Welcome 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.

Background
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" dialogue.

Each 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 others—your 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.

The 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 debt—thanks 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.

In 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.

Beginning the Dialogue
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.

Flows 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 debt—signified by the shaded arrowhead.) Note that the units of the flow are in dollars per year (trillion $/year).

The 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.

Even 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.

These changes provide us a couple of important lessons:

First, 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!

Second, 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.

Together, 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.

Using the Model
To use the model, you'll need to download two files—the "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.)

1) 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).

2) Download and install the "isee Player"
• Follow the instructions on the isee Systems site.
After 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. 

This learning lab was developed using the ithink® software, a computer simulation modeling package developed and distributed by isee Systems.