MODERN MONETARY THEORY SHOWS HOW FULL EMPLOYMENT CAN BE ACHIEVED!

POTENTIAL GDP is a level of overall spending - by the government and the non-government sector - at which there is full employment. If the economy is not operating at its potential, then the  private sector has failed to invested or spend enough to generate the necessary growth nor has income  from net exports contributed enough. This only leaves the government to close the spending gap. Conceptually, a government disposing of its own freely floating currency could act using two powerful tools -  spending in excess of tax revenue, and taxation - to ensure that the gap between the actual economic activity and potential GDP is quickly closed. Achieving the  full employment that prevailed for 30 years between 1945 and 1975 in western economies is definitely possible! 

Modern industrial civilisation has created massive interdependencies which define it and without which it could not function. We all depend on industrial farming to produce the food we eat, we depend on gasoline being available at the gas station,  on the availability of electricity and even on the bread supplied by the local baker. Naturally, we tend to support the institutions that supply the amenities and goods to which we have become accustomed: if we get our food from the local supermarket, it is likely that we would be opposed to it’s closure. This means that the economic system that relies on continuous growth enjoys implicit societal support and that nothing short of environmental disaster or a shortage of essential raw materials will impede it’s growing indefinitely. It is not hard to work out the consequences of this situation!

Simulation of Goodwin01 Minsky Model CLD in IM-172002 Compare with Part3 slide 3 of presentation in patreon. See extension Goodwin02 at IM-172145

The World3 model is a detailed simulation of human population growth from 1900 into the future. It includes many environmental and demographic factors.

Model description:

This model is designed to simulate the outbreak of Covid-19 in Burnie in Tasmania. It also tell us the impact of economic policies on outbreak models and economic growth.

Variables:

The simulation takes into account the following variables and its adjusting range: 

On the left of the model, the variables are: infection rate( from 0 to 0.25), recovery rate( from 0 to 1), death rate( from 0 to 1), immunity loss rate( from 0 to 1), test rate ( from 0 to 1), which are related to Covid-19.

In the middle of the model, the variables are: social distancing( from 0 to 0.018), lock down( from 0 to 0.015), quarantine( from 0 to 0.015), vaccination promotion( from 0 to 0.019), border restriction( from 0 to 0.03), which are related to governmental policies.

On the right of the model, the variables are: economic growth rate( from 0 to 0.3), which are related to economic growth.

Assumptions:

(1) The model is influenced by various variables and can produce different results. The following values based on the estimation, which differ from actual values in reality.

(2) Here are just five government policies that have had an impact on infection rates in epidemic models. On the other hand, these policies will also have an impact on economic growth, which may be positive or negative.

(3) Governmental policy will only be applied when reported cases are 10 or more. 

(4) This model lists two typical economic activities, namely e-commerce and physical stores. Government policies affect these two types of economic activity separately. They together with economic growth rate have an impact on economic growth.

Enlightening insights:

(1) In the first two weeks, the number of susceptible people will be significantly reduced due to the high infection rate, and low recovery rate as well as government policies. The number of susceptible people fall slightly two weeks later. Almost all declines have a fluctuating downward trend.

(2) Government policies have clearly controlled the number of deaths, suspected cases and COVID-19 cases.

(3) The government's restrictive policies had a negative impact on economic growth, but e-commerce economy, physical stores and economic growth rate all played a positive role in economic growth, which enabled the economy to stay in a relatively stable state during the epidemic.