The economy and why the rich need the poor

The motivation for the model:

A number of question arose from several threads on LinkedIn, within projects for the Federal Environmental Agency and from my discussions on a banking congress. The question always was whether rich people need the poor people, whether poor people should get more for the benefit of the rich people, whether more sustainability makes everything more expensive or whether environmental costs and the rising costs of resources harm the economy at all.
As my mental models on these questions stem from a number of different models I thought it would be time to put them to test in a new, qualitative and maybe even quantitative model.

The result is a yet simple model looking at two kind of people in our country: those who pay interests and those who accumulate money and receive interests. "our" refers to those who have money as this model is a reaction to the question whether rich people need poor people.
Within the presenter I show the development of the model that started with some simple thought experiments. At the end you will see the comprehensive model with its 31 factors and 76 connections that form 563 feedback loops and offer a lot insights - even more than I will present here.

The main conclusions from the model:

If there weren't the many poorer people and new enterprises and developing regions in the world no one would need credits, no one would be richer than others or that wealthy (many things are affordable only because of low wages), the state wouldn't have to raise so high taxes and pay interests to the rich, and our felt wealth is only relative to those who have less. The taxes however are for the benefit of the rich people. More even of benefit are the state's debts for the rich people as they need ways to increase their money through interests.
Creative financial products are good for the rich, but in the long run they might lead to social catastrophes. Lower wages and high productivity are also good for the rich people as are even the increase of resource prices as long as we stay productive enough to supply the technology to go after the remaining resources.

Looking at this model it seems as if the neoliberalism continues to work well for the rich people. Although the model doesn't include the middle class they might be crucial. As long as due to increased overall productivity a crucial mass of people seems to have more material wealth or the chance to get to it they won't change the system e.g. by voting for alternative parties. But if we look for example at Europe as a whole we can already see the potential for social tensions due to the rise of productivity, social inequality, and the shift to other markets.

Here is a nice video showing the situation in the US:

Where was my mental model wrong? Well, environmental boundaries and the increase of resource prices probably have less impact on the economy than I expected. The impact is rather longterm resulting in less wealth for the poor and an irreparably decrease of so called environmental service. The increase of costs of impacts on health and the environment however bear themselves economic opportunities.

In the presenter I have collected the different stages of the development of the model.

Let me know what I may have missed. Happy modeling
Kai (info@ilsa.de)

I started the model (descriptively) with a basic loop of economics.

Savings would mean not enough spendings that allow for our own sales, but ...

... in principle saving are used for spendings.

So, with this basic loops it would be possible to have just a small elite of wealthy people. But crucial to our wealth is also the price of goods and services.

And as we don't want to pay a lot for basic services (nurses, craftspersons, bus driver, factory workers ....) we need to have people with lower income.

Also we need to be competitive in order to generate exports as we cannot live without imports.

If we add interests the model already shows a lot decisive feedback loops. With interests wealth is increasing in reinforcing feedback loops, while the side effects on the spending power and the price of products lead to balancing feedback loops that limit the increase of wealth.

This advanced state of the model shows the central role of sales and the large number of people with lower income. The colors of the arrows show some selected mechanisms, the flow of financial markets, that of the real economy and some side effects.

Almost the final model. The Insight Matrix of the central target factor "overall wealth" ....

.... shows that a shift towards more sustainability wouldn't lead to more wealth, but if we enlarge the model ....

... and see "happiness" as the goal the values added by sustainability would show another Insight Matrix:

People with lower income are in any case important for wealth and happiness. Only if we look at the negative factors we recognize the potential danger of a too small income.

From the perspective of the rich people's wealth more people with lower income seem to be crucial while fewer jobs pose an increasingly negative impact. If we look at the connections between people with lower income and our wealth the underlying reasons become clearer (put our wealth into the center of perspective and then choose menu ... show connections ... and select people with lower income).
As it turns out we need people who make debts and we need people who work for less to increase the productivity of our productions and lower the prices of our consumptions and pay at least a small part of taxes.