Simulated Political Economy: Gamifying The Dismal Science
Political Economy is not usually considered interesting by most. More's the pity: the field studies fundamental social forces that structure all of our lives. A good gamified simulation is in order.
Introduction
Grand strategy games are always, in some sense, an exercise in applied political economy. The relationship runs the reverse direction as well. Thanks to the incentive systems that structure most human behavior, scholars have long represented the core dynamics as structured games.
That’s why a lot of us have at some point taken courses on game theory - usually not realizing how not-fun the subject usually is. In actuality, game theory is all about destroying true gameplay. Science is about reliable prediction, after all, and a fairly small number of strategies wind up dominant in most contexts.
Markets harness this to achieve something remarkable - when they function. They can distribute certain kinds of resources to where they are most needed more efficiently than any other process humans have ever come up with. The trick, of course, is maintaining the required conditions when everyone has an incentive to rig the system.
That’s a job only some form of countervailing organized power can handle, which generates a number of troubling problems. How much it can intervene and when are questions that require some kind of democratic process to manage in the long run, or else petty power interests will distort everything there too.
Market and government are always closely bound, though the relationship can be set up a number of different ways. Scholars like to attach names to these, but social scientists have long looked for systematic explanations of why certain relationships emerge and how their performance varies - in the final evaluation, function matters more than form if you want to understand evolutionary processes, which economic development always is.
Unite the World isn’t strictly a simulation of political economy, and strongly abstracts the essential aspects of political and economic management. But the underlying concept behind any grand strategy game is intrinsically bound up with both. Last week I wrote about wargame mechanics, so this week I’ll lay out a similar high level view of how the economic game works.
Macroeconomics: How Taxes Rule The World
The old saw attributed to Benjamin Franklin that only death and taxes are inevitable in this life isn’t too far off the mark. It took a couple hundred years of economic research to demonstrate that taxes, along with interest rates, are a lever that can be manipulated to accelerate or slow economic growth.
Often misunderstood, political economy is what both Karl Marx and Adam Smith were doing, the first explicitly advancing the work of the second. Marx’ political remedy is where he took a different road. Though ideologically Marxism and Capitalism are very different systems, both offer prescriptions about how to balance the power of government, society, and market. Each stems from the same utopian thinking that was common among the early empiricists: seeking paradise through social organization, in an echo of the Christian religious thought that both emerged from.
Systems types tend to be unifiers, in the sense of always looking for ways to relate different ways of looking at the world under a common framework. That tends to differentiate us from ideologues who seek doctrinal purity, demanding conformity to certain definitions. This is perhaps why those who tend to be attractive to simulation and other methods rooted in quantitative thinking find their arguments tiresome.
A simulation offers the potential for allowing different approaches to emerge naturally through trial and error. That helps to reveal where particular phenomena of interest are affected by some kind of natural structure or truly random, at least from the human frame of reference.
Though as a field it doesn’t explicitly make use of formal systems theory, at least to my knowledge, macroeconomics has been at least indirectly impacted by similar logic. It’s a curiosity of the human experience that our interactions create emergent structures that soon come to alter how we go about our lives. The natural ebb and flow of supply and demand outs as members of different communities with access to different founts of information and resource endowments interact. Productive economic activity emerges from the fabric of everyday life.
To paraphrase a clever webcomic, Saturday Morning Breakfast Cereal, the field of microeconomics perfectly describes localized situations that never occur in the real world, while macroeconomics uses vague, almost mystical models to accurately predict only that recessions and recoveries will occur, never precisely when, how, or why. In the end, from a scientific and policy perspective, the latter approach is often more useful, because you can at least prepare for the inevitability of market turns and plan how to react when one arrives.
At the level of a country, the rate at which the economy grows depends mainly on the interplay of two variables: interest rates and government spending, the latter ultimately supported by taxation. Taxes remove money from the public sector, higher levels slowing growth as effective income is slashed. High interest rates accomplish the same thing by discouraging lending, which tamps down on investment, leading to upward pressure on prices that tends to lower demand.
Why would you ever want to slow down growth? Mostly to prevent inflation, though limiting broader environmental or social impacts can be a motivating factor. Contrary to the arguments made by most classical microeconomics specialists, value is a tricky thing, a component of it socially defined, often giving valuation a seemingly irrational character. They typically model it as someone’s willingness to pay as demonstrated through behavior or experiment, but this logic - like cost-benefit analysis - fails whenever survival is on the line.
Example: what value does all the gold on Earth have to someone dying of thirst in a desert? However much a passerby is willing to hand over their last bottle of water for. Their willingness to pay for even a promise of a drop of water goes to infinity thanks to biological imperatives. Anyone is free to test this premise at any time, though I don’t recommend it.
Markets don’t work in these situations, which is why no one ever makes soldiers pay for their daily rations in the field - they get a fixed allotment correlating to availability and estimated caloric needs. An army is the most fundamentally communist and socialist enterprise on the planet, under normal circumstances, eliminating most value speculation by prohibiting markets.
Of course, these wind up emerging anyway, creating an enforcement problem, just like in capitalist systems. I was a soldier for a time, and trust me - demand still outs in the form of duty swaps and other non-cash based arrangements. This doesn’t mean that you fail to guarantee every soldier three square meals and a fair wage commensurate with their skill and make them bid on who does what job, you’ve just got to recognize that no ideological position ever works 100% when it encounters reality.
A blend of approaches is usually best, certain basic resources like food, water, shelter guaranteed to all in a group regardless of any claim to merit or worth. Those higher up on Maslow’s pyramid can be handled through market or social mechanisms.
Back to inflation - its proximate material cause is simple speculation about what prices might be in the future. People are better at handling smaller numbers, so when you’ve got around two to three percent annual inflation to plan for it’s easier to cope with. Get up around five or six and all of a sudden people are asking for wage increases to keep up with price rises, which generates a degree of social instability. Hit double-digit inflation and people are feeling a pinch on a monthly basis, leading to even more pressure on wages. That’s what’s called the price-wage spiral.
A quirk of human behavior I’d love to rigorously test with a non-anthropocentric world simulator someday is the fact that the opposite of inflation tends to be even worse. If people start to expect that money will always gain value if they hang on to it, a disinflation loop can take hold that dramatically curtails investment and chokes off productive economic activity. It’s a doom spiral triggered by people’s uncertainty about whether any investment will lead to ruin - in other words, a recession, something that only ends once confidence is restored. This is why governments spend more money and slash interest rates when private sector demand craters. It’s the least-bad option, and generally beats bailing out failed companies with public money.
Modern macroeconomic policy is a delicate balance of setting interest rates and spending such that they minimize the natural fluctuations in growth that step from people’s beliefs about the future. Of course, the USA sits in a somewhat unique position in that global assumptions about its economic might have led to the Dollar becoming essentially too big to fail in most people’s minds. That allows the USA to set policy such that other countries absorb a larger relative share of the burden when times are tough. This sort of advantage is always squandered eventually, and lost when an alternative arrangement seen as more stable by a critical mass of holders of capital emerges.
While that scenario will be fun to model after the base simulation is fully polished, to maintain a reasonably level playing field Unite the World’s default avoids the issue by resetting the world economy back to effective zero. Thanks to some straightforward macroeconomic insights, it’s possible to scale down the complexity of managing a national economy enough that the average person can dive in without feeling totally overwhelmed.
A simple ongoing loop of using tax rates to manage growth while constrained by a few hard rules can have surprising depth, especially when layered with a broader economic development simulation. Because a neat model is one thing, but it’s what the player can create with it when it plays into others that makes an experience memorable, sometimes even useful.
Economic Development In Unite The World
The default scenario sets the world back to zero in 1900 both to eliminate the impact of historical politics and allow for a fair economic development simulation to proceed. Whether the player’s starting point is a single province or several already joined in a country, each province will remain its own entity, producing a flow of resources according to its natural endowments, infrastructure investments, and development level.
Every province starts with a given population that grows each year and an economy (measured by GDP, or Gross Domestic Product) of a given size that does the same, though generally faster, to ensure that wealth levels grow over time. All value is measured in the same currency, Global Dollars, to avoid the complications of foreign exchange, with wealth - and therefore development level - tied Gross Domestic Product per capita (GDP/c).
Naturally, the player will prefer to have all these numbers go up, generally quickly. Population is what generates economic activity, which is the ultimate source of tax revenues. People as a whole being naturally industrious, if they have the tools to innovate and develop markets they will do so on their own initiative. It’s when they start finding reasons to violently compete that troubles arise.
It is the player’s job to clear the path for their citizens’ economic growth by ensuring that resources sufficient to power it are always available. Security is important too, of course, and any society will invariably create other problems that a separate policy subgame will deal with, but the essential loop of securing room for more growth drives all gameplay. It’s how the player gets access to pricier policy options, military gear, and infrastructure investments.
Each January a budgeting cycle will determine the levels of taxation and spending for the following year. Prior year moves will be locked in and take effect, allowing the player to spend the following game year choosing how and where to invest.
It is possible to go into debt, with the cost of financing it applied to the annual budget. The debt market will be highly abstracted, with interest rates directly tied to national debt load and escalating severely over time. An escalating budget crisis will swiftly eat into national finances, eventually forcing a default if left unchecked, which wipes out debt at the cost of the country being barred from debt markets for a long period of time and so incurring severe, lasting penalties to growth.
Inflation produces another major check on rapid economic growth, featuring rapidly escalating penalties as growth rates go higher that force self-correction. A player can’t hope to constantly spend beyond their means without ending up worse off than if they had adopted a more patient approach. Broader costs of unchecked inflation include social discontent matching that caused by a recession. Of course, many policy measures handled in that sub-system also have some degree of inflationary impact. potentially hindering their use in calming a restive public.
Another limit to growth is that with each doubling of GDP/c comes a new set of resource requirements along with intensification of prior ones beyond that caused by population growth alone. Provinces start at a GDP/c of $1,000, requiring only food, fiber, and water. Beyond, new resources become available but also in demand, adding strategic importance to the sequence of province infrastructure investments. Here’s how it goes, along with the approximate equivalent technological period in real world history.
$1,000 - Food, Fiber, Water (agricultural level - 1800s)
$2,000 - Coal, Steel (early industrial level - late 1800s)
$4,000 - Oil, Natural Gas (middle industrial level - early 1900s)
$8,000 - Aluminum (late industrial level, 1930s-1940s)
$16,000 - Uranium (nuclear level, late 1940s-1970s)
$32,000 - Silicon Chips (network level, 1990s-2020s)
$64,000 - Rare Earths (digital level, 2030-2050)
$128,000 - Exotic Materials (augmented reality level, 2050-?)
Baseline economic growth rates will start high then decline with each level, corresponding to the fact that low-hanging fruit is picked first, so to speak. The top level is largely aspirational, there to give a patient development specialist a late-game edge. The goal is for a province blessed with exactly enough resources and left alone to reach level seven by 2050, representing a level of development roughly where a wealthy country is today.
The military tech tree follows the same pattern, each jump corresponding to about two decades of technological progress across the past two real-world centuries. Anything past about 2050 is fairly speculative, of course, but having lived long enough to remember the first 25 years of the century pretty well, certain trends out to around mid-century look fairly set from where I sit. For a good while the potential of networks and robotics are set to be thoroughly explored, along with renewable energy and cleaner manufacturing, with the next great leap in technology probably coming when a new source of quality, plentiful energy is commercialized - fusion or space-based solar arrays, I expect.
Now, in 2050 technology might have advanced to the point this take from 2024 looks painfully conservative, but generally speaking the next low-hanging fruit from a technological standpoint looks to be replacing humans in positions where they are prone to making dumb mistakes with robots and drones.
In the real world, of course, significant chunks of the planet are barely to level three on this scale while other parts are already on the cusp of level seven. The Ukraine War features one power rapidly retrogressing to level five in most military respects while another steadily masters six - a trend that does not bode well for Moscow, thank goodness.
In Unite The World, a disparity of this level would mean that something went very, very wrong. Although, if a player could devise a solution to global unity while never developing past level one, that would be pretty cool. That might help prove that the crunchy de-growth types would have a point - if they could ever win billions of other people over.
Like a real world leader, whatever aesthetic choices the player prefers - including how well their country and alliance survive in a degraded late-game environment if they never stop pursuing growth, they’ll have to back up with strategy. To ensure that enough resources are available when the country’s GDP/c score jumps to the next level, players will have to strategically invest in domestic and foreign provinces to avoid growth penalties.
Two challenges emerge from this: domestic investment gives full access to the improved resource flows, but if a few provinces get rich while others lag, discontent ensues. Inequality can be even more dangerous than inflation because despite the immediate discontent hit being less, it’s regionalized and can mutate into separatism. Provinces can be integrated into a country, but also lost.
Much of the player’s time will be spent looking at a map something like the one below, choosing where to invest national funds. With only limited money to spend in a given year, choices are consequential.
If sufficient production is not available inside the country to meet domestic demand, the population turns to imports. This incurs a growth penalty, with the effect dramatically enhanced if there is also a global shortage of the same resource. Population demand is a strict function of development level and population. Internally markets are assumed to automatically clear and trade is frictionless, save for the fact that exports boost growth while imports subtract from it.
A player can avoid the import penalty by guaranteeing access through direct foreign investment in a non-controlled province. This boosts its development level and improves relations, but the donor country receives only half of the increased production. Over time, however, the relationship can be expanded substantially, even leading to formal integration into the player’s country. In addition, each province can only receive investments to a certain level, with each becoming more expensive. A player who is able to strategically invest internationally can gain sufficient market power over critical resources to gain a major bonus.
An economic dominance pathway is possible through careful planning, allowing a player who prefers to run a small country to build an international network that functions the same way without forcing them to manage a large domestic population. The danger is that politics can intervene: if another power takes over the province, it can then nationalize local industry, cutting the original investor out and triggering an economic crisis. Some players will then be forced to consider the wargame aspect to continue their strategic approach.
Further, some resources, especially fossil fuels, have climate impacts and limited stocks, complicating the endgame in two separate dimensions. Rapid economic development may make a population happy, but eventually a price will be paid. Further pollution impacts can be modeled directly or in conjunction with the policy subsystem, a province with significant infrastructure investment and coal suffering localized penalties that exacerbate inequality and separatism. If you like to include social justice considerations in a simulation (I do).
Conclusion
I think this is enough for such a wonky topic - like the wargame side of Unite the World, economic development is intended to be intuitive, something a player using a console controller can manage without needing a mouse and keyboard. A player needs to be able to quickly and easily access the desired information about the province, something that in and of itself demands simplicity and clever user interface design. I don’t know about anybody else, but I can’t sit for hours straining to make out rows of small numbers on a screen. Or I suppose, since I do that enough already, I’d prefer a simulation to be a little cleaner.
In the near future I’ll post about the third essential sub-system, along with the wargame and economic development side: policy. It’s where the player can spend tax revenues to alter global variables like population growth rates, the response to dissent, and generally anything that keeps their people from revolting. It also houses the diplomacy system, which unlike the typical grand strategy game is not about one-time deals, but building up embassies.
All of these sub-systems will need to be endlessly tweaked, modified, or even completely re-thought. But I hope this brief gets across the essential features of the economic side of Unite the World.
Take care, and you’ll hear more from me next week!