The Split Velocity Test: Revealing 100% Inefficiency in the European Union’s Circular Flow of Income and Potential Recovery through SV-Tech – A 2024 Case Study

Author: Siize Gabriel Punabantu
Date: July 16, 2025

Abstract

The Circular Flow of Income (CFI) model illustrates the reciprocal exchange of resources between households and firms. The Split Velocity Test quantifies the allocation of gross domestic product (GDP) between households (labor) and capital (non-human inputs) at a point in time, revealing a structural inefficiency where resources allocated to one factor are unavailable to the other, resulting in a 100% subtraction loss equal to GDP. Using 2024 European Union (EU) GDP data from the IMF and Eurostat, we estimate the split as approximately 70.2% to households and 29.8% to capital, incorporating consumption, investment, government spending, and net exports with detailed breakdowns. This moderately consumption-heavy split supports growth but highlights infrastructure gaps and debt burdens. The inefficiency renders the economy a “zero growth” system. Split Velocity Technology (SV-Tech) can recover 0–100% of these wasted resources, potentially doubling GDP and addressing infrastructure and debt issues in approximately 0.43 years through parallel allocation. The analysis draws on classical economic theory and contemporary data, demonstrating how SV-Tech could enhance economic performance.

Keywords: Circular Flow of Income, Split Velocity Test, GDP Inefficiency, Resource Recovery, SV-Tech

Introduction

The Circular Flow of Income (CFI) model, articulated in Adam Smith’s Wealth of Nations (1776), illustrates the exchange of money and resources between households and firms [1]. Households provide labor and receive wages, while firms produce goods and services, generating revenue. However, the CFI overlooks a critical inefficiency: at any point in time, resources allocated to households (e.g., wages) are unavailable to capital (e.g., machinery), and vice versa, creating a “subtraction” effect. The Split Velocity Test quantifies this, demonstrating a 100% inefficiency equal to GDP. Using 2024 EU data, this paper derives the percentage split, highlights consumption-driven growth with infrastructure and debt challenges, quantifies shortfalls, and proposes SV-Tech for recovery, potentially doubling GDP and resolving key issues.

The Split Velocity Test

The Split Velocity Test evaluates the CFI by assessing resource allocation between households and capital at a specific moment. It assumes GDP components—consumption (C), investment (I), government spending (G), and net exports (NX)—are spent on either labor (households) or non-human inputs (capital). The methodology involves:

1. Calculating daily GDP: Annual GDP divided by 365.
2. Allocating components: C to households, I to capital, G (55% households, 45% capital), NX proportional to C/I.
3. Computing the split: Households % = (Households allocation / Total) × 100; Capital % = 100 – Households %.
4. Demonstrating inefficiency: Allocation to one factor is a loss to the other, equaling 100% of GDP.

Percentage Split for the EU Using 2024 Data

For 2024, the EU’s nominal GDP was $18.50185 trillion (IMF, Eurostat) [2], [3]. Daily GDP is $50.69 billion.

Component Breakdown:

• Consumption (C): $9.44099 trillion (51.0%).
• Investment (I): $4.07038 trillion (22.0%).
• Government Spending (G): $4.62546 trillion (25.0%).
• Net Exports (NX): $0.36502 trillion (2.0%).

Table 1: Allocation of 2024 EU GDP Components

Split: Households 70.2% ($35.59B / $50.69B), Capital 29.8% [2], [3].

Implications of the Split: Consumption-Driven Growth with Challenges

The 70.2%/29.8% split indicates a consumption-heavy economy (C, $9.44099T), supporting a population of 450M [4]. Investment (22%) supports moderate growth (1.8% in 2024), but infrastructure gaps ($10T for energy, transport) and high debt (82.3% GDP) signal stress [3], [4]. Inequality (Gini ~0.31) is moderate but persistent [5]. Compared to balanced economies like China (49.4%/50.6%), the EU’s consumption bias limits capital efficiency.

Table 2: EU Infrastructure and Debt Shortfalls

Demonstrating 100% Inefficiency

The CFI’s “subtraction effect” makes resources allocated to households ($12.23977T) unavailable to capital, and vice versa ($6.26208T), nullifying $18.50185T GDP [3]. This creates a “zero growth” system despite reported growth [2].

Recovering Wasted Resources with SV-Tech

SV-Tech enhances resource velocity, recovering 0–100% of the $18.50185T loss. At 100% recovery, GDP doubles to $37.0037T; at 60%, it reaches $29.60296T. Parallel allocation of $18.50185T/year resolves all issues in ~0.43 years:

• Debt ($15.23T): $43.26T/year.
• Infrastructure ($10.7T): $42.79T/year.
• Specific gaps (e.g., $3T energy, $0.2T space): $0.47T–$7T/year [4].

Doubling EU GDP: 2024 Case Study

Base GDP: $18.50185T. At 100% recovery, $18.50185T is reclaimed, yielding $37.0037T. Simulation: Daily households $35.59B, capital $15.10B; annual losses $6.26208T and $12.23977T, respectively.

Conclusion

The Split Velocity Test reveals a 100% CFI inefficiency, with a 70.2%/29.8% split highlighting consumption-driven growth with infrastructure and debt challenges. SV-Tech could double GDP and resolve issues in 0.43 years, enhancing the EU’s economic performance.

References

1. Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan and T. Cadell.
2. IMF. (2024). EU Economic Outlook 2024. https://www.imf.org
3. Eurostat. (2024). National Accounts 2024. https://ec.europa.eu/eurostat
4. World Bank. (2024). EU Economic Overview 2024. https://www.worldbank.org
5. OECD. (2024). Income Inequality in the EU. https://www.oecd.org
6. World Economic Forum. (2025). Future of Jobs Report. https://www.weforum.org
7. Punabantu, S. G. (2025). The Greater Poverty and Wealth of Nations. Split Velocity Solutions Ltd.