Thinking in Systems, Ch. 5: System Traps

i'm going through chapter five of this book thinking in systems and the title of the chapter is system traps and opportunities i didn't include opportunities up there because a lot of these are very deeply entrenched problems in systems and um well i do think it's important to keep things hopeful i think calling these opportunities is just a little bit beyond the pale so all of these are things that are known to economists but what i'm actually going to do in this video is sort of go through these one by one and give one of the

examples from her book and try to visualize it using her system of stocks and flows and feedback loops because of course it's the same concepts as an economics it's just worth thinking about it from a slightly different perspective so the the eight traps she comes up with are policy resistance from the population when policymakers implement a policy tragedy of the commons that comes from economics drift to low performance escalation success to the successful which exacerbates inequality of course addiction rule beating or going with the letter of the law rather than the spirit of the law

and seeking the wrong goal okay so first one is policy resistance and the example she gives in the chapter is a country that's trying to increase their population because maybe people have just stopped having babies in that country and that creates economic problems down the line so the policy makers may come in and try to pass a policy that bans abortion with the intention of increasing birth rates and birth rates of course are flow the population is the stock so let me just label that and one thing i want to note when it comes to

feedback loops is that feedback loops actually influence flow so this is actually not different than that flow we keep in mind that there are a lot of different types of flow in and out of the population there's death could be one flow i could write another arrow and say immigration to other countries is another type of flow that matters um so lots of types of flow exist and the feedback loops sort of act as part of the flow so in this case um the abortion rate is meant to but by banning abortion that's meant to

create this positive feedback loop that's going to increase the population it's intended to at least um but there is going to be instead a balancing feedback loop that when you pass the abortion law the population doesn't like that so they will take all kinds of effort to resist that law that means there's going to be underground abortions that means there's going to be all kinds of like an increase in other types of birth control there's going to be all kinds of population responses to try to resist it and that means this feedback loop that was

supposed to increase the population because of that resistance that's actually going to sort of pull the population back to what it used to be and so the feedback loop that was intended to change the size of the population ends up not working and her two solutions to this one are for one to let go like if there's a whole bunch of resistance to policy a lot of times that resistance becomes deeply entrenched and that can make things actually worse than even they were before the law went into place so she says let go and then

try to develop policies that are aligned with the incentives of the population so her example in that case was maybe in a country uh people weren't having children because they had they were in really small living quarters and having children in a one-bedroom apartment isn't great so you could create policies that enable people who have children to move to bigger bigger houses or what not subsidize bigger houses for people who have babies and that would be better aligned with people's incentives such that the feedback loop had more of a chance of sort of getting going

to increase the population rather than creating all of this resistance from the population okay so we have the tragedy of the commons and the classic example there is uh the fish population in a pond or in a lake where the fishermen are all fishing fishing out too many fish such that the population is of fishes becoming smaller and smaller and smaller and eventually may go away if people don't limit how many fish they take out of the pond because of course fish are a renewable resource so to make sure that renewable resource is sustainable you

need to make sure people aren't fishing out to money to keep the population up to date or keep the population going that's the tragedy of the commons because the individuals sort of acting out of their own self-interest and eating as many fish as they want end up using up the resource for the entire population now the entire population is also engaging in this it's people sort of individually optimizing their own utility and that that leads to a situation where the population is disadvantaged collectively that's the tragedy of the commons now the feedback loop you would

want is some feedback loop where if the fish population started to shrink too much you would want some feedback loop where the population sort of noticed there was a problem and did something to address it to bring that fish population up or to limit people's overuse of the fish and what could this feedback loop be that will stop the stock of fish from shrinking naturally due to the tragedy of the commons well she gives a couple of solutions which are also solutions that economists talk about her solutions are to educate and exhort to privatize the

commons or to regulate and educate and exhort would mean sort of making sure everybody in the population knew that if we all fish too much then we're all going to starve once the fish population is used up and exhort is basically shame and make people feel some kind of social incentive that they want to be community players and only fish the amount that's that's sustainable for the population that's the educate and exhort solution privatize the commons and that whoever owns that lake has an incentive to put in place whatever essentially regulations and whatever exhortions need

to be in place to make sure that the the lake is producing fish year after year and then of course the the final one is regulate as government the next trap is the drift to low performance trap and this is something that happens a lot with say government agencies where there's a certain amount of effort expected of people in the agency but how do you keep people's effort up how do you sort of let them know they're above standard or below standard or give them a kick in the pants to get them moving well a

lot of times they figure out how much effort they need to put forward by comparing themselves to others so there's a feedback loop where they put forth effort they wonder is this worthwhile and if they have an information loop where they're sort of comparing themselves to others and they end up comparing themselves to people putting forth less effort that feedback loop is going to say okay actually i don't need to put as much effort in that's going to reduce the stock of effort and that can lead to this sort of spiral downward in in performances

and part of this is due to sort of ego that we tend to prefer to compare ourselves with people putting forth less effort we tend to be more skeptical about people who are high performers we come up with excuses like that's probably not real they probably are exaggerating how well they're doing and because of this natural sort of tendency of the human brain to uh interpret the world in ways that that boost our own ego you can get this feedback loop that leads to a decline in performance over time now i will say that effort

could be more of a flow variable generally because it's something that you're sort of constantly putting forward rather than existing in a snapshot in time but i also think you can think of effort as sort of this effort capital that might exist naturally within a company which would be like just the natural effort people will put forward when they show up to work on a normal day and her solution to this problem is to just make sure performance standards are high to make sure that people are comparing themselves to top performers and that they're not

discounting those top performers performances in their own minds that you sort of don't allow them to say oh that person didn't really perform that high you say no actually this is the standard we expect from people and we're going to hold you to it okay the next one is escalation and the classic example here is two kids who get into a fight where one of them does something kind of mean and the other one has to out do that meanness by getting back at them the other one sort of gets back at them in a

higher way and it leads to this escalation and the fight between them in other words you have a stuck of goodwill between the siblings and there's a feedback loop where one of them does something small the other has to outdo them that shrinks the stock of goodwill which further leads to retaliation and re-retaliation which shrinks the stock of goodwill and of course this can happen between countries this can happen between competitors if competitors are constantly trying to outdo each other with investment in research and development or with undercutting prices and it can happen so much

that companies end up losing money by undercutting each other too much but i think the main place that escalation happens is sort of ego driven escalation where it's all about getting back at that other person who's shown you disrespect there's something about the human heart that reacts strongly to provocations and that can lead to this feedback loop and in her solution to this i mean her main solution is to just not get yourself into an escalation situation to begin with another solution she had was to stop engaging which works well in some scenarios and in

other scenarios maybe the game theory doesn't quite work out that well she also had a solution of negotiating a new equilibrium her next trap is success to the successful and this happens when in a system you have a situation that may start out a little bit unequal but there's still a lot of shared prosperity and you you have a situation where okay opportunity is distributed fairly equally but then once one person or group gets a little bit of power in the system are a little bit of advantage they use that to get more advantage for

themselves in the system and this can be the rich people sort of making sure that the private schools and the colleges that lead to the highest places in society have spots for their kids and sort of crowd out spots for other kids and a lot of these system traps actually do relate to the concept of crowd out in economics so if you start out with equal opportunities spread across much of the population through educational upward mobility and sort of some version of meritocracy you can get this situation where um some people get power they're ambitious

and they use that power to expand access to their social circle and their children and that those avenues of upward mobility that they kind of take over using their money and power that they've gained through the system that crowds out opportunity for other people which shrinks the stock of opportunity equity or opportunity equality her next system trap is addiction dependence or shifting the burden to the inventor and her example here the classic example is the addiction example where you have some stock of chronic pain you would like that stuck to reduce to make other parts

of the system work better and so you have some inventor someone who comes up with a solution to this that's supposed to lead to a feedback loop that will shrink the stock so the pain pill that inventor came up with is supposed to shrink the stock the problem really is that it crowds out the other mechanisms in the system to address the chronic pain so some of the mechanisms for addressing chronic pain are getting healthy exercising spending time with friends spending time in nature there are a whole bunch of things that people will do to

try to naturally get the the pain out of their life sometimes when you uh give them a pain pill if that pill is addictive um the person can sort of rely on the pain pill um to address the pain especially if it works in the short term and makes the problem bigger in the long term it crowds out these other efforts inside the system or these other sort of natural feedback loops in the systems we might think of those other natural feedback loops as being natural ways of reducing chronic pain that this mechanism comes in

and provides this alternative feedback loop that seems like it works but instead of really working it actually ends up making the chronic pain bigger by um by reducing the signal or reducing the importance or the salience of these other natural mechanisms so the inventor was trying to solve the problem but ended up making the problem worse by shifting the burden from the system to the person solving the problem and this can also happen in policy and her example was if you have a situation where there's um say there's a country that has a poor water

supply where people are getting water from the local river or the local lake and there's something about the water in that river that's causing disease well there's going to be natural mechanisms that people use to try to clean their water they might be filtering their water they might be watching really carefully for bugs that they can see in the water so those are naturally going to try to reduce the burden of disease and you could get a situation if someone invents like a pill to treat that disease that could um treat the disease in general

but it could also lead people to stop doing these other things that are really more targeted at the the main source of the illness so you can get a situation where the person that comes in with a wonderful solution ends up making the underlying cause of the problem a whole lot worse and this is another example of crowdout where the solution the altruistic policymaker is crowding out other natural parts of the system that act on a deeper place where the problem is coming from so super common in policy and her solution is of course to

avoid this in the first place especially by thinking about when you're coming up with solutions is that solution getting at the root cause of the problem or is that solution just relieving symptoms and if the solution is just relieving symptoms you're likely to end up in a situation where you're causing dependence or else you're shifting the burden in a way that is going to make the problem worse in the long run her next trap is rule beating and rule beating is basically where people end up following the letter of the law but they don't end

up really getting at the spirit of the law and of course the letter of the law is meant to be a feedback loop that keeps the system healthy and systems work well when they have a bunch of different feedback loops that keep things healthy that sort of reinforce each other and of course when people are rule-beating they are basically degrading those healthy feedback loops and the example she uses in this chapter or one of the examples is if you have colleges or universities or departments where if they don't spend the money allocated to them by

the end of the year they lose their money and of course that law is has great intentions it's trying to make sure that departments only have the money that they need and that you're allocating budgets without waste but it ends up being such that at the end of the year if people haven't spent their money they'll hurry up and spend on frivolous things just so that they don't lose that that line item on the budget for the next year so it actually ends up leading to more wasteful spending which obviously is against the spirit of

the law as things change over time you want the budget to sort of follow new trends and find where should i spend that money instead but it ends up just getting locked up in unimportant places and her solution to that is to revisit the rules to make sure that the rules are being followed in ways that are sort of well matched with the goals of of the system and her last system trap is seeking the wrong goal so um gdp is her example and gdp is a flow variable it's sort of how much productivity have

we added to the economy um in one year over the last year and she actually says we should focus more on capital because capital is sort of the overall stock which is the potential for the economy whereas gdp is just how much is it adding each year but the problem with gdp which is one the economists know very very well is that there are lots of things it doesn't capture it doesn't capture inequality it doesn't capture harm to the environment there are things that could increase gdp that are really bad like if you have a

sicker population that could lead to more spending on health care which will increase gdp but certainly you don't want a sicker population so there are all kinds of things that increase gdp that we would not want and and therefore if the main thing we're sort of looking at as a signal to keep the feedback loops going positively with policy is if that main thing is gdp there's just so much that it's leaving out and her solution to this is to choose your measures carefully and use multiple measures like use gdp as one thing you're looking

at but also look at inequality look at rates of addiction look at a health of the population happiness is a little bit happy happiness is hard to measure but you can come up with a lot of different measures that you're sort of trying to optimize when you're trying to figure out where does policy need to be changed and adjusted to sort of keep the system healthy