The Alphaville Herald

Editorial: Raise Taxes, But Do It Right

by Alphaville Herald on 11/01/05 at 1:50 pm

by the SL Herald editorial board

Philip Linden is well intentioned, but he needs to put his money
supply where his mouth is.

Tightening SL monetary policy to stem a declining exchange rate and
fight property price inflation is a good idea. Unfortunately, the
measures announced by Linden early Tuesday morning in one Second
Life forum won’t do the trick.

Linden proposes halving weekly stipend payments and reducing event
fees to cover only those deemed “educational” (by whom?). The latter
move amounts to little more than social engineering, while the former
one is really a regressive flat tax that hurts SL’s poorest residents
most.

Finding flat-earthers in SL would be understandable. But halving
everyone’s stipend amounts to a poorly thought-out step that will
only end up making the the poor poorer.

Newbie residents whose stipends are under L$1,000 or so can’t afford
to have those payments halved. It takes time to find out how best one
can generate income in SL. Why knock the legs out from under new
users who will eventually become important contributors to the SL
economy?

Philip Linden cites the US Federal Reserve as a model for recent
Linden thinking about monetary policy. If the Lindens want to emulate
the Fed, they should take another look at their own
data and put in place a policy that will better accomplish their
goals.

The money supply has more than doubled in the last six months; that’s
a problem. But the Median Balance figure (a figure not explained in
the Linden spreadsheet) has actually fallen slightly. Land prices are
up, but not steeply. The biggest rises have been in gifts, payments
(which have almost tripled) and object sales.

Adjusting the ratings sector of the SL economy to stem the money
supply isn’t a bad idea. But a 50 percent reduction in stipends is.
Doubling or tripling the cost of ratings might be a better idea, but
it’s hard to tell: no figures are provided to show us how much is
taken out of the economy each week in ratings fees. The rumored hike
in ratings fees to L$25 seems outlandish on its face.

A payment and/or sales tax, while unpopular, would also make more
sense. Residents would retain their incomes (and thus the consumer
confidence that allows them to spend money, thereby greasing the
wheels of SL’s economy) and the tax would by definition be
progressive: the more you spend, the more you pay in taxes.

If the Lindens are truly concerned about rising property values, an
increase in property tax or a property sales tax would be a more
direct way to address the issue. Again, it would be an unpopular
move, but it would constitute a fairer tax and would immediately
alienate fewer residents.

No economy can support itself without an inflow of new cash, new
residents and new ideas. Clamping down on the money supply is a right
and necessary step. But the Lindens should think hard before putting
in place a policy that will reduce not just the flow of cash, but the
flow of users and innovations as well.

As a newspaper, we can only hope that our voice is heard and our
arguments considered. Second Life is a place where taxation, probably
by necessity, is without representation. Let us hope that it is done
at least with some measure of wisdom, compassion and economic common
sense.

The Second Life Herald asks the Lindens not to cut off our bootstraps
before we’ve had a chance to pull ourselves up by them.