Summary: New research examines the way in which money circulates in the economy through two main cycles. In the 'cycle of consumers', workers earn a salary and use this money to buy the products. In the 'production cycle', the capitalists invest their wealth in the instruments of production, creating jobs, products for workers and drawing from these investment earnings for themselves.

In order for the economy of a country to grow in a healthy and sustainable way, these two cycles must maintain a delicate balance between them. If there is too much money in the consumption cycle, there are not enough goods to buy for workers and the economy goes into inflation. However, if you focus too much money in the production process, workers do not have enough money to buy products and go into recession.

Before 1980, the wealth was skewed towards the cycle of workers (in practice: too much money and few products) this has led to rampant inflation. After Reagan took power in 1980, implementing the theory of trickle down, has encouraged tax cuts for the wealthiest members of society and the imbalance has been directed elsewhere. Thus, the workers did not have enough money to buy the products, which has led, over the last 37 years, three recessions and financial crisis of 2008.

At the center of these two cycles is the Federal Reserve, which uses interest rates as a kind of safety valve to control the entry of money into the economy - a policy known as monetarism. When the balance tends too much toward the worker's cycle, the Fed may raise interest rates to entice you to save money and thus check inflation. When the balance tends too much toward the production cycle, as it is the case since 1980, the Fed lowers interest rates to encourage consumers to borrow (and spend) money. This operating principle for interest rates is called the Taylor rule.

Full text: Over the last 30 years, income inequality has grown at a pace that had never been reached just before the Great Depression.
As he tried to remind Occupy Wall Street, for example, in the US, there are 1 percent of people who earn 40 times more than the remaining 90 percent.
Although all current policies agree that, in the United States, income inequality is a real problem, nobody can come to an agreement to solve the most of the problem.
But what if he was an impartial and objective method to evaluate the causes of inequality and propose as a solution?
And if it was based on a scientific discipline, for example, the math?
According to a new report published by the New England Complex Systems Institute, math can actually be used to find a solution to economic inequality.
And as it turned out, the math indicates targeted programs that redistribute wealth to the poor as a way to bridge the economic gap and improve the health of the economy as a whole.
"We need a change of direction, but measured in the defined method to address economic inequality and economic problems," he explained Yaneer Bar-Yam, physicist and founding president of the New England Complex Systems Institute.
"We've gone too far with the Reaganomics [ie, the set of policy choices made by Member States during the presidency of Ronald Reagan, Ed], and now we have to go back to get a healthier economic growth."
The Institute of Bar-Yam uses historical data, computer models and big data to explain the most complex problems of the world (hence the name of the Institute), and find solutions.
For example, it was able to predict the Arab Spring before they happen, by relating the change in global food prices in the riots (and then was able to bring the rising prices of food in two decisions seemingly less relevant policies taken years earlier).
In the latter case, however, he was devoted to the economy.
The new research looks at the way money circulates in the economy through two main cycles.
In the 'cycle of consumers', workers earn a salary and use this money to buy the products.
In the 'production cycle', the capitalists invest their wealth in the instruments of production, creating jobs, products for workers and drawing from these investment earnings for themselves.
"We have gone too far with Reaganomics"
In order for the economy of a country to grow in a healthy and sustainable way, these two cycles must maintain a delicate balance between them.
If there is too much money in the consumption cycle, there are not enough goods to buy for workers and the economy goes into inflation.
However, if you focus too much money in the production process, workers do not have enough money to buy products and go into recession.
Before 1980, the wealth was skewed towards the cycle of workers (in practice: too much money and few products) this has led to an i nflazione rampant.
After Reagan took power in 1980, implementing the theory of trickle down, has encouraged tax cuts for the wealthiest members of society and the imbalance has been directed elsewhere.
Thus, the workers did not have enough money to buy the products, which has led, over the last 37 years, three recessions and financial crisis of 2008.
"The interesting fact is that the Reaganomics was just the right solution at that time," said Bar-Yam me on the phone.
"It has altered the direction of this imbalance in one direction, causing an imbalance in the other.
Now we are in the opposite situation, so we have to row in the opposite direction. "
"It all depends on the context," said Bar-Yam.
At the center of these two cycles is the Federal Reserve, which uses interest rates as a kind of safety valve to control the entry of money into the economy - a policy known as monetarism.
When the balance tends too much toward the worker's cycle, the Fed may raise interest rates to entice you to save money and thus check inflation.
When the balance tends too much toward the production cycle, as it is the case since 1980, the Fed lowers interest rates to encourage consumers to borrow (and spend) money.
This operating principle for interest rates is called the Taylor rule.
Let us examine this in the Complex Systems Institute graph illustrating the relationship between investment and consumption in billions of dollars.
Each red dot on the bottom is a recession occurred since 1980: 1981, 1989, 2000 and the financial crisis of 2007.
Straight lines instead show that a growing economy would be if the relationship between investment and consumption had been rebalanced.
The relationship between investment and consumption, per year, in billions of dollars.
Image: Complex Systems Institute / Yaneer Bar-Yam
Immediately after each recession, the relationship between investment and consumption is heavily unbalanced in relation to consumption, as the Fed lowers interest rates for new loans and spending by consumers.
This happened in 1990, in 2002 and more dramatically in 2008 when, for the first time in history, the interest rate of federal fund fell below 1% to help save the United States from economic crisis.
The problem is that the d 'interest rates were the lowest ever for years.
This means that the Federal Reserve safety valve to avoid an economic recession or even severe economic depression was pushed to its limits.
Reagan Since the establishment in 1980, consumers have accumulated 13 trillion dollars in debt, while investors have accumulated billions of capital.
As the chart shows, the flow is starting to head back towards the investment cycle.
This means that consumers are locked heavy burden of debt and spend less while the capitalists do not invest enough in the production cycle.
To avoid a severe recession, the cycles will have to be rebalanced.
New research conducted by Bar-Yam and his colleagues show how the adoption of a purely monetary solution to change the current US economic imbalance is an inadequate measure.
Bar-Yam likened this mechanism to groped to drive a car only focusing on the accelerator and brake pedals, with no regard to the steering wheel.
In addition to the regulation of interest rates, the search for Bar-Yam proposes the transfer of wealth to poorer sectors of society as the most effective method of shifting the balance of consumption and production cycles.
This conclusion is based on the theory of the answer, a method of treating the complex systems by changing the environmental conditions to see how they respond.
Bar-Yam and his colleagues have analyzed historical data to create models that would show how the US economy will react when you change the distribution of wealth between the cycles of production and consumption.
Their models have shown that the current approach to economic growth adopted by the Trump, reducing government spending and lowering tax rates for the rich, it is wrong.
Rather, an effective solution to economic inequality imply a calculated combination of state taxes, subsidies, corporate tax and monetary policies that enable segments the less affluent consumers to act as society.
"Consumers have a huge debt and this is a huge undertaking to limit new spending," said Bar-Yam.
"We can talk about raising the minimum wage, debt relief, proposing to eliminate debt to finance their education in the United States - basically all the maneuvers that would alter that balance should be the right thing at the moment."
Ultimately, an analysis of US systems recommended policies that promote investment in the poorest of society, either through government programs segments through higher wages.
By offering to the poorest segments of society the means to buy consumer goods, so it encourages capital investment to produce such goods.
Without this incentive, it is unlikely that the capital is invested and that the economy will grow.
The gap between the haves and have-nots has grown steadily in recent decades and now its effects are impossible to ignore.
But the search for a solution to the problem has been lost in the swamp of politics.
On the one hand, Trump and his Conservative colleagues are creating a regulatory regime that grants tax cuts to the richest members of society in accordance with the makeup of the economics of the Reagan-era trickle-down.
On the other hand, Senator Bernie Sanders and other leftists are calling for a radical redistribution of wealth from the richer parts of society to the poorest.
As pointed out by Bar-Yam, there are a number of policy solutions that can make this distribution of wealth, such as raising the minimum wage or reduction of student debt.
In any case, although the mathematical and systemic analysis may indicate the redistribution of wealth as a solution, the effective implementation of this redistribution remains largely a political issue.
In any case, good luck to those who will have to convince Trump of the need for these maneuvers.

From Vice