Production, Property and Power
Making Sense of the Economy
Many Principles of Economics textbooks include the venerable circular flow model of the economy. The circular flow diagram is a good start on the path to understanding the economy. But the circular flow diagram ignores government, it understates the importance of the future to the present economy, it cannot explain innovation, and it cannot explain capital accumulation. The Production, Property and Power model is developed to address these shortcomings.
Production, Property and Power represent three cycles of economic activity which are present in a market economy. The Production cycle is essentially the circular flow model, with interactions between people in households and firms to produce and consume the vast array of goods and services we find in a modern economy. The Property cycle explains how wealth is accumulated and how innovation and investment are financed. Property is the mechanism by which purchasing power is saved in the present economy and transported through time to the future economy. The Power cycle explains government action in the economy.
People in the economy (households, entrepreneurs, bankers and government controllers) are motivated by very human ambitions and fears and strive to make good decisions about how to use their resources. There is a tension in each cycle of the economy as the decision-makers interact. There is tension between firms and workers, buyers and sellers, banks and savers, entrepreneurs and lenders, politicians and taxpayers, and between the present and the future. This tension leads to an process of balance and disruption and rebalance and disruption. In the end, it is the stability of the processes of rebalance which allow the economy to grow and for the economy to reach higher standards of living.
The visual presentation of the economy makes it possible for students and adult learners to easily comprehend the interconnections in the modern free-market economy.
Presented at the 26th Annual Teaching Economics Conference, Robert Morris University and McGraw Hill and
at the 11th annual Economics Teaching Conference in Dallas on Nov. 5 and 6, 2015.
An article describing the PPP model, suitable for high school teachers and college teachers of Principles of Economics
Social Security Reform
Social Security Reform: Funding Paygo with Investments in Human Capital
Abstract: A reform of Social Security motivated by investment in human capital is shown to have the potential to reduce social security taxes and strengthen the economy, while putting the system on a sound economic and actuarial footing.
ISBN 978-3-8300-7882-1. - 2014, p. 37-60
Presented at 2013 Congress of Political Economists (COPE Conference) Buenos Aires, Argentina
Social Security Reform: If You Like Your Social Security, You Can Keep Your Social Security
Abstract: A reform of Social Security motivated by need to fix Social Security without raising taxes or cutting benefits. The key is to offer workers the choice of the current program, or an alternative which gives them more ownership. The reform is shown to have the potential to put the system on sound footing.
Social Security Reform: Two Essays from My Dissertation
Abstract: Here are two essays on Social Security from my PhD dissertation. The first analyzes a Hybrid Pension (and the current system) in an economy where decision-makers are subject to temptation. The second asks whether Social Security enhances welfare for individuals.
Teaching Economics: Here is a link to the video created by my Microeconomics students.
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