RALEIGH – The New Year’s Eve holiday at the Hood command center was pretty much a combination of the Sci Fi Channel’s Twilight Zone marathon and nonstop MMORPGs.
As in massively multiplayer online role-playing games. Last year’s addition to the ultimate gamesters lineup was City of Heroes, the superhero game that lets you create characters right out of your comic-book dreams and have them clean up the streets of Paragon City, Rhode Island (yep, it’s set in Rhode Island, perhaps a state incentive grant was involved). This year’s acquisition, from the maniacally gaming Uncle David, was Star Wars Galaxies, which lets you do pretty much the same thing (well, except for the Rhode Island part, though it might be fun to march a Wookie commando through downtown Providence).
Last year, I observed that online gaming offered a powerful competitive threat to other forms of media, particularly television. The prophecy came true in the Hood household, as our TV watching during 2006 was down significantly from the year before. On the other hand, it’s also worth thinking about how gaming sometimes acts as a complementary good. Because the boys and I have been adventuring on Tattoine and such, we’ve talked about watching a Star Wars film sometime this week. Charles Alexander, the Little Conqueror, also showed a great deal more interest in the Star Wars miniatures Santa brought him this year than I would have expected, acting out a recent online adventure on my countertop.
Talking with a range of teens and young people this week, it’s become clear that the Hood experience during the holidays has not been unique. New games, consoles, software, the new Wii system – gaming has become central to modern entertainment and a major moneymaker for media companies. It won’t be long until video and computer gaming becomes larger than the film industry in annual sales, if it hasn’t already happened.
While the external economics of the gaming industry have escaped the notice of few, the economics within the games themselves have only recently started attracting interest. Some of the interest will be welcome and generate fascinating insights into trading systems and spontaneous orders. Other interest will be unwelcome and generate exasperating insights into public policy.
The Internal Revenue Service, it seems, has discovered online gaming. Specifically, the IRS has realized that real human beings earn real income within online fictional worlds, by trading accumulated loot or credits for dollars or other “official” currency. Under current law, those who play MMORPGs for keeps, as it were, should report their income just as gamblers and other offline gamers do. Most probably won’t, though. And because few gamers could realistically be earning that much money playing MMORPGs, it’s not worth it for the IRS to try to do something major about the lost revenue.
What’s even weirder, however, is the suggestion that when gamers earn online income – within the game, I mean, and intended to be spent only within the game – that might itself be a taxable event. In Jonathan Last’s Weekly Standard piece on this, a quote from Indiana University economist Ted Castronova puts it starkly: “”From the standpoint of economic theory . . . there’s no fundamental distinction between selling euros and buying magic wands.”
Welcome to 2007. If you feel a little out of step, I’ll be happy to bring you up to speed with a guided tour of the safer districts of Paragon City – for a small fee, payable in nontaxable (for now) game credits.
Hood is president of the John Locke Foundation.