Summary of Thinking in Systems by Donella Meadows: Part 3

One-Stock System with Two Competing Balancing Loops

• What happens when there are two feedback loops that try to drag a single stock toward two different goals? A thermostat that’s connected to a furnace in order to regulate the heating of your room is an example of this.
• When the room temperature falls below your desired thermostat setting, the thermostat sends a signal to turn on the heat flow from the furnace, warming the room. Let’s say that you start with a cold room with the thermostat set at 18°C (65°F). If there were nothing else in this system, the furnace would turn on and warm up the room. Then, when the room temperature reaches the desired setting, the thermostat turns off the heat flow, and the room stays at the target temperature. This is a straightforward, stock-maintaining, balancing feedback loop.
• However, this is not the only loop in this system. You see, heat also leaks out to the outside. And this outflow of heat is governed by the second balancing feedback loop. It’s always trying to keep the room temperature equal to the outside temperature, just like a cup of hot tea cooling.
• The thinking here is that room insulation isn’t perfect. And as a result, some heat leaks out of the warm room to the cool outdoors.
• What happens when these two loops operate at the same time? If there’s enough insulation and a properly sized furnace, the heating loop will dominate the cooling loop. Then you end up with a warm room, even when starting with a cold room on a cold day.

Surprising Behavior

• The thermostat is set at 18°C (65°F) in this example, but the room temperature levels off slightly below 18°C (65°F). And this is because of the leak to the outside, which is draining away some heat even as the furnace is getting the signal to put it back.
• This is characteristic of a system with competing balancing loops.
• With heating systems, you may need to set the thermostat slightly higher than the actual temperature you’re aiming at. That way, you can make up for the outflow of heat.
• For some systems with competing balancing loops, the fact that the stock goes on changing while you’re trying to control it can create some challenges.
• Let’s say you’re trying to keep a store’s inventory at a certain level. You can’t instantly order more stock to make up for a shortfall. If you don’t account for the goods that will be sold while you’re waiting for the order to come in, your inventory will never be high enough.

Two Important Principles

• There are two important principles to note from the examples of feedback loops.
• The first principle is that the information delivered by a feedback loop can only affect future behavior. This means that there will always be delays in responding. In other words, a flow can only react to a change in stock. And, it can only do this after a slight delay to register the information. In the bathtub, it takes a split second to assess the water level and decide to adjust the flows.
• The second principle is that in thermostat-like systems, you must remember to take into account whatever filling and draining processes are going on. Because if you don’t, you won’t achieve the target level of your stock. Again, let’s say you want your room temperature to be at 18°C (65°F). If so, you have to set the thermostat a little above the desired temperature. In other words, if your mental model doesn’t include all of the flows, you’ll be surprised by the system’s behavior.

Breakdown Point

• Every balancing feedback loop has its breakdown point. This is where other loops pull the stock away from its goal more strongly than it can pull back.
• In the thermostat system, this can happen if you weaken the heating loop with a smaller furnace that can’t put out as much heat. Or, it can also happen if you strengthen the power of the cooling loop with a colder outside temperature or less insulation.
• Just as in the bathtub example, when the furnace is putting in more heat than is leaking out, the room temperature rises. But when the inflow rate falls below the outflow rate, the temperature falls.
• If you study the two competing balancing loops and how they shift in relative strength to each other, you’ll get a good sense of how they lead to the system’s behavior over time.

One-Stock System with One Reinforcing Loop and One Balancing Loop

• What happens when a reinforcing and a balancing loop are both pulling on the same stock? This is a common and important structure, since it describes the nature of populations and economies.
• An economy has a reinforcing loop causing it to grow. The greater the stock of physical capital (machines and factories) in the economy and the efficiency of production (output per unit of capital), the more output (goods and services) can be produced each year. The more output that’s produced, the more can be invested to make new capital. The greater the fraction of its output a society invests, the faster its capital stock will grow.
• The balancing loop causes an economy to decline. Physical capital is drained by depreciation, obsolescence, and wearing out. But the longer the lifetime of capital, the smaller the fraction of capital that must be replaced each year.
• Let’s say that the amount of output it invests and the amount of capital that must be replaced are constant. As long as this is the case, then the system has a simple behavior. It grows or declines, depending on whether the reinforcing loop determining the amount of new capital is stronger than its balancing loop determining the amount of capital that’s lost through depreciation.

Shifting Behavior

• This is an example of the shifting dominance in a feedback loop. When one loop dominates another, it has a stronger impact on behavior. Since systems often have competing feedback loops operating at the same time, the loops that dominate the system will determine its behavior.
• There are only a few ways a system with one reinforcing and one balancing loop can behave. A stock will grow exponentially if the reinforcing loop dominates the balancing one. It will decline if the balancing loop dominates the reinforcing one. It will level off if the loops have equal strength. Or, it will do a sequence of these things, one after another, if the relative strengths of the two loops change over time.

Testing the Value of a Model and its Scenarios

• Whenever you’re confronted with a scenario, there are three sets of questions that you can ask in order to help you decide how good a representation of reality the underlying model is:
  1. Are the “driving” factors, or the feedback loops, likely to unfold this way? What if the driving factors do different things?
  2. If the driving factors did unfold this way, would the system react this way? Does the model capture the inherent dynamics of the system?
  3. What is driving the driving factors? Are the driving factors actually independent, or are they also embedded in the system?

Sources of Growth

• Whether the economy with physical capital grows, stays constant, or declines in the future depends on whether its reinforcing growth loop remains stronger than its balancing depreciation loop. And that, in turn, depends on three things:
  1. The investment fraction, or how much output the society invests rather than consumes,
  2. The efficiency of capital, or how much capital it takes to produce a given amount of output, and
  3. The average capital lifetime.
• If a constant fraction of output is reinvested in the capital stock and the efficiency of that capital is also constant, the capital stock may decline, stay constant, or grow depending on the lifetime of the capital.
• With a somewhat short lifetime, the capital wears out faster than it is replaced. As a result, reinvestment doesn’t keep up with depreciation, and the economy slowly declines. When depreciation is equal to investment, the economy is in dynamic equilibrium. But with a long lifetime, the capital stock grows. And the longer the lifetime of the capital, the more it grows.
• This is another example of a principle we’ve already covered: You can make a stock grow not only by increasing its inflow rate while keeping its outflow rate the same, but also by decreasing its outflow rate while keeping the inflow rate the same.
• The central question of economic development is how to keep the reinforcing loop of capital accumulation growing faster than the reinforcing loop of population growth, so that people are getting richer instead of poorer.

Key Insight

• A central insight of systems theory, as central as the observation that systems largely cause their own behavior, is that systems with similar feedback structures produce similar behaviors. And this happens even if the outward appearance of these systems is completely different.
• A population appears to be nothing like an industrial economy, except that both can reproduce themselves and grow exponentially. And both also age and have a lifetime.
• A cup of hot tea cooling is like a warm room cooling. Each declines as a result of a balancing feedback loop.

Click here to review part one of this summary, and here to review part two.

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