Version July (1, 2017
THE CORE OF THE 2052 MODEL
A general model of a modern capitalist economy
covering real and financial dynamics
Jorgen Randers, Ulrich Goluke, Beniamino Callegari
BI Norwegian Business School
Nydalsveien 37
0484 Oslo
NORWAY!
Abstract
We present a generic system dynamics model of a modern, capitalist economy.
The model reproduces the real and financial dynamics that evolve over a 20-year time horizon
in response to conventional macroeconomic policy interventions (like a tax increase, interest
rate reduction, stimulus package, higher debt ceiling, deficit spending, or an austerity
program).
The model simulates the impact on a) short-term stability (e.g. on unemployment, inflation,
and interest rates), b) long-term growth (e.g. on the rate of GDP growth), and c) average
wellbeing (influenced by consumption per person, unemployment, and inequity) of the
working population.
The model covers the real economy (capacity, output, sales, consumption, investment,
productivity, workforce, and unemployment) and the financial economy (the central bank
deposit rate, interest rates, the debt level, taxes, government spending, and inflation).
Importantly, the model tracks the distribution of income and wealth — among workers and
owners.
The model fills a gap in the current literature. It is simple enough to support the public debate
of macroeconomic issues (using conventional terminology) and still complex enough to
recreate the dynamics that most informed commentators expect from policy interventions. It
provides a consistent basis for a modern course in macroeconomics, and for continuing future
enhancements into an ultimate 2052 model.
Keywords
Dynamic model of national economy, simulating macroeconomic policy, teaching
macroeconomics, real and financial economy, business cycles, economic growth
1¢ d to jorgen.rand bi
NO
THE CORE OF THE 2052 MODEL
A general model of a modern capitalist economy
covering real and financial dynamics
Table of contents
1. Our goal — A useful model of a modern economy 4
J Improve und ling the dh ics of a modern economy. 4
2 Support the public debate on ic issues 4
3 Help forecasting of the effects ic policy interv j
4. Create a starting point for future impron 5
5 Fill a gap in the literature =)
2. Model formulation — The structure of a modern economy. 5
2.1 Main 5
2.2 Major causal loops 6
A. Profit driven growth in capacity 6
B. Balancing demand and supply 7
C. Forming interest rates and borrowing cost. 8
D. Estimating expected profitabili 9
E. iating wages. 9
F. Worker's debt and demand 10
G. Government’s debt and demand. i
H. Owners’ surplus and demand. I
L Fi a AD tap ah te Ti
2.3 Performance indi 12
2.4 Pi values 12
2.5 Theoretical support for the model formulation 12
3. Simulation experiments — testing macroeconomic policy interventions.............
3.1 The base run
Business as usual: continued economic growth towards 2060....
3.2 Policy runs — Conventional ic policy intervi
a. Higher taxes on owners 13
b. Higher taxes on workers. 14
c. Higher risk-free interest rate 14
d. Higher debt ceiling for government debt. 14
5.3 Effects of unconventional policy change 14
e. Allow consumers to borrow more (and spend the money).......
f. Allow the government to print money (and spend it).......
g. Implement a deficit funded green stimulus package......
3.3 Tentative lizati
6. Conclusions and further work 15
