Guttenberg on Socialist Computer Games

Mattheus von Guttenberg has a post up on Mises about the computer game Caesar III. I haven't read it yet, but I'm guessing it's similar to a post that was up on the Economic Thought blog recently.

It's really a fantastic point, and one that I think any economist who's played this sort of game can sympathize with. Most people probably wouldn't even notice, but to put it in simple terms: the price mechanism is really fucked up in these games. Often what you have is not just price level stability, but stability of relative prices, which means any variation in what you need is borne entirely through output adjustments. I don't play a lot of computer games, and the one I'm most familiar with is Civilization IV. It's been a little while, but if I remember they do build in some moderate price deflation over time, presumably as your society gets better at producing a particular good. That's fair enough, but there's no diminishing marginal returns built in to counteract that natural technological development/division of labor effect. And what do you get when you're given increasing returns to scale? Well we can turn to the 2008 Nobel laureate in economics to answer that question: you get clumping and aggregation. Your armies are poorly balanced, your economy isn't diversified, etc.

Now - often in these games (at least in Civ IV) you can trade with your neighbors, and they'll pay more for things that they don't have. So that introduces something of a market. Usually, I've found that tradeable goods are produced in a more balanced way in response to this trading. But aside from that it simply doesn't work right. The dynamics and ups and downs you'd expect from unbalanced armies and economies probably makes the game exciting for most people. But it's very, very aggravating for a subset of us!

It's funny, I've noticed that when I play Civ IV I've naturally gravitated towards the pre-programmed scenarios for precisely this reason. I usually play the Revolutionary War scenario (alternatively as Washington and George III), or the WWII, Mediterranean theater scenario (the Italians are always fun to play in this one). In these scenarios you do some production, but you basically just fight. If I were trained in military strategy I might not enjoy these either, but I'm not - and ignorance is bliss.

The moral of the story: market efficiency and the price mechanism are inextricably tied together. You cannot have one without the other. This is why I take externalities and incentive problems so seriously. If you break or forgo the price mechanism, you're going to get messed up results, so you better have a good reason for departing from the price mechanism or ignoring a naturally occuring departure from the price mechanism.