The Economics Simulation Project – Part 5

So far we’ve covered Individuals, Consumers, and the Government entities in the simulation. That leaves Vendors and Producers.

Vendors sell stuff or services to Individuals, Consumers, and to the Government entities. Right now the Vendors reflect the purchases that Individuals and Consumers typically make, based on the standard Basket of Goods and Services defined for the Consumer Price Index (CPI). Using this categorization makes some unrealistic combination of vendors, such as in the Other category, which includes cigarettes and bubblegum and other miscellaneous items. Transportation is another odd Vendor because it represents both Public Transportation and Auto Dealers. These odd combinations are not considered significant at this point in the development of the Economic Simulator, although it is expected that more detailed definitions of Vendors will become part of this project.

Vendors also buy all of their stuff from Producers. If the amount spent on clothing by Individuals and Consumers increases, then the amount of clothes that the Vendor buys from Producers should also go up. If the amount spent on food goes down, then the amount the Vendors buy from Producers should also go down.

Vendors also are employers, which means that as their sales increase, the number of employees will increase, increasing their expenses. The number of employees will be allowed to increase by fractional amounts (.13 employees) because this number represents the overall increase in their specific vendor category. If the demand goes down, the number of employees will also go down.

Producers include raw materials producers, such as miners, wheat growers, and blue jeans makers. They are both employers and sellers of stuff and services to Vendors. Employees are part of their expenses, as are buying or mining or refining materials needed to make their products. When their costs go up, their prices to Vendors go up. When Vendors order more, Producers respond by producing more. More employees are hired when they need to produce more (including fractional amounts); employees are laid off when demand goes down.

Vendors and Producers will also need to have an “Automation” factor that represents the increased productivity of workers due to automation and computerization. For example, the coal mining industry has seen significant reductions in the size of their workforce primarily due to improved coal mining equipment and techniques. For example, “hilltop removal” in West Virginia has applied open pit mining techniques to extract coal, allowing huge earth moving equipment to replace the manual efforts of thousands of coal miners. For another example, large corporations used to have entire floors of accountants tracking all of their income and expenses. These hundreds of accountants have been replaced by a dozen or so accountants working at their computers.

No attempt at this time will be made to try to track the off-shoring of work, sending manufacturing jobs oversees where employments costs are lower. At the current level of analysis, a streamlined job in the US is the same as an off-shored job; both are reductions in the costs to the Producer. Some Producers in one industry will have larger cost reductions than Producers in other industries. Some Producers will be more efficient and will drive out or absorb the less efficient Producers.

All of the churning caused by automation and computerization and mergers and acquisitions and off-shoring among Producers is not going to be captured at this point. In fact, the initial representation of ALL Producers will be a single Producer entity that all Vendors buy from. Since individual consumers account for 70% of GDP, it is more important to capture their activity with some fidelity than to capture every detail of Producers.

As with Government expenses, the reporting needs and curiosity of developers will drive the level of detail applied to the Producers. If the amount of cotton grown for clothing is important, then it will be necessary to estimate how much cotton clothing is sold by Vendors as well as what affects the amount sold (styles, product options, weather, etc). If the trade-offs between renewable energy and fossil-fuel energy need to be simulated, then those Producers and the resources they consume will need to be modeled.

Temporarily, the details of Vendors and Producers will be minimized. As their models are better understood, their models will be improved to produce finer levels of detail.

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