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? 

Regulation of resource allocation to production in response to inventory adequacy and delivery delay. A non-price-mediated resource allocation system. From Sterman JD Business Dynamics p172 Fig 5-27

Causal loop representations of macroeconomics taken from the System Dynamics literature contrasted with Forrester's main analysis of social and business organization layers See also Saeed's Forrester Econoics IM-183285

Map of Geoffrey M Hodgson's 2015 Conceptualizing Capitalism book summary pdf

This model shows the structure and operation of a simple economy. It can represent economic systems at different levels of abstraction (e.g. a single good, a group of goods, multiple groups, & an "economy.")

This model has one significant difference from Model 4. The fractional consumption rate table serves the purpose of demonstrating the effects of changes in the fractional consumption rate (or the converse the fractional rate of saving) from 100% to less-than 100% to more-than 100%.

It demonstrates dramatically the effects of significant changes in consumption rates.

This model compares direct exchange prices to money prices. It demonstrates the distortion that monetary expansion or contraction has on the information contained in monetary pricing.

Regulation of resource allocation to service in response to service quality. A non-price-mediated resource allocation system. From Sterman JD Business Dynamics p172 Fig 5-27

Simulating Hyperinflation for 3650 days.

If private bond holdings are going down and the government is running a big deficit then the central bank has to monetize bonds equal to the deficit plus the decrease in private bond holdings.  We don't show the details of the central bank buying bonds here, just the net results.

See blog at http://howfiatdies.blogspot.com for more on hyperinflation, including a hyperinflation FAQ.

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! 

Goodwin business cycle model, modified from Keen and Blatt

Goodwin business cycle model, modified from Keen and Blatt

Goodwin business cycle model, modified from Keen and Blatt

Very basic stock-flow diagram of compound interest with table and graph output in interest and savings development per year. Initial deposit, interest rate, yearly deposit and withdrawal can all be modified.

HANDY Model of Societal Collapse from Ecological Economics Paper 

WIP Ideas from Science Special Issue May 2014

Investigations into the relationships responsible for the success and failure of nations. This investigation was prompted after reading numerous references on the subject and perceiving that *Why Nations Fail: The Origins of Power, Prosperity, and Poverty* by Acemoglu and Robinson seem to make a great deal of sense.

Very basic stock-flow diagram of simple interest with table and graph output in interest, bank account and savings development per year. Initial deposit, interest rate, yearly deposit and withdrawal, and initial balance bank account can all be modified.

Goodwin business cycle model, modified from Keen and Blatt

ECONOMIC GROWTH feeds on itself, provided the growth engine is fed with materials and finance. In this highly simplified representation  some of the factors that influence economic growth are show in the incircled green fields. Governments can influence economic growth positively via investments  and payouts. The most obvious tool which governments can use to slow an overheated economy is taxation.