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John Maynard Keynes versus Cities: Skylines

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If there's one thing I enjoy more than critiquing Cities: Skylines, it's... playing Cities: Skylines. I have a strict only-on-the-weekend policy which has been key to allowing me to sleep ever. Right now, I'm working on a city on a map I built myself based on Carlingford Lough, a glacial fjord on the east coast of Ireland at the border between the North and the Republic. (Though I named the city Annalong, after a town about ten miles north of the lough where my spouse and I once passed a lovely afternoon eating Chicken Maryland and watching the guillemots.) It is, I think, my favorite city I've created to date, not least because I've been playing without unlimited money or unlocks. In fact it's not really one single city; there are two major urban areas (one at the head of the lough, where Warrenpoint and Omeath are in real life, and one further south where Carlingford is) and several villages (at Rostrevor, Greenore, and Killowen, in the Windy Gap behind Slieve Foy, and atop Slieve Martin) all interconnected through an extremely baroque transportation system incorporating every transit mode currently available.

And then, a tragedy: right as my city reached a population of 100,000, a devastating tsunami roared in from the southeast (the Irish Sea is, of course, well known for those). I had actually planned for this, knowing that given the shape of the map a tsunami would be far and away the most dangerous type of random disaster, and had built an extensive series of flood walls along key pieces of coastline (despite the fact that they're horrendously unattractive). But when the tsunami came, to say that my flood walls were overtopped would be an understatement - the wave was about five times the height of the walls, and didn't actually seem to notice their existence in the least.

My city didn't stand a chance. Everything below the narrow waist of the lough, where the mountains finally dissipated most of the wave's energy, was on flat terrain and was almost entirely obliterated. That included my largest population center, where probably 80% of the buildings were wiped out instantly. The farming and fishing village on the other side was entirely leveled, as was the industrial town that housed many of my unique factories. Cities: Skylines has - for reasons I don't fully understand - an extremely detailed fluid dynamics simulator that must have taken enormous work to develop and is very rarely all that relevant, but when it is relevant it makes the terrible power of water very clear very quickly. I had emergency shelters, of course, but keeping them stocked with food in a late-game city is exceptionally difficult given some of the weird choices made by the game. In any case, they were totally inadequate for the magnitude of the problem.

Between the immediate loss of life and the emigration due to loss of services and destroyed buildings, my city's population dropped almost 97%. Obviously a city designed for a tax base of more than 100,000 can't last long with a tax base of just over 3,000, and I had just finished a major building project when the tsunami hit, so it took only a few moments for me to go into the red. (The fact that I had just finished a major building project and hadn't had time to save yet was also why I obstinately refused to simply reload my game like a clever person.) The game immediately popped up a window suggesting I take a ₡50,000 bailout loan, which would disable further achievements - and given that I was losing ₡50,000 every couple of days, it didn't seem like there was much point in giving up achievements for that. The same popup also said that I needed to immediately close my budget shortfall by raising taxes and cutting services, so I did.

But these austerity measures did nothing to actually solve the problem. Indeed, they only exacerbated it. My key services were already in terrible shape before the budget cuts due to the infrastructure damage - garbage collection, in particular, was in rough shape, since all the badly hit areas lost all their waste processing plants and were entirely reliant on garbage trucks from the northern areas. Who would move into a city with high taxes and unreliable garbage collection? In desperation, I went around the city and manually turned off almost every service building except those that were absolute requirements - power, water, and garbage - or that made me a short-term profit. (Side note: Skylines needs an info view that shows you all city service buildings and their current status.) I figured that maybe enough people would move back in that eventually I might be profitable again. Now I was asking people to move into a city with high taxes, unreliable garbage collection, and no schools, parks, hospitals, or points of interest. The first to leave were industry and offices - they had no interest in the high taxes and poorly educated workforce - meaning that unemployment skyrocketed, which further suppressed residential growth. Unsurprisingly, it was almost impossible to grow my population much past 10,000. Even with so many services turned off, the sheer size of my city and its infrastructure meant that I was still losing money by the bucketload with a tax base that small.

But what was the alternative? Turning taxes down and services up when I was already millions in the red? Well... yes. At a certain point, when I was already almost ₡20 million down, I decided I was going about things all wrong. The game was letting me run a deficit indefinitely (though it was popping up that "do you want a bailout?" question every few minutes), so perhaps the answer to my predicament was deficit spending. You can't build anything new when your budget is negative in C:S, nor can you rebuild destroyed city service buildings, but the game doesn't impose a hiring freeze or anything like that. So I raised all the service budgets back up to 100% - and turned garbage collection right up to 150% to account for the damaged infrastructure. I dropped all the taxes down to comically low and I began turning buildings back on.

Surprise, surprise: my city started growing again. Before long it was back up to 50,000 people, with as many as 500 new arrivals a week. Yes, I was still deep in the hole - I was around negative ₡30 million - but now I had a city at 50% capacity rather than 10%. You can run a city at 50% capacity - not well, mind you, but well enough to function. I brought the taxes back up a bit, and found that it didn't significantly discourage further growth... and that I was turning a profit. I can't tell you how it felt when I turned my two college campuses back on and saw them roar back to prestigious institutions with thousands of students within two years. Not only did the colleges themselves turn a profit once the population was high enough, but they allowed offices to return, dramatically increasing my tax base and lowering unemployment... which increased residential demand, which increased the number of students at my colleges, which increased office demand.

After a few hours - I confess I turned random disasters off and let it run overnight - my city's population was right back to about where it had started. I had gone from negative ₡30 million to positive ₡25 million. At last I was able to rebuild all of my damaged infrastructure and turn on every city building. My city is now happier and healthier - and richer - than it was before the tsunami.

A screenshot of my Cities: Skylines cityscape

I'm not saying all this just to talk about my Cities: Skylines game, but because I think it offers a really fascinating look at austerity versus deficit spending as solutions to a disaster or economic collapse. To be clear, I'm not claiming that this was a controlled trial and I'm certainly not claiming that Cities: Skylines is an accurate model of a real city. Real cities aren't even able to spend money they don't have the way I did; municipal governments are generally required to have a balanced budget, and while they can issue bonds, they certainly couldn't issue enough to cover a constant, massive budget shortfall. By contrast, there is no apparent maximum you can "borrow" in Cities: Skylines, nor is there interest on your deficit spending. In an actual natural disaster of this magnitude, there would hopefully have been substantial emergency funding from other levels of government (though that's hardly a guarantee), but there's definitely no real world analogue to me going ₡30 million in debt while dismissing the "do you want a bailout?" popup every few minutes. And the fact that I was able to increase funding to services but not to rebuild damaged buildings is basically the opposite to what outside funding would likely cover. (Everybody always wants to contribute to the capital budget, never to the operations budget.)

But I still find it fascinating just how stark the difference in effectiveness between the two strategies was. It was almost immediately clear once I switched to deficit funding that it was the better solution. I don't think this was programmed into the game - on the contrary, the bailout popup you see when you have a negative bank balance and negative cash inflow explicitly recommends an austerity approach. I think it's just a logical result of the assumptions built into the game - which, though not a perfect model for real life, are at least intended to look like a reasonable model for real life. It makes sense within the game that a city should save money in the good years and spend at a loss in the bad years, even though the intuitive assumption of both the players and apparently the developers would be the opposite.

The idea of "save in the good years, spend in the bad years" is about as new an idea as the Neolithic Revolution - from the very beginning, cities have been buying and storing grain during bumper crops and opening the granaries to the public during crop failures - but in the modern world it's best recognized as the key insight of John Maynard Keynes, who said during the Great Depression that "the boom, not the slump, is the right time for austerity at the Treasury." Keynesian economics was the widely accepted orthodoxy in the industrialized capitalist West from the end of WWII to the stagflation of the mid-70s, when supply-side economics and neoliberalism rose up to dominate the remainder of the 20th century and beginning of the 21st. These new philosophies were very distinct: supply-side economics held that taxes should always be kept low, especially for the rich, while neoliberalism held that the correct response to recession was austerity: raising taxes and lowering services. Sadly for everyone, they compromised at the worst possible combination, which was to lower taxes on the rich and lower services even more to make up for it. This was the response that both the US and much of Europe took in the Great Recession - as well as the policy that's been imposed on many developing nations by the IMF for decades - and suffice it to say that it didn't work out super great.

Perhaps what I find most interesting about this unintentional experiment in Cities: Skylines is not that my austerity regime didn't work, but that I tried it at all. Indeed, it was my first impulse. It makes total intuitive sense: if you can't afford to do something, don't do it. On the household level, and even to a large extent on the municipal level, we do in fact have to work this way, more or less. There are certainly exceptions - if your credit is good enough, for example, you can buy a car with money you don't have so you can go to a new job and earn the money to pay for the car - but I don't think many households would say "okay, we'll just go $30 million in debt and then things will turn around." So austerity is very easy to explain and to connect to our daily lives, no matter how much evidence we've seen that it doesn't work.

Keynes's theories, though value-neutral in principle, have been highly politicized. Today you're most likely to find Keynesians among the center-left; the center-right is doubling down on supply-side and neoliberalism, while the far right has gone right back to the 17th century to get mercantilism out of the reject pile. (On the left, the general consensus seems to be that, while Keynes had good insights, many of which apply to any economic system, the capitalist system was predestined to reject Keynesianism because not all classes suffer equally from the boom-bust cycle and the wealthy would rather lose money than gain money as long as they lose less money than the poor - an observation that, it should be noted, does appear to have accurately predicted the supplanting of Keynes's theories with austerity politics.) And of course, any idea, no matter how good or bad, stops being evaluated on the merits as soon as it's politicized. Recent events have made it clear that this even applies to ideas as simple as wearing a mask during a pandemic, so I think it's safe to assume that austerity, which at least sounds reasonable at first blush, will get tried over and over again - and defended by people who are being directly harmed by it - no matter how much evidence piles up that it doesn't work.

Of course, it is conceivably possible that austerity could work in Cities: Skylines. Presumably the amount of money you have is stored as a signed integer. So if you waited a few days - dismissing the "do you want a bailout?" popup every couple of minutes - you would eventually be down to −₡2,147,483,648 if it's stored as a 32-bit integer, at which point the value would roll back around to ₡2,147,483,647. (If it's stored as 64-bits, though, you'd have to get right down to −₡9,223,372,036,854,775,808. If I've got this math right, getting to that point by losing ₡100,000 per game week, assuming you're at maximum speed and somehow disable the bailout popup, would take a mere... 50 million years.) I don't actually know if that's possible, since Skylines alters your tax income based on your current bank balance as a game-balancing hack, but if you have the time, it's worth a shot!

About Martin Sherman-Marks:

Martin Sherman-Marks (he/him), the founder of the Charm Cities project, is also a developer, writer, project manager, Concrete Professional™, and ADHD disaster child. He lives in West Baltimore and has very strong feelings about the fate of the Red Line. He's @flying_ghoti on Twitter.

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