Player should be able to control central bank policy and deficits should increase inflation as in reality

[Duckruck]

I can't wait to see the hyperinflations triggered by my extremely loose negative interest rate policy and do insider tradings in bond markets just because I can

Edit: Also, government deficits/surpluses should affect inflation, just like in reality.

[Stylesjl]

I can't wait to see the hyperinflations triggered by my extremely loose negative interest rate policy and do insider tradings in bond markets just because I can

Edit: Also, government deficits/surpluses should affect inflation, just like in reality.

Control over the Central Bank is an interesting concept, though I think for these exploitative reasons there would have to be limits as to how much control you could exert in practice.

Also government surpluses and deficits do not (directly) affect inflation as generally if a government runs either a surplus or deficit then it would take money out of another part of the economy which should be inflation neutral.

However there are certain theories such as Fiscal theory of the price level which suggest that deficits should increase inflation.

Within the actual Capitalism Lab simulation my understanding is that deficits already cause inflation, if the money is sitting on the city government (or corporate) balance sheet then it does not contribute to inflation or GDP growth, but the moment you start spending it this pushes the money supply up and causes inflation and interest rate rises.

If however you raise taxes and spending, keeping the budget balanced then the effect should be neutral.

[Duckruck]

I can't wait to see the hyperinflations triggered by my extremely loose negative interest rate policy and do insider tradings in bond markets just because I can

Edit: Also, government deficits/surpluses should affect inflation, just like in reality.

Control over the Central Bank is an interesting concept, though I think for these exploitative reasons there would have to be limits as to how much control you could exert in practice.

Also government surpluses and deficits do not (directly) affect inflation as generally if a government runs either a surplus or deficit then it would take money out of another part of the economy which should be inflation neutral.

However there are certain theories such as Fiscal theory of the price level which suggest that deficits should increase inflation.

Within the actual Capitalism Lab simulation my understanding is that deficits already cause inflation, if the money is sitting on the city government (or corporate) balance sheet then it does not contribute to inflation or GDP growth, but the moment you start spending it this pushes the money supply up and causes inflation and interest rate rises.

If however you raise taxes and spending, keeping the budget balanced then the effect should be neutral.

https://en.wikipedia.org/wiki/Quantity_theory_of_money

Even according to the quantity theory of money, which has failed miserably in reality and has been marginalized, central banks can clearly generate new money either through quantitative easing (a classic example of the failure of the quantity theory of money, where it was clearly fiscal stimulus, not quantitative easing, that caused the recent inflation) or by directly financing fiscal deficits. And even without QE, if by money supply you mean the M1/M2, government spending obviously increases the money supply by increasing the money multiplier to increase inflation by decreasing excess reserves (ratios) because money should come "out of another part of the economy".

It's just completely inconsistent for you to claim one minute that fiscal deficits don't increase the amount of money because the money has to come from somewhere and therefore doesn't (directly) increase inflation, and the next minute to claim that fiscal deficits increase the amount of money and therefore there's nothing wrong with gaming the system.

https://en.wikipedia.org/wiki/Money_multiplier

It's not as if it's just "there are some theories that fiscal deficits cause inflation", as you say, it's that there are no economic theories at all that fiscal deficits don't actually significantly cause inflation.

https://academic.oup.com/ej/article/126/591/442/5077425

And unlike what you're saying, I've never seen a game where severe fiscal deficits have visible inflationary consequences, even though I routinely rely on AI-accumulated fiscal surpluses to enact zero-taxation policies in all cities and dramatically increase government spending. This is completely different from reality and clearly needs to be changed (LOL)

Sadly, what you are talking about is not economics in any sense of the academic world (although you quote its terms and links), but rather the intuitive belief that there is only M0 money and no money multiplier and the belief that the "somewhere" of "from somewhere" can't possibly include the central bank's "money-printer". It is just your familiar "folk 'science'".

https://en.wikipedia.org/wiki/Folk_science

It's not that "only" "certain theories" "suggest" fiscal deficits can significantly increase inflations and even that "even according to those theories there is nothing wrong with the current economic system in the game" as you assert. It's that your opinions are problematic even by the theories you support because you don't really understand them, at all.

Edit: I suggest you read less ridiculous financial news/opinions/commentaries/blogs/articles about "more money printing increases inflation" pseudo-"science"/folk-"science" and read real science and theories instead of calling them "certain theories suggesting xxx" "but my insane assertion is purely comprehensive instead of being totally absurd". It is even more laughable if you even think you have any objectivity, rationality, understanding and correctness in this as you seem to strongly express it. Dude, you even don't understand the relationship between M0 and M1/M2

Of course, I don't think you're capable of reading why the quantity theory of money is wrong, even if I don't require you to read the papers. But instead of jumping to extremely absurd conclusions and being wildly overconfident, you could just admit your ignorance and shut up.

[speeder]

I am from Brazil, and ultimately the only thing that could stop hyperinflation was a law that prohibited the government from spending money it didn't have.

The reason for this, is that the government at some point had so much deep debts, that often it defaulted suppliers, or printed money to avoid such default. It became standard in Brazil to just charge the government through the nose, because the default risk was so high, you had to price-in the risk too. Of course the government did several measures to save money when it noticed a detachment between government-paid prices and "civilian" prices. As such any company selling mostly to the government would set their "civilian" price to be whatever they charged the government, not expecting real sales from normal people. Except this of course affected inflation.

For example: Government wanted to buy a huge fleet of cars. Car manufacturers would then charge the government a huge "risk premium" and then change the consumer prices accordingly.

Many people credit "plano real" for stopping the inflation by changing the price index to a new index that was tied to the dollar. That indeed helped, but wasn't the core of the solution, previous attempts at that exact same thing were done earlier, and they utterly failed (also made a lot of people lose ridiculous amounts of money, lawsuits regarding this are still ongoing, some lawsuits are 40 years old now).

What really stopped inflation was the law that put a stop to government defaults. Now that the government couldn't default, people trusted the government enough to charge "fair" prices. Then when prices switched to "reais" that were tied 1:1 to the USD, prices stopped climbing, since people could price their sales to the government in USD and predict how things would go.

By the way, that law DOES bite, that law is what caused the ouster of Dilma Roussef (ignoring political concerns, protests, etc... that law was what enabled her ouster in first place).

[anjali]

eheh you still fine with about 6 real/ usd
look at your neighbour .. in 2016 i got 16 pesos for a dollar ... now we are at 1.000 pesos for 1 dollar in argentina, they know how to make hyper inflation ... their GDP is going through the roof (in pesos of course) eheh from 7 trillion in 2016 to 640 trilion in 2023 thats nearly 10.000% (ten thousand percent) gdp grow within 8 years aint that great?

so yeah no need to control yaself the Inflation in-game its like handing a printer to the players corporation to print their own money.