What are the teachings and learnings the former Greek finance minister took away? Here’s a short summary of his papers “Valve-approved”.
First, let me acknowledge the obvious – I am delighted that it is now possible for an economist like Varoufakis to become finance minister in a Eurozone country, in our case Greece. This is not because he is from the left side of the political landscape – although it helps – but because he is reshuffling the established order of the old school, dogmatic, average finance minister, used to the comfy, outdated, same old, generic paradigms. This doesn’t prevent them from being a good administrator per se – I am not intending a trial of intent – however they have no predisposition for innovation. From this perspective, Varoufakis is fresh. He now has everything to prove in order not to disappoint. A lot of hope lies on his shoulders; for Greece obviously, but also for the future of the European Union, which could see some of its positions shift as a consequence of the shake-up imposed by a heterodox minister like Varoufakis.
Why heterodox? Long before being appointed finance minister, he crossed paths with Gabe Newell, Valve and Steam boss. Yes – the famous video game company.
Gabe was aiming high: he was looking for an economist to help him link two of his most popular game economies with a common currency, even though they are quite different. Sounds familiar? It is the very concern seen within the euro, Germany and Greece. Varoufakis was interested: he saw a unique opportunity to work on a topic which he greatly supports.
If he was not already convinced to join at this stage, the easy access to data would definitely have finished the job. Every action, every deal inside the games is logged. Varoufakis could therefore ignore econometrics and statistics, which he gives no great value to, thinking them worthless and no better than astrology…
What are the teachings and learnings from video games the new Greek finance minister took away? Here’s a short summary of his papers “Valve-approved”.
Focus was placed on Team Fortress 2, an online multiplayer deatchmatch game in which gamers can build and trade items – keys, weapons, hats…
Instinctively, you would think that on an automated trading platform you would reach a market equilibrium quickly, making it efficient. Against the odds, there are a multitude of lingering arbitrage opportunities within the game marketplace. None of the highly exchanged items could raise themselves to the status of exchange currency (numeraire) – bilateral barter is the norm, regardless of liquidity.
The interesting take-away here is that all major economic theories are formed around the idea of market equilibrium, popularised by Adam Smith and David Ricardo, the very existence of which is questioned here in this sophisticated market.
Economic textbooks have long told us a sweet story, easy to get and to believe: similar to mankind choosing to drop his individualist lifestyle to become a social creature, the so-called homo economicus, tired of being constrained with the curse of double coincidence of needs from bilateral barter, chose a numeraire and raised it to the level of universal currency.
In fact, modern civilization built itself on labor division, which is impure barter implying social norms without reciprocity – you may assist someone without expecting a return, or on the opposite, expecting a bigger favour in return. These don’t hold the same “virtual” value – this type of exchange cannot be reduced to a line on someone’s accounts.
An electronic platform like the one Valve offers might seem a more ideal marketplace for anonymous pure exchange but in practice, similar to ‘real’ markets before the Industrial Revolution, barter occurs as a consequence of a surplus material that gamers attempt to get rid of, without mercantile logic. Biased exchanges take place, making it impossible to distinguish a natural and rational numeraire.
Historians have shown that currencies were created not as a facilitator for bartering but to measure debt! Perhaps this also explains why no natural numeraire can be isolated on Steam, since it doesn’t offer any credit possibilities. It could be a lesson for Europe – this highlights a known flaw in the Eurozone construction, that sovereign debt isn’t pooled.
Will these discoveries have any relevant or significant roles to play in Varoufakis mandate? Unlikely. That being said these articles are pretty interesting and I invite you to read them
Seems that Newell had a change of heart since Varoufakis worked there – Steam now uses a very classic marketplace where every participant can buy and sell items against hard cash, real money. Transactions on which Valve systematically syphone off 2 pence…