The fact that the majority of people on earth, otherwise well educated, are unintiated as to economics is caused by the untransparent, uncomplete, and complex way the matter is described and explained in the accepted economics textbooks. There are several reasons why the accepted theory has failed. The many powercentres that influence the economic reality have been reduced to the functioning of free markets, the players / actors have been divided artificially in two groups that overlap, money has been given the pernicious extra role of a good, and only goods and services that can be given a price are in the picture.
With the recognizability of the daily reality being minimal in that theory it is not surprising that carpenters and bakers can predict crises as good / as bad as economists and that even politicians with a fair knowledge of the theory take completely wrong decisions.
The accepted economic theory describes the reality with a tunnel-vision; it looks easier to understand but it describes a virtual reality; and the simple solutions and decisions that can be derived thereof work only in that world, not in ours!
Here are the two main principles / elements to create the economic model to describe as close as possible and as complete as possible the reality. The insight and overview it delivers makes it accessible to the many and it is a better basis for decision taking.
- The economic reality is a collection of economic entities. They all fulfil three roles: consuming, producing, and investing. The decisions in those entities are taken by people; either living in the entity (households) or functioning in all the other types of entities.
- In the reality that all people experience there are not only transactions where goods and services are exchanged for money. There are flows for which we do not pay (air, sunlight, rainwater, vegetation, fauna…), goods and services we give to others (family members or even strangers) without expecting an immediate or postponed compensation, oneway moneyflows (subsidies, transfers), and lumpsum payments for the right to use packages of goods and services (taxes versus public infrastructure and services like protection, education, etc.).
These two starting-points can be applied to the usual grouping of economic entities: households, for-profit enterprises, not-for-profit enterprises, financial enterprises, public enterprises.
In the Economic Reality System (ERS – WWW.ECREALSYS.ORG) the Universal Enterprise Model (UEM) – the micro-economic model – describes the structure and functioning of all economic entities. They fit into the UEM with all their variations in size (financial weight) and accents / activities. The model does not show specific transactions but sorts of flows coming in and going out the entity.
The ERS uses two sets of schemes on the macro-economic level. The Economic Reality Model (ERM) shows the flows in the accepted way, easing the transition for people familiar with the accepted theory. The Input-Output set of schemes repeats that information in the proper ERS version; it is the more abstract but more correct way to show the economy on that level for the ultimately correct way to define the roles of an economic entity are: input – production – output.
In the ERS the functioning of markets is only one of many powercentres that influence the different flows. For that reason you will not find it in the ERS theory. Anybody can start the description of that intricate aspect of the economic-societal system and link it to the way ERS describes the reality.