Welcome back to Free To Play. I’m a proud retrogamer and a game collector, but lately it’s become a chore to collect retro games. I don’t possess the kneejerk reaction against emulation that so many retro gamers seem to be afflicted by, but I still do prefer the original hardware whenever possible. The retrogaming market has seen a large boom in the last few years, with prices going to insane heights. Meanwhile, the current gaming market seems to be following the perils of the Great Gaming Crash of 1983 very closely, worrying more than a few observers. This situation is a perfect way to demonstrate the basics of Austrian economics. This will be the first entry in a series of entries that use gaming to give you this foundation. It’s just like how you snuck your GBA into economics class so you wouldn’t be bored, only now they’ve melded together like that weekend in Tijuana.
Let’s establish a bit of a baseline. Anyone, including those who don’t care for economics, knows that markets have periods of higher prices and lower prices. While small changes in either direction are not only acceptable, they’re outright useful, large fluctuations are often a bad sign. You’ve likely heard these terms, but it’s my article and I’ll define what I want. A boom is when the market for something spikes strongly very quickly while a bust is the exact opposite where a market drops significantly in a short period. You sometimes hear this termed a crash, as in The Great Game Crash of 1983. Keep these terms in mind as we’ll be coming back to them a lot. I will actually jump back and forth between economics jargon and gaming example so get ready.
This shouldn’t surprise anyone, but what’s interesting about Austrian economics is that it’s the boom not the bust that is to be feared. While most people, and understandably so, fear when a market busts, the follower of Austrian economics knows to fear the boom part of the cycle since not only does it mean that a bust is coming soon, but the boom is the part when the market is actually distorted from what it should be. While I am certainly honest in that I am anticipating the retro gaming market crashing, it’s only from a selfish thought: I want games to be really cheap again.
Now, we in the geek & nerd community are used to this cycle of boom/bust in collecting. Many of us are old enough to remember the huge boom in comic books during the 90’s and how catastrophic that bust was; the same people who remember that can actually remember when Beanie Babies were worth large amounts of money. In fact, a lot of those may have a stack of 90’s comics or bean bag stuffed animals collecting dust that aren’t worth the boxes they’re stored in. We’ve seen companies go under, or read history books about how the Gaming Crash killed so many developers that it would make sense that we have a fear of the bust. This has been the natural response to boom/bust cycles for eons, and nobody thought to challenge the status quo until the rise of the Austrian School of Economics.
Let’s have a bit of history about the Austrian School first. The Austrian School of Economics, often called the Austrian School or just Austrian economics, arose thanks to the work of a handful of dedicated free market economics in *SPOILER ALERT* Austria. While free market economics had been taught at universties in Vienna, Austria since the mid 19th century it is only after World War II did their work gain traction with the rest of the world. The pioneering work of both Ludwig Von Mises and Friedrich Hayek popularized the school and inadvertently gave figureheads to the two main camps inside Austrian economics. Von Mises led the camp who disregarded most of neoclassical economics, while the camp following Hayek accepted it and had a somewhat favorable view of limited government intervention in the economy. Hayek in particular gained noticeable acclaim and is credited with the revival of laissez-faire economics and even won a Nobel prize in 1974. On a personal note, his work with how prices communicate information heavily informed my article on Gamestop and digital downloads. It’s a callback, and a shameless plug ALL IN ONE!’
Getting back on track, the Austrians were the ones who recognized that boom cycles inevitably led to crashes. They were the only ones who spent the 1920’s warning anyone who would listen that a terrible crash was oncoming as the booming decade would lead to a stunning bust. The Keynesian school of economics believed that government intervention never had consequences and happily claimed that this boom was proof of how managed economies could prosper. On the other hand, the Austrian school acted more like doomsday prophets. There’s a difference between the Austrian economists and those who preach the Rapture will happen soon: the Austrians were right. Anyone with even the slightest knowledge of history knows that the huge crash in 1929 led to the Great Depression. The Austrians did everything they could to warn people of the crash, how to prevent it and shorten it, but it ultimately fell on deaf ears. Even today, despite the brilliant work of Milton Friedman explaining how central banking played the major role in causing the Great Depression, far too many blame capitalism for those bleak times. It all happened because we focused on how good booms are as opposed to why they are bad.
This leads directly back to the current boom in retrogaming. Parts of this boom are by no means a bad thing; the fact that large numbers of people are going back to discover just how amazing games of the 8 bit and 16 bit eras were, is indeed a great thing. However, increased demand for classic titles with a static supply has skyrocketed prices, while those who are only worried about making money try to scalp games or offer products geared toward the retro gaming audience with idiotic plans – cough cough RGS cough cough. I’ve discussed the topics of supply/demand and market distortions before but here we get to combine the ideas. The demand has risen for games partly because more and more people have gotten nostalgic about the games of their youth – which is why I believe the PS2 will get expensive in the next few years – while distortions such as the blatant lies of condensed idiocy such as Storage Wars have led speculators into the market simply looking for a quick buck. Not that there’s anything wrong with reselling games or making a profit per se, but the flood of them is the bad sign we’ve been waiting for.
The problem is that as prices hit the point where it’s too expensive for the majority of consumers, sales will drop. This will very likely put a large amount of re-sellers out of business while making a lot of the people who may have wanted to buy retro games become disinterested. These high prices may very well make them turn to things like the Virtual Console or just plain emulation. With a dearth of both sellers and buyers, the market will contract which will cost a lot of people money, not just those evil re-sellers we all hate. Think of your local independent game store. They are not backed by the money that places like Gamestop are and will likely be some of the first casualties of a crashed retro gaming market. After all, most of the independent stores are based on the retro gaming titles instead of the current stuff so when the majority of their inventory loses most of its value rapidly, it is going to kick them right where it hurts. All of the money invested into these gaming stores and the like will be lost while the consumers move their money to areas where they get more “bang for their buck,” as it were.
This leads back to the economics side. In Austrian economics, a boom is caused by “malinvestments.” These are led by banks overextending credit thanks to low interest rates and especially due to higher levels of invention by central banks such as the Federal Reserve. Because the funds to start businesses or invest are so easily attained, entrepreneurs start to work on ideas and business plans that ordinarily they’d avoid because the risk is so high. Eventually, the bubble becomes too big to continue and we enter the crash or “credit crunch.” It’s actually argued, most effectively by Ludwig Von Mises, that recessions and depressions are simply the market correcting itself after the misuse of funds during the boom part of the cycle. The normal governmental response to the beginnings of a crash are to use price supports to artificially protect the price of assets in the market, spending so much that the government goes into debt – “deficit spending” – and of course the rightly maligned bailouts. Here’s where a free market capitalist and the most adamant Occupy Wall Street protester walk hand in hand. Austrian economics forcefully declares that bailing out insolvent banks is not only bad policy, but it actively will increase the length of any recession/depression. Bailing out insolvent banks only means that banks who erroneously loaned large amounts of credit, when they really should not have, only get to continue without repercussion because we the taxpayers rode in like knights in shining armor…well, more like we walked up with guns pointed at our heads and handed over our wallets, but I digress.
The problem with the government’s intervention here is that not only does their attempts to intervene cause the boom that precedes the bust, but their attempt to bail out failing banks/industries is a direct hindrance to recovery. The direct bailouts will not only often fail even after the rapid influx of
stolen money taxpayer funds, but by increasing the length of the crash it causes more businesses to teeter towards bankruptcy. This is the “dog chases own tail” of economics. As Milton Friedman demonstrated in his legendary A Monetary History of the United States, the very actions of central banks such as the Federal Reserve not only caused a rather normal recession to become the Great Depression, they actively caused it. Interestingly, Friedman is not a member of the Austrian School as he is the penultimate example of the Chicago or monetarist school of economics. Good economics is good economics, regardless of school…except for Keynesian economics but I’ll slay that beast in another article.
What we’re really looking at here with the Austrian business cycle is a set of formulas and proofs that show that not only is a crash the natural correction of a market, but that the boom is the dangerous part. Beyond that, during a boom cycle we can detect signs that a crash is incoming and hopefully prepare for it. All of this discussion leads perfectly to the current status of gaming as an industry. Gaming has become a huge market with major releases that far outperform big names in all other forms of media. The rise of gaming as a major media has no doubt produced amazing content and made being a gamer accepted rather than stigmatized like it once was.
On the other side of the coin though, we see companies that have reduced their gaming titles to yearly regurgitation of last year while innovation is treated almost as a dirty word. Developers too often are more worried about throwing out a game in time for the crucial holiday season sales rush than anything resembling quality control or even simple testing. The proof of this is terrible glitch fests like Assassin’s Creed Unity or the PC port of Arkham Knight that quite honestly should have embarrassed anyone involved with them.
However, instead of growing steadily as a share of the media market, gaming has skyrocketed in the past few years. Especially as companies figured out you could spend as much money as you would to develop a big budget movie, but be able to make it up quicker by using that budget for game development. Not only that, but while a movie has only the box office and DVD/streaming sales to make money from, with games they’ve mastered the use of DLC as less of an extension of a fine product and more as a cash cow that makes gamers pay too often for content that is already on the disc they purchased.
A follower of Austrian economics who looks at the gaming industry objectively has to feel a tinge of worry. This industry has all the marks of a boom cycle, and we know now how that will end. The reduction of games from “let’s make a game people will enjoy!” to “Let’s make another $600 million with the same shit as last year!” has created a cynicism among many gamers – myself very obviously included – that cannot do anything but hurt the industry as a whole. Gaming has become far too homogenized as every title coming out seems to be either a brown FPS or an open world sandbox, and homogeneity is not a method of preserving a market. The record industry proved this axiom by consolidating so many radio stations into the same bland, terrible Top 40 pabulum in the last few years, that radio has become a dying industry. How many of you reading this actually listen to the radio by choice instead of your own CDs/MP3s or streaming services such as Pandora or Spotify? The gaming industry is heading for a similar crunch, and it will not be a good thing.
I’m going to do a quick aside. A lot of you out there will be saying “This is where indie games will save the industry!” or something in that vein. While there are and will be indie games that I have no qualms about calling great – Shovel Knight is the first one that comes to mind – a lot of indie games, to put it bluntly, suck ass. Too often the idea that many indie fans and developers have is that “indie automatically means good,” and this is ridiculous. It is quite literally the same idea that Call of Duty fans who only play Call of Duty have, just rehashed for indies. I say this as an unabashed fan of a large number of indie games; hell, the majority of my Vita and Steam libraries are indie titles and the Vita games I’m most looking forward to are releases of Steam indies. However, indie games are by nature a small market, almost niche, and cannot hold up the industry on their own any more than a market of just AAA titles could survive. I do believe that indie games will help hold the market up and prolong the crash but they won’t save it. It’s highly likely that they end up being the only titles available when the crash happens, but that’s just speculation. But, I have digressed.
The gaming market is already showing signs of faltering. The sheer amount of apathy shown towards many of the big studios’ showings at this year’s E3 is a fan reaction to a stagnant market. The now current generation of consoles itself is a sign of this stagnation and homogeneity. Here’s an experiment: name 10 exclusive titles for PS4 and XB1. For extra credit, name 10 that are well regarded. I’m excluding Nintendo from this because they tend to be their own niche in the market, and to be honest the Wii-U is a terrific console with a fantastic lineup of exclusives so I skewed my own experiment (*Editors Note* The Wii-U suffers from the opposite problem as the PS4 & XB1, a super low install base and virtually no third party support, hence negating any advantage with exclusives it may have). I bet you can’t name ten titles each for PS4 & XB1. I bet it’s a bit of work to name 10 period. Differences in operating system and controllers aside, the current generation is really a cross platform generation, the likes of which have never been seen in gaming. Sure, there have always been games that were available cross platform since the birth of console gaming, and there always will be. However, there has never been a generation that was as platform agnostic as this one, and to a lesser extent, the previous one.
This all encompassing bland sameness is a bad sign of forthcoming decline, and we could tell it was coming because of our knowledge of Austrian economics. Instead of a natural growth, even with a few growth spurts here and there, the gaming market has boomed in a very quick time frame. This rapid growth is even more evident when you look at how the Nintendo Entertainment System sold in the years right after the Great Gaming Crash of 1983. The market stayed healthy during gaming’s glory years in the 16 Bit Wars because the major two consoles were so vastly differentiated that competition stayed strong. We simply don’t have that now. The market has boomed itself into a corner, to use a very clumsy combination of analogies, and we gamers may very well suffer for it. Year upon year of the same drivel will lead to less people buying AAA games and in turn, new consoles which will lead to a crash in gaming. I sincerely hope I am wrong, as I do not want a crash. Like any gamer, I love gaming, but I’m afraid that all the signs point to a catastrophe. We still have time for the gaming industry to correct itself, but the leading force behind that will be us, the consumers. We have to “vote with our wallets” and buy good games to keep the market healthy. The road we’re on only leads to a dead end with a crash and burn.
Now, I realize that either gaming market – or even the gaming market as a whole – isn’t really a perfect fit for a discussion of the Austrian business cycle as credit and government intervention is not particularly a factor in either. This does not make a bad teaching tool, however. Genetics is one of the most complex and complicated sciences in all of nature yet we teach it to students with a highly simplified format based on the basics of Mendelian genetics. The classic 4 square box we all learned about in high school with its simple chromosome distribution is not really a full example of how genetics works, yet it very ably demonstrates the basic laws of genetics in an easy to digest manner. I hope you’ve found this article to be the same for a very basic explanation of the Austrian business cycle. If you want more information on the topic I could not recommend Hayek’s The Road to Serfdom any higher as a seminal entry in economic literature. As always, I hope you’ve enjoyed this article and thanks for reading.
Now go play some video games. You’ve done your learning, so you’ve earned it.