From Bill Mitchell and Warren Mosler December2018 billy blog entry  and mosler's MMT white paper (google docs) 2019. Some highly aggregated stocks and flows and boundaries introduced.

Neoliberalism uses a deceptive narrative to declare that money the government spends into the economy in excesses of the taxes it collects creates a ‘government debt’. In fact, the money the government spends into the economy in excess of the taxes is an income, a benefit for the private sector. When the government issues bonds, the money the private sector uses to buy them via banks comes from a residual cushion of dollars that the government already spent into the economy but has not yet taxed back.  If this were not the case, if the government had taxed back all the money it spent into the economy, then the economy could not function. There would be no dollars in the economy, since the government is the sole supplier of U.S. dollars! In the doted rectangle in the graph you can see that the dollars paid to the government for bonds sits in a dollar asset account. When the government issues bonds it simply provides the public and institutions with a desirable money substitute that pays interest i.e. Treasury bonds. It is a swap of one kind of financial asset for another. To register this swap the government debits the dollar asset account and credits the bond account.  When the time comes to redeem (take back) the bonds, all the government does is revers the swap, and that’s all!  When you look at the total amount of finacial assets in the private sector,  these remain constant at $ 25 BN  after the payment of $ 5 BN taxes. This implies that  no lending of financial assets of the private sector to the government has taken place during the swap operation. The money was always there. The debt mountain is an illusion!

The simulation integrates or sums (INTEG) the Nj population, with a change of Delta N in each generation, starting with an initial value of 5.Nj+1 = Nj  + mu (1- Nj / Nmax ) Nj

Delta Nj: is the “change in number of items” as we go from the present generation into the next generation. This is just the number of items born minus the number of items who have died.

mu: is the growth or birth rate parameter, similar to that in the exponential growth and decay model. However, as we extend our model it will no longer be the actual growth rate, but rather just a constant that tends to control the actual growth rate without being directly proportional to it.

F(Nj) = mu(1‐Nj/Nmax): is our model for the effective “growth rate”, a rate that decreases as the number of items approaches the maximum allowed by external factors such as food supply, disease or predation. (You can think of mu as the growth or birth rate in the absence of population pressure from other items.) We write this rate as F(Nj), which is a mathematical way of saying F is affected by the number of items, i.e., “F is a function of Nj”. It combines both growth and all the various environmental constraints on growth into a single function. This is a good approach to modeling; start with something that works (exponential growth) and then modify it incrementally, while still incorporating the working model.

Nj+1 = Nj + Delta Nj : This is a mathematical way to say, “The new number of items equals the old number of items plus the change in number of items”.

Nj/Nmax: is what fraction a population has reached of the maximum "carrying capacity" allowed by the external environment. We use this fraction to change the overall growth rate of the population. In the real world, as well as in our model, it is possible for a population to be greater than the maximum population (which is usually an average of many years), at least for a short period of time. This means that we can expect fluctuations in which Nj/Nmax is greater than 1.

This model simulates a COVID outbreak occurring at Burnie, Tasmania. It links the extent to the pandemic with governments intervention policies aiming to limit the spread of the virus. The other part of the model illustrates how will the COVID statistics and the government enforcement jointly influence the economic environment in the community. A number of variables are taken into account, indicating positive or negative relationship in the infection and the economy model respectively.

 

Assumptions

·         Government takes responsive actions when the number of acquired cases exceeds 10.

·         Government’s prompt actions, involving closure of the state border, lockdown within the city, plans on mandatory vaccination and testing, effectively control the infection status.

·         Economic activities are reduced due to stagnation in statewide tourism, closure of brick-and-mortar businesses, and increased unemployment rate, as results of government restrictions.

 

Insights

Government’s rapid intervention can effectively reduce the infected cases. The national vaccination rollout campaign raises vaccination rate in Australians, and particularly influence the death rate in the infection model. Please drag the slider of vaccination to a higher rate and run the model to compare the outcomes.

Although local economy is negatively affected by government restriction policies, consumer demand in online shopping and government support payments neutralize the negative impact on economy and maintain the level of economic activities when infections get controlled. 

Overview of Part G Ch 27 to 30 of Mitchell Wray and Watts Textbook see IM-164967 for book overview

A government deficit means that more money has been transferred in the form of payments or investments from the government sector to the private sector than the government has received in taxes. As shown in the drawing,  GOVERNMENT DEFICIT = INCOME AND SAVING for the private sector. Not all the income transferred from the government to the private sector will be employed and some of it will be saved in bank accounts. It is therefore correct to say that Government Deficits lead to Private Sector Saving. It is equally true to say that Investment  leads to Saving. This is important because in the current recession one of the major problems is the massive amount of private debt. In these circumstances a cumulative government deficit is necessary to help the private sector save and repay some of its debt. Note: I have not taken into account the foreign sector here which can also contribute to private sector income and saving.

An initial study of the economics of single use coffee pods.