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The DC Short: What do real-world economists and experts think?
🕑 Added 2025-04-05 12:23:08 +0000 UTC"Why isn't everyone in DemocracyCraft committing fraud?"
The DC Short was probably the most intense piece of investigative journalism I've done so far. The sheer complexity of DemocracyCraft's economy—and in particular, US$100,000 financial sector (at notional real money trading rates)—meant the investigation took over 3 months, 300 pages of documents, and interviews with 50 sources across four Minecraft servers.
The sheer volume of research done has meant that a sizeable amount of it has not been covered in either The DC Short I or II—some of which could be covered in a potential sequel should I wish to turn it into a trilogy in the future.
One of the more interesting aspects that wasn't covered in the videos were the opinions of the real-world advisers that I contacted throughout my research, which include those working within the real-world financial sector (or adjacent fields) and those with economics degrees. (And to any of them reading this post, thank you so much for all of your helpful contributions. I greatly appreciated it!)
Some of their analysis and ideas were directly incorporated into my video, but some were not. I thought it'd be interesting to write about some of their opinions in this behind-the-scenes post.
Should the Onyx Exchange have been bailed out?
My coverage of the 2022 financial crisis in The DC Short I had a particularly sympathetic view towards the-then finance minister Thritystone.
Thritystone gave an initial D$200,000 (US$80) bailout to the Onyx Exchange, which contained onerous conditions including sweeping structural and operational reforms, and a clause which allowed the government to nationalise it upon the then-CEO Wuutie's retirement. That bailout deal was struck down by Congress, who subjected him to a torturous two-hour long select committee hearing; lawmakers effectively forced his resignation afterwards as his position became untenable.
The animated sequence of the crash (where I let Chopin do the talking), was meant to act as a tragicomic end to Thritystone's story—a form of vindication. My rationale for this take was quite simple: I felt the mainstream view of his story was wrong.
The mainstream view can be summed up by MilkCrack, who was the-then chair of the House select committee:
Congress (the people) told [T]hirtystone in no uncertain terms, not to spend DEC [Treasury] money on a bailout for his finance cronies, and he did it anyway ... Normal people were not involved in the [E]xchange ... [o]nly a select few who knew the risk.
– 4 April 2025 (writing in response to my video)
This view—that Thritystone had engaged in corruption to bail out his cronies against the will of the people—led him to have one of the worst approval ratings for any cabinet official in DemocracyCraft's history. It would take a literal legal coup attempt by Krix and Bezzergeezer for him to not be the most unpopular official of all time.
But as I was reviewing the evidence myself, I began to find more and more holes with this view:
The terms of the bailout deal were incredibly harsh—it didn't feel like D$200,000 was just given for free (which you would expect if Thritystone had corrupt intentions). On the contrary, it felt like it was being given on a "take it or die" basis
Wuutie, the-then CEO of the Exchange, had a very different reason for disliking Thritystone from everyone else: he felt the government was taking advantage of the situation by forcefully nationalising the Exchange. He and his predecessor Zab had undoubtedly worked very hard to build the Onyx Exchange to what it was, so it felt like a personal attack for Wuutie
News articles at the time reported how Wuutie was desparately trying to strike a deal with the private sector instead. Again, if the bailout deal was meant to be some sort of corrupt deal between "cronies", why would Wuutie be so desparate not to take it?
In the end, I formed my own conclusions and decided to do a revisionist take on the story (not without criticism though, as highlighted above). However, the revisionist view also implies support for the bailout deal in the first place.
One adviser disagreed with the bailout deal, arguing that if something was too-big-to-fail, it should be allowed to fail as the market would correct itself over time. Would it really have been a good idea for the government to do a 2008-style purchase of toxic assets if those very assets were ballooned by borderline securities fraud? The post-2022 reforms, which came after the collapse of Tello, arguably wouldn't have come about had DC not suffered a financial crisis in the first place.
This, in my opinion, would've been a valid criticism of Thritystone's actions—and had this been the view of Congress at the time, perhaps my telling of the story would've had a different angle.
Should the Consumer Price Index be used at all?
In The DC Short II, I highlighted how the Fed had been overreliant on the use of the Consumer Price Index (CPI) which had several limitations:
It only tracked the sale of consumer goods within chest shops (and so didn't account for inflation within in-person shops, the real estate sector, services industry, etc.)
It had a small enough dataset where a single person could unilaterally distort the CPI data
It turned out that some people weren't using the chest shops as shops at all, but instead as a way to track company equipment (or other recording purposes)
While my conclusion was that these limitations meant that the Fed should've been much more careful in using the CPI as a metric (e.g., the fact it was giving wildly different results for month-on-month inflation vs year-on-year inflation should've led to more scrutiny), one adviser suggested that the methodological flaws of it were so great that it should've been ditched entirely.
They posited that the use of the year-on-year inflation graph (to show how the CPI didn't necessarily show there was persistent deflation) was arguably misleading because of how compressed time feels in DemocracyCraft. Indeed, as xSyncx, Chief Operating Officer of Volt Bank and finance minister, noted:
"[F]inance [on DemocracyCraft] works on a speed about 12x the speed of [real-life]"
To use a year-on-year inflation graph, then, would be analogous to us tracking 12-year changes in inflation. The sheer volatility of the month-on-month inflation graph (a more useful graph overall) should be sufficient evidence to discredit the use of the CPI entirely.
I didn't share this conclusion for three reasons:
I don't think the methodological flaws are fatal. As a different adviser pointed out, it shouldn't take long to clean the data of D$0 sales from the CPI. As for the size of the dataset allowing for unilateral distortions, I think that's unavoidable owing to the fact that the Minecraft server is just too small
Practically, the Fed is already starved of any data. The CPI was literally the only metric it had to guide its monetary policies (although it was clear the Fed didn't really take this mandate seriously in the first place). A more constructive approach would be to have more metrics inform its decision-making
I'm not sure time is so compressed to the point of rendering year-on-year inflation tracking pointless, so while the graph may be less useful, I don't think its completely useless
Why isn't everyone in DemocracyCraft committing fraud?
Perhaps no question was asked more by my advisers than this. Around three or four advisers independently asked why fraud wasn't just so much more prevalent on DemocracyCraft.
After all, it feels like DemocracyCraft is ripe for it:
You have a financial sector that's dying to give out loans, enabling you to take out potentially hundreds of thousands, if not millions, of D$ in private loans with little to no checks
You have a Treasury that's giving out huge subsidies for SMEs (with a budget of US$450/month)—and you could apply for these grants using a simple application form
You have real money trading markets (including a black market) where you could dispose of your D$ for US$, and a forex market where you could convert D$ into currency of other servers (which could potentially be sold for US$ in those server black markets as well)
So, as multiple advisers suggested, you could just infiltrate DC with lots and lots of alt accounts, take out as many private loans and Treasury subsidies as you can, and then cash it out using the RMT as quickly as possible.
I don't have a concrete answer for this, but as for some theories:
Information asymmetry: Players just weren't aware of how insanely broken the DC economy is, and so wouldn't realise they could just commit fraud on an industrial scale
Friendship: Players who would possess the knowledge to know that fraud is possible likely wouldn't commit it because they're friends with each other in the game (this is a small enough community were friendships can be relatively tight-knit)
