The upper
diagram shows the principal factors that have an influence on the budget
deficit and indicates what needs to be done to correct it. But this is not the
full story. The diagram below shows that
cutting public expenditure reduces aggregate demand and increases unemployment. The reduction of
aggregate demand reduces economic activity which has the effect of reducing
tax revenue. In addition, the state has to pay out funds
as there is a need for more unemployment benefit payments. The result of these austerity measures is often the opposite of their intended
purpose: they can increase rather than decrease the budget deficit.
There is
plenty of empiric evidence to show that this has happened time and time again.
For instance, a report from UNCTAD (United Nations Conference on Trade and
Development) found that between 1990 and 2000 in all the cases examined where cutbacks in public
spending and tax increases were used, the fiscal situation did not only not
improve but worsened. Despite such repeated evidence, unfortunately calls for austerity measures continue to be heard.
This model simulates the COVID-19 outbreaks in Burnie, the government reactions, as well as the economic impact. The government's strategy is based on the number of COVID-19 cases reported and testing rates and recovered.
Assumptions
In the same trend that government policy decreases infection, it also reduces economic growth.
When there are ten or fewer COVID-19 cases reported, government policy is triggered.
The economy suffers as a result of an increase in COVID-19 cases.
Interesting insights
The higher testing rates appear to result in a more quick government response, resulting in fewer infectious cases. However, it has a negative influence on the economy.
Model of COVID-19 outbreak in Burnie Tasmania - Xiaoqing Ren 525418
The model shows the industry competition and relationship between Forrestry and Mountain Bike Trip in Derby, Tasmania. The aim of the simulation is to find a balance between the co-existence of these two industry.
How Does the Model Work?
Both industries will generate incomes. Firstly, income is generated from the sale of timber through logging. In addition, income is also generated from the consumption of mountain bike riders. Regarding to the Forrestry industry, people cut down trees because there is a market demand for timber. The timber is sold for profits. However, the experience of mountain biking tourism is largely affected by the low regeneration rate of trees and the degradation of the environment and landscape due to tree felling. People have better riding experiences when trees are abundant and the scenery is beautiful. People's satisfaction and expectations depend on the scenery and experience. Recommendations of past riders will also impact the tourists amount.
Interesting Insights
The income generated by logging can provide a significant economic contribution to Tasmania, but excessive logging can lead to environmental problems and a reduction in visitors. Excessive logging can lead to a decline in tourism in the mountains, which will affect tourism. Despite the importance of forestry, tourism can also provide a significant economic contribution to Tasmania. The government should find a balance between the two industries while maintaining the number of tourists.
this model shows the relationship between economic growth and government debt (just the bailout debt) and the mortgage default burden. At the current rates, the debt will never be paid off.
bailout debt, mortgage defaults and economic growth
From Jay Forrester 1988 killian lectures youtube video describing system dynamics at MIT. For more detailed biography See Jay Forrester memorial webpage For MIT HIstory see IM-184930 For Applications se IM-185462
On the occasion of th G20-meeting in Toronto, the German Economics minister Herr Schaüble said that without restoring confidence it would not be possible to get consumer spending and business investment going. Similar remarks were made by David Cameron and Señor Zapatero of Spain. All maintain that confidence is a pre-requisite to get growth going and that, therefore, it was imperative to reduce fiscal deficits. Reducing the fiscal deficit will restore confidence at first. However, reducing the deficit very quickly will introduce a dynamic that may cause the economy to decline - and perhaps depress consumers demand even further. It will actually destroy confidence: few businesses are inclined to invest in a shrinking economy. Cutting the deficit too rapidly or too steeply can lead to a confidence trap.
NOTE: A big experiment is now taking place in the UK - the government has cut public spending severely! Will this lead to hardship and, perhaps, social unrest?
