In systems, feedback structures produce patterns of behavior made up of the events we experience. Unless we understand system structure it's very difficult to determine what actions to take and which policies to adopt in order to positively affect system behavior. Instead of addressing fundamentals, we apply band-aids.  When band-aids don't work, the prevailing "common sense" is that it's obvious we should do nothing.But common sense "derived from experience" is inadequate for addressing the problems we face. As Albert Einstein observed, "Common sense is a bundle of prejudices we develop before the age of 18."

Systems thinking is necessary for understanding the operation of dynamically complex systems, that is, systems with multiple feedbacks and long delays. The systems approach is based on the fact that "the whole is greater than the sum of its parts". This is quite literally true, because systems have emergent properties: properties of the whole that are not properties of the parts. The "invisible hand" of the "free market" is a dual feedback structure that balances supply and demand using price as an intermediating factor. This feedback structure can be explicitly shown using causal loop diagrams.

This presentation reviews systems thinking and uses it to examine the structure of the "invisible hand." It describes many of the factors that negatively impact the invisible hand's ability to effectively balance supply and demand and create a well-functioning society. Among the factors are delays, inelasticities, positive & negative externalities, adverse selection, path dependence, and the tragedy of the commons. Because of these effects we experience price instability and speculative bubbles, inadequate investment in heath and education, pollution, a failing heath insurance system, extremes of wealth and poverty, and infrastructure backlogs.

What's more, we under investment for the long-term because net present value (NPV) calculations devalue future returns and embed short-term thinking in our economy. The result is that the private sector inadequately represents the future to the present. A simple diagram showing input, accumulation, and output can be used to explain why our economy is failing and guide us for thinking practically about what to do for economic development -- locally and nationally. Turns out it's mostly arithmetic, not rocket science.

Bob Powell earned Ph.D. in Physics from Case Western Reserve University and an MBA is from Florida Institute of Technology. He's held positions as manager of ASIC product engineering and ASIC Computer-Aided Design software integration in the semiconductor industry. His company, Continuous Improvement Associates, uses the lens of systems thinking to help organizations to overcome what he calls, "group multiple personality disorder," create exponential process improvement, and generate strategic alignment. The systems approach explicitly examines system feedbacks that foster improvement and defines measures that monitor that improvements are on track.

While his primary focus in on organizational issues, he's become interested in applications of systems thinking to social issues, economics and, in general, the operation of what's called the "free market." This includes the workforce system, economic clusters, the dynamics of urban growth and sprawl, poverty, health care, and the decline of U.S. jobs in manufacturing & IT. His website is www.exponentialimprovement.com.

Freethinkers of Colorado Springs

February 2011 Meeting

February 23, 2011 7:00 PM

Gill Foundation, 315 East Costilla, Colorado Springs