Overview - Obson/MicroSim-GUI GitHub Wiki
Obson allows you to build, edit, and observe micro-economic 'models'.
A model is an idealised and simplified computer representation of the real-world economy of any sovereign state. Each model will have a number of components (or 'agents'), aspects of whose behaviour you can determine by setting up 'parameters'. You then run the model for a certain number of 'periods' and can show the results on a graph.
The agents that go to make up a model are:
- domains
- the government
- banks
- private firms
- workers
There are three 'measurables' in any model: time (in periods), balances (in currency units), and flows or transfers (in currency units per period). The 'actions', balances and transfers associated with each type of agent are described below.
Domains and Government
There is one and only one government in a domain. The original version of Obson assumed the economy was 'closed'. That is, there is no foreign trade, only one currency, and only one government. This is of course unrealistic, I am currently in the process of extending Obson to allow several domains, each containing its own central bank. The different domains will be linked via a single 'foreign sector'.
The Government is assumed for our purposes to incorporate the Treasury and the central bank. Consequently the Government (via the Treasury) creates all the money that is created. See any source on Modern Money Theory, aka MMT, (e.g. Comprehensible Macro-Economics) for a fuller explanation of this.
The Government 'sector' does not have to do very much in our models, though what it does is crucial, namely:
- financing the payment of 'public-sector' (i.e. civil service, NHS, armed services, etc) wages
- receiving taxes and pre-tax deductions
- paying for 'procurements' (goods and services purchased on behalf of the community from private businesses
- paying benefits to unemployed workers
Although we say that the Government 'receives' taxes it does not do anything with them. If this runs counter to your ideas, you should definitely read up on Modern Money Theory. However, the Government does keep track of the difference between its receipts and its payments. This difference is called a 'deficit' or a 'surplus' depending on whether expenditures are greater than receipts or vice versa. The cumulative deficit/surplus is called the 'National Debt' — for historical reasons, although it is not actually owed to anyone and is therefore not really a debt.
Conventionally the Government will aim to turn the National Debt into a real debt by 'borrowing' from the financial sector (by selling 'bonds'). At present we do not model the financial sector so this aspect is missing from the model. In practice it makes no significant difference to anything else other than that the Government will have to pay rather more in bond yields than it would if it borrowed from the Central Bank (which is disallowed in the UK) or didn't borrow at all. This means that the National Debt calculated by Obson will generally be an under-estimate. This may be changed in a later version.
It is, of course, in the interests (literally) of the financial sector to buy bonds from the government as they get a better return than they would from a straightforward bank deposit, with a 100% guarantee that they will receive the promised yield. In a sense you could say by turning the notional debt into a National Debt the government is helping to finance the financial sector.
The Government's balance is the negative of the National Debt.
Firms
For Obson's purposes the functions of a firm are:
- recruiting (hiring) and firing workers
- paying wages to its employees (and other costs)
- paying bonuses to its employees (and dividends to its shareholders)
- purchasing equipment (and advertising) to improve its competitiveness
- selling its products and services
- paying sales tax to the Government
- paying pre-tax deductions to the Government
- borrowing money where necessary to pay wages (and other costs)
- paying interest on loans
Obson does not currently model dividends, shareholdings, or advertising.
Businesses (i.e. firms) are essentially demand-led in an Obson model — that is, they recruit workers in order to enable them to fulfil existing orders. They then maintain a sufficient balance to enable them to continue to support the employees they have taken on should the number of orders drop. If there is a sustained or extreme drop to the point where they are unable to pay their employees they will either fire some of them or apply for a bank loan (which may or may not be successful).
The sum of the balances of all the firms in a model makes up the 'business sector balance'.
Government-owned Businesses
Since government-owned businesses are not in competition with one another we can safely treat them as if they were all one business. Further they do not (although they could), sell their products and services. This means that the wages paid to their employees must be spent on purchases from private firms, and this becomes a major driver of economic activity.
It follows that the size of government-owned business (rather confusingly termed the 'public sector', as in Public Sector Borrowing Requirement) relative to that of the economy as a whole is crucial. We assume therefore that rather than relying on market forces a government will determine the size of this sector 'exogenously', and we model this by setting it up with the requisite number of employees, and removing the hiring and firing functions.
The functions of government-owned business therefore differ from those of private businesses. They are just:
- requesting funds from the government in order to pay its employees' wages (and other costs)
- paying wages to its employees
- paying pre-tax deductions from wages to Government
Government-owned business cannot be led by market demand since it does not sell its product. Instead it is allocated a fixed number of employees at the start and from then on neither hires nor fires.
It is possible for a government-owned business to be demand-led if it has a product to sell. An example might be a nationalised railway. At present Obson doesn't allow for hybrid businesses like this, but a future version may.
This mechanism naturally leads to business expansion (and consequently economic expansion) as workers in the nationalised industries spend their wages on purchases from private industries. Other drivers are government procurement and borrowing (by private businesses) from banks caused by variation in demand.
Workers
Workers are recruited by private businesses as needed, in response to orders (i.e. purchases made from the business) with the exception of employees of government-owned business—which are pre-allocated at the start. All workers have the following functions:
- being hired, fired, or neither (economically inactive)
- while employed, to receive wages from the employer once per period
- while active but unemployed (i.e. fired), to receive welfare benefits from the government once per period
- while employed, to pay income tax
- to spend a certain amount each period on consumption, this amount being paid to private businesses
The sum total of the balances held by workers at any give period is the 'domestic sector balance' for that period.
Banks
Banks have two functions:
- to advance loans
- to collect interest on loans previously advanced.
A probability function determines whether any given loan request will be accepted.