The Metro Outlook 2.0 Model

Development of the Model

Development of the Metro Outlook model began with the context for individual decisions, the social system, described previously.

Next, we add the economic system.

To support themselves and their families, people form or join businesses. Businesses, in turn, organize this infusion of human capital to create wealth by producing goods and services for trade.

Trade increases wealth by enabling specialization: if you do what you do best and I do what I do best, and then we trade, both of us are better off. The resulting trade flows create income for individuals and profits for firms that become the subject of multiple spending decisions. 

Income can be either consumed or saved. If consumed, the spending creates demand for additional production. If saved, it can take the form of public savings (taxes) or private savings (individual savings or retained earnings of businesses). 

Taxes go to governments which invest in people and place by providing services such as police and fire protection, funding schools, investing in public infrastructure, or funding other institutions such as nonprofits and cultural institutions. 

Most retained earnings are reinvested in existing businesses as they purchase the economic capital — equipment, software, facilities — needed to make themselves even more profitable in the future. Some is also used to fund the start-up and capital costs of new businesses.

Individual savings may also be invested in businesses, but most is invested in communities in the form of housing.

Both businesses and individuals use a portion of their savings to make contributions to worthy causes, often through nonprofit institutions and foundations.

The ultimate distribution of income and profits generated in the economic system is largely governed by the incentives and rules created through the policies developed in the social system. (Flows between systems are shown as dotted lines in the image. They are sometimes less easily observed or less often considered than the solid lines within the system.)

The physical capital requirements of businesses are not met by the economic system alone.  The raw materials out of which buildings, machinery and roads are made and the land upon which communities and cities are built come from the next addition to our model, the natural system>>.

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