg in 1.5 years on Neopets. And anything less than that 10 million neopoint price tag is certainly well within reach. Not so bad, perhaps. But what if our Neopian gamer wanted to be a Battledomer?

First of all, you can cut Joe Gamer’s income in half. He needs to, and this is extremely conservative, spend 10k a day to train up one of his pets if he hopes to stand any chance in the Battledome. This brings his income down to 3.5 million per annum. With those millions, he must buy weapons. Again, conservatively, he will ultimately need to spend at least 30 million neopoints for a set that stands any chance of impressing his opponents. In 8.5 years, barring increasing inflation, the fact that I’m dramatically underestimating the cost of training, and the fact that he’d have to be quite consistent for that long of a time-frame, he’ll get there. Of course, such weapons as Super Attack Peas are completely out of the question. He may as well give up and go home.

My point, if it hasn’t become obvious, is that the demand arc of our supply-and-demand system is clearly not set by gamers. They may create the neopoints, but prices on many items – indeed, vast swathes of the site – have inflated past the point at which any individual gamer can afford to spend his hard-earned neopoints on those items. If gamers don’t have the neopoints to buy those items, then clearly they aren’t the market that can bear the exorbitant prices. Hence, they are clearly not the market for whom those prices are set. They are, simply speaking, barely even a factor in the pricing of the most expensive items on the site. So how do items get that expensive?

Well, let’s look to those restockers I mentioned earlier. Numbers on restocker profits vary wildly, but I think a conservative estimate is that it is easy for a reasonably dedicated restocker to earn 100,000 neopoints per day in pure profit. This amounts to a total profit of more than 36 million neopoints per year. Makes the prices on elite Battledome weapons seem reasonable, doesn’t it?

I propose that it is not the raw number of neopoints created, but the sheer amount of neopoints that can be gathered by individual people that drives Neopian inflation. After all, if no one could pay the high prices some items reach, they would simply fail to sell, and have their prices subsequently lowered. But restockers of reasonable talent can and do buy these expensive items, and thus their prices continually rise... perhaps due to those same buyers reselling those same items once again. It’s an insular world, a life with that many neopoints, and elite restockers are probably quite aware that their most expensive items are always sold to their fellow restockers. Gamers merely create the neopoints, and funnel them slowly upwards.

Of course, one of the funny things about Neopia is that few are pure restockers or gamers, most do at least a little of both. Perhaps, in the end, we’re all responsible for inflation.

 
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