The economy as bathtub: a simple explanation
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The document presents an analogy that conceptualizes the economy as a system of circulating money between citizens, enterprises, governments, local authorities, and banks. It describes how money is added to the system through bank loans for things like houses and cars. However, it notes that much debt has accumulated as people have borrowed more than they can repay. It then discusses potential ways to tackle unemployment, such as citizens spending more or implementing incentives for more hiring, but acknowledges there are many objections to consider regarding actual implementation.
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The economy as bathtub: a simple explanation
- 1. Think of money . as water
- 2. CITIZENS ENTERPRISES GOVERNMENT LOCAL AUTHORITIES The economy, then, is like a series of bathtubs. Every month, citizens pay their bills. The money goes to enterprises, government and local authorities. As the month progresses, citizens continue to pay out and have less and less in their accounts.
- 3. CITIZENS ENTERPRISES GOVERNMENT LOCAL AUTHORITIES Time to refill! As wages , benefits, pensions etc., citizens get money from enterprises, the government and local authorities. When you present it like this, it looks as if the amount of money in the economy is constant. As long as it keeps circulating. However..
- 4. CITIZENS ENTERPRISES GOVERNMENT LOCAL AUTHORITIES Every time a citizen buys a house with a bank loan, more money is added to the economy. As the Bank provides the loan without borrowing money itself, more money enters the system. Of course, the bank loan hardly fills the bathtub with water that can be drained off. People often buy things with that money so you could think of houses and cars as bath toys sort of!
- 6. The amount of money tied up in property is huge. Many have borrowed more money than they can pay off in their lifetimes.
- 7. BANK CITIZENS ENTERPRISES GOVERNMENT LOCAL AUTHORITIES So the system looks more like this, with citizens paying interest and mortgage to the banks every month. Note that the money evaporates when the bank debt is repaid
- 8. BANK ENTERPRISES GOVERNMENT LOCAL AUTHORITIES CITIZENS (example Sweden) Monthly 350 Billion SEK Available 1700 Billion SEK Assets 4000 Billion SEK Citzens own the enterprises and the banks and it is the government that represents them so the model should look more like this
- 9. So how can we tackle. Unemployment?
- 10. CITIZENS ENTERPRISES GOVERNMENT LOCAL AUTHORITIES If citizens spent a little more money each month and if there were incentives to employ more people, more jobs would be demanded. From the model you see that citizens need spend only, say, 10% more to stimulate employment. When the jobless get jobs they will start to spend so it is only a temporary measure.
- 11. Time VAT S Current High unemployment, lower VAT HIGH EMPLOYMENT RAISE VAT VAT SURCHARGE EMPLOYMENT STIMULATION MECHANISM EMPLOY- MENT 100%
- 12. WAIT! You say .
- 13. There are so many reasons why that wont work
- 14. The richwouldnt allow you You know nothing about political economy Companies would just import more
- 15. There are 7 billion reasons why we need an economy that works for us, our planet and future generations. Join us. Join the dialogue.