Last time we broke the mainstream macro model by adding some price competition to the mix. Here’s another run with the same parameters1

(Price Shopping Model) Price Sensitive Output

Yup, still very broken.

Let’s add a Job Guarantee to this model and see how it controls the economy

(Job Guarantee Model) Job Guarantee Output

And the problem is fixed. Full employment from day one, no poverty, wages and prices stabilised. All exactly by the book.

This trace has a few interesting artefacts in it that are worthy of note.

  1. The wage slowly increases but the price of goods falls. Competition does its job and the real wage share increases over time.

  2. The Job Guarantee catches a major recession in the economy. 30% of private sector jobs are lost and yet the economy barely skips a beat. The Job Guarantee responds. Wages are reset downwards towards the guaranteed wage and the private sector rapidly recovers.

  3. There is a small amount of residual unmet demand. That doesn’t affect prices but it is correlated with the exhausting of the Job Guarantee inventory buffer. More money ends up chasing nothing much - as there isn’t anything more to buy. Firms are too busy maintaining market share against competitors.

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  1. Model parameters: Household Starting Money 3200, Firm Starting Money 0, Initial Goods Price 27, Initial Daily Wage Rate 70, JG Wage 50, JG Goods Price 50 ↩︎