Why a New Model is Needed:
Rising U.S. debt and asset prices combined with a decline in economic output may lead to an economic depression.
A depression combined with the widening chasm between the right and left is fertile ground for severe unrest and possibly war.
Climate change and increasing natural resource scarcity will almost certainly increase volatility.
Improved understanding of the fundamental relationship between resource scarcity, the opportunity to pursue happiness, and short- and long-term growth is critical to narrowing the political chasm and finding a solution.
Economic Model Overview
Savings: Savings cause a delay in consumption. Increased savings cause expenditures and the demand for goods and services to decrease in the short-term. The future use of savings to purchase goods and services creates expenditures and demand to increase. Businesses hire, and unemployment declines when demand rises.
Natural Resources: The production of goods and services occurs by spending time locating, extracting, and transforming natural resources. Increasing resource scarcity causes the time needed to produce goods and services to expand, and the opportunity to pursue happiness to decrease unless productivity improvements occur.
Earned Money: The money earned and the product produced are equal. Production in modern societies involves a complex interplay of a vast array of natural resources; the production of goods, services, and capital; and the opportunity to pursue happiness. The income earned from labor compensation, profits, speculation, the control of natural resources, and government social programs is equal to the product produced. Relative income, assuming debt and savings do not change, determine what proportion of economic output individuals can consume.
Labor: Time spent at work, in the Economics of Choice, is divided between time spent at improvement, consumption, and the production of product or labor. Production time includes locating, extracting, and transforming natural resources into goods, services, or capital. Capital causes the capacity or productivity of goods and service production to increase. Economic output is equal to the time spent producing goods and services multiplied by the productivity of that time.
Product: Includes capital, buildings, infrastructure, equipment, tools, goods, materials, components, and services.
Increased Debt: Debt moves consumption forward. Increased debt used to purchase product causes expenditures and demand to increase. Expansionary monetary policy, through increased credit availability and lower interest rates, causes people to borrow and spend more.
Debt Payments: Debt payments always cause demand and capacity to consume to decrease. People sell assets, withdraw savings, or spend time earning income to make debt payments. When individuals use debt to increase productivity or productive capacity, the associated increase in revenue can more than offset the adverse effect of debt payments.
Expenditures: Businesses purchase capital to improve productive capacity or productivity and to produce other products, including goods and services. Individuals purchase time saving or leisure-enhancing goods and services.
Capital: People spend time designing, improving, and producing capital, such as tools, machines, and buildings, and additional time using that capital to transform more natural resources into products.
Infrastructure: People spend time designing, improving, and producing the infrastructure used during leisure, consumption, and production.
Goods and Services: Time-saving goods and services cause productivity in the unmeasured sector to increase. Increased unmeasured sector productivity generally leads to increased measured sector workforce participation. Leisure enhancing goods and services do not cause productivity in the unmeasured sector to expand. Time spent at leisure or producing and consuming leisure enhancing goods is not available for improvement or the provision of time-saving goods.
Provision: How people spend their time, within the constraints of natural abundance, is the most significant determinant of economic growth and the opportunity to pursue happiness. Individual values, in any given circumstance, strongly influence how individuals spend their time. Values affect economic growth, and per capita, economic growth effects values over generations.