Growing an economy requires spending. But what does a bathtub have to do with this?
If you will imagine the perfect amount of water is a line in the bathtub that represents full
employment, and a perfect amount of inflation. A good and healthy economy is not more than
recognising you have a tap and a drain.
Okay there are leakages that go down the drain and, take water out of the bathtub moving us away
from the goal.
>Every bit of money we save and do not put back into the economy is water drained
>Taxes could also be considered a leakage
But it is not all bad because what goes down the drain can also symbolise liquidity and make for a
dynamic economy. What we are trying to say is that it is not all bad because we do not only have
leakages. We also have the tap that puts water into the tub.
One way the central bank setting the monetary value because the set the source of financial liquidity
and this is all determined from the tap.
To put this simply. Think of the water as money. The economy, then is like a series of bathtubs. Every
month, citizens pay their bills and taxes. Then that money goes to enterprises, the government and
local authorities like the fire department or the police. As the month progresses citizens continue to
pay out and eventually have less and less in their accounts. Now it is time to refill! As wages,
benefits, pensions etc. get paid out, citizens get money back from enterprises, the government and
local authorities. It is almost as if the amount of money is constant if it keeps circulating. However..
Think of someone buying a house with a loan. More money is actually added to the economy
because the bank provides the loan without borrowing money itself, so more money enters the
system. Oof course, this money hardly fills the bathtub. People often buy things with that money so
you could think of the bought items as bath toys.
Additionally, every time someone in the world buys something produced locally from us, they also
put water in our tub. In essence what we have are these 2 flows correct? The drainage and the
addition of water. Water in and water out. The big question is, which is more? Because it can
ultimately only mean one thing. If more water is going out than coming in, then the water level is
ultimately sinking and if water is going in faster than out then the water level is going to rise. So, the
trick is, to figure out a way to regulate these flows, so the water level hits perfect spot, because you
don’t want inflation, overflowing of your water level or a recession, not enough water in the tub.
Tackling unemployment? Easy in theory. If citizens spent a little more money each month, and if
there were incentives to employ more people then more jobs would open up and be demanded. We
are not talking about a huge amount. A mere 10 percent would be enough to make a significant
difference and pump a lot of money into the economy. A lot of people currently not spending or
spending too little would start spending again and putting water in the tub.
We honestly think the tub analogy is a great way to explain how an economy works and the intricate
adjustments required to keep it steady and healthy.
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