The Scarcity and Strategy simulation is not an effort to forecast or precisely follow any specific economy. The purpose here is to provide a useable model to the interested intellectual so that the remarkable accomplishments and adjustments of the market system can be better understood.


This simulation is a radical departure from the models available to the professional economist. It is relatively easy to use and integrates micro and macro in an overall system. Moreover, as the table below indicates, simulation results over long periods of time are similar to the data from national economies of developed countries all over the world (this study uses the preprogrammed simulation values – variable changes will alter results).


Scarcity and Strategy Average Annual Cumulative Growth Rates


Year          Real GDP       Real Wage Increases    Inflation




























The table values may be understood mathematically by taking the real GDP % growth for any year above and raising it to the exponent of the year e.g., the year 100 simulated GDP growth index equals 1.029^100.


Compare the above with the actual results of 20 prior years as reported in the International Monetary Fund publication World Economic Outlook September 2004, p.10 and 2007,p. 223.

Real GDP growth rates  1986-96   96-05  Inflation 89-98  99-2008

United States                      2.9         3.4                    3.3           2.6

European Union                 2.3         2.4                    ….           2.1




Note: Developed nation growth rates have declined since the recession of 2008-2009. US GDP growth 2010-2018 averages 2.25% yearly. A 2% setting for simulation investment in developed countries may now be more appropriate.

GDP growth rates for long periods are generally considered to be around 3% for the United States. Inflation was nearly zero during the 19th century (before the impact of consistent government spending) but has usually moved in the range of 1 to 3% annually in the last hundred years. Historical Statistics of the United States is a useful reference, along with various Federal Reserve websites.  The World Economy: a millennial perspective  by Angus Maddison, OECD Development Center, 2006 is available on the web and shows substantial and non-linear development paths of various regions of the world over the centuries. A fundamental concern with long range work is that prices, expenditure patterns and the structure of input –output relationships do change. Different U.S. Department of Commerce weighting systems meant that real GDP growth from 1959 to 1992 varied from approximately 2.9 to 3.2% annually.


Validity and Model Structure


There is a giant gap in validity between the textbook models and a dynamic model with the characteristics listed below. Scarcity and Strategy has the following important components of a general economic model:


Time periods are clearly defined. Models which fail to do this cannot be subject to rigorous review because their adherents waffle on when changes would occur and this makes causation even more confusing than in normal business cycle evaluation.


Price changes occur in industries and wage levels each year based on the differences in demand and supply in each market.


Elasticity of demand adjustments are calculated for price changes in each industry every year.


Average total cost per unit is available for each industry; thus profits may be calculated.


Observable profits cause industrial expansion and lack of profits causes decline in both capacity use and capacity itself.


Inventories are present and influence the business cycle in an important and normal way.


Any general economic model must have a labor market. Attempts to construct a general model without a labor market by the use of simplistic assumptions (e.g. pure competition) are intellectual failures.


Unemployment rates are generally higher for unskilled workers than for medium skilled, and are lowest for highly skilled workers.


The relatively rich (highly skilled) get relatively richer over time, the poor stay about the same.  Remember, this is the capitalistic market system.


Ratios of one aggregate to another need some rational basis e.g. unskilled wages to medium skilled wages or the costs of a manufacturing firm compared to the costs of an agricultural firm. Employment in the simulation comes heavily from services and is small in agriculture. Corporate profits have a reasonable relationship to GDP. Notice how many conventional graphical models skip almost all the details of an economy. Little wonder these models get a result determined by their assumptions and limited structure.


Most graphical models escape any validity tests whatsoever by highly restrictive assumptions. Econometric models may have four equations or hundreds of equations but basically compare their forecast results with actual results and note the range of error. The economics profession has been trying for 50 years to get good economic forecasts over time and has not succeeded – with the most troublesome problem that the data from abnormal times is not in the historical record or is not properly reflected in the averaging methodologies of current equations. Thus the great recession of 2008 was, speaking generally, not forecast.