Chris Soderquist and Bill Harris
Can We Budget for the Future?
to the first of a series of articles applying system
dynamics and systems thinking to everyday issues. We
had planned to introduce the column in late September,
but decided to wait due to the gravity of the events
of September 11. We have updated the topic to reflect
the new political and economic situation.
We have been thinking about writing such a column for
a long time. Many of us see "systems issues"
in the news, but we rarely read of systems thinking
being applied to the solution. Part of the problem is
that people have diverse and invisible mental models,
or assumptions, about most issues; the more complex
the issue, the more diverse and invisible these mental
models are. We hope this column will help create a more
collective and visible mental model about important
issues. In the process, we hope to make the thinking
about those issues more systemic by providing a modeling
tool we feel will jumpstart a "systems-based"
column will serve as an entrée into such a dialogue
and will feature something from the headlines; occasionally,
we will review a classic system dynamics model-kind
of a system dynamics history. We'll include system dynamics
model fragments in the article and post a simple but
complete model (built using the ithink® software)
on the Pegasus web site. Take the models, experiment
with them on your own, and use the online Pegasus forum
to let us know what you come up with. Who knows? You
may come up with an insight you'd like to tell othersyour
Congressional representatives, your town council, your
manager, your neighbor. We think that's good, because
then you can help raise the level of informed dialogue.
Issue in the News
Early in September, Alan Greenspan and the Federal Reserve
suggested they might need to buy public bonds due to
the shrinking debtthanks to the government surplus.
Shortly thereafter, a local paper printed a column titled
"That Shrinking Surplus" right below a cartoon
of President Bush saying, "It depends on what your
definition of 'surplus' is." These opinions changed,
of course, with the events of September 11. Now government
spending has increased for the military, homeland defense,
disaster relief, and airline bailouts. Leaders are discussing
a proposed economic stimulus package of nearly $75 billion.
this column, we'll use systems thinking to help develop
a model of how the deficit and surplus are created and
how they impact the debt. We will not provide a "solution."
Building a model that informs public policy on the debt
is beyond the scope of this column. In fact, our goal
in developing this and future columns is to communicate
a model that can be built in four hours or less. The
model is just a starting point, but it creates a common,
well-understood place to improve the dialogue about
the issue, and it may help us all learn how to apply
such thinking to other situations.
We will now introduce two key elements of systems thinking:
stocks and flows. Stocks are accumulations-they're like
bathtubs to which water is added or taken away. The
national debt is a stock. As a side note, the distinction
between the debt and the deficit is that the deficit
occurs yearly. It is the shortfall between money the
government spends and money it receives in revenues.
The debt is the accumulation of all the deficits and
surpluses over time.
are what cause the stock to change; they add and take
away what's in the stock. The flow pipe connected to
the debt adds the annual deficit to the national debt.
(It can also remove debtsignified by the shaded
arrowhead.) Note that the units of the flow are in dollars
per year (trillion $/year).
graph shows what would happen to the debt if, starting
today, the deficit behaved consistently with one of
three different scenarios. For example, if the government
spends exactly what it receives (what a strange idea!),
then the flow would be equal to 0 (deficit = 0), and
the debt wouldn't change. This is why the government
can run a surplus (negative deficit) and still have
debt. In fact, it will take several years of surpluses
to bring the debt down to 0.
before September 11, it appeared that projections for
a negative deficit, or surplus, were smaller than expected,
reduced from projections of $281 billion down to $158
billion. Spending was higher than expected due to increased
expenditures for the farm bill and defense; revenue
was lower than expected due to the tax cuts and the
sluggish economy. With the events of the past month,
we seem likely to run a deficit once again.
changes provide us a couple of important lessons:
it's difficult to forecast accurately. To forecast a
surplus for the next several years (which both parties
have been wont to do of late), you need to be able to
predict both spending and revenue for those years. Not
an easy task. Try predicting your household spending
and income for the next 10 years!
economists are discussing whether the actions resulting
from the terrorist attacks will have a positive or negative
impact on the economy and, thus, indirectly on the national
debt. Paul Krugman, in his article "The Fear Economy"
in The New York Times (September 30, 2001), claims
that any spending that results from the terrorist attacks
could have an unintended consequence of boosting the
economy. If so, increased government spending could
counterintuitively lead to a surplus again and perhaps
reduce the debt.
these lessons suggest that it's not only important to
think about forecasts but to think about how to react
if our forecasts turn out to be wrong.
To use the model, you'll need to download two filesthe
"current model" and the "isee Player"
(the ithink® Runtime for the At Any Rate
model series) that runs the model. Both are located
in the "Get" section toward the top of
the right-hand column. You'll then need to install
the isee Player on your computer. (Once you have
installed the isee Player on your computer, you
no longer have to go through this process unless
the reader is updated.)
Download the "Current Model"
Click "Current Model."
Choose "Save this file to a disk"
and click "okay."
In "Save As," save the ITR file
to your desktop (or to a folder of your choosing).
Download and install the "isee Player"
Follow the instructions on the isee Systems
you install the isee Player, to run the model, you
can go to your desktop and double-click on "model1.itr"
or start the ithink® program and use
the "file open" command to locate and
open the model1.itr file.
You are ready to begin. Feel free to play with the
model. We've put more content in it than we've described
in this column. Try different things. If you've
got an interesting idea, a question, or a comment,
go to our Pegasus
Forum. We'd enjoy hearing from you.
learning lab was developed using the ithink®
software, a computer simulation modeling
package developed and distributed by isee Systems.