You cannot solve the problem with the same
thinking that created the problem Albert Einstein
Macro Economic Policy
Analysis Applications
Dr. John Shilling
Millennium Institute
January 28, 2013
Introduction
• Millennium Institute is devoted to helping
decision makers achieve sustainable
development
• Its Threshold 21 model is an innovative
system dynamics approach to help strategic
decision making
• I worked at the World Bank and have been
involved with MI since I retired.
• At the Bank, I learned the limitations of
conventional models, which led me to T21
Out of Macro Economic Box
• The T21 China model illustrates the
importance of moving outside of the Macro
economic modeling box
• It is clear that the economy depends on the
environment and society to function,
• So the relations of economic activity with
these areas must be taken into account
• This includes addressing externalities, the
commons, and public goods
• MI has many more examples with its
applications of T21 around the world
Moving Beyond the M-E Box
• The impacts of economic activity on other areas are
well known – pollution, GHG emissions, resource
depletion, etc. but are rarely taken into account in
the conventional models
• The positive and negative feedbacks can be quite
important and reverse expected results
• It is important to develop a more complete view of
these activities, even as it adds to complexity
• Much can be learned by holding discussions of
these relations among experts in different areas.
S D Modeling Gets Out of the Box
• It is based on real world causal relations
• The T21 model is adapted to individual
countries based on their particular situation
– Local data is the basis for the modeling
– Valid local sector models can be incorporated
– Local experts are involved to describe the critical
causal relations and visioins from their sectors,
which expands the scope of the model and
deepens their confidence
– Local advisors help define the issues to focus on
and policies to examine in the scenarios
Causal Diagram Example
Society
Economy
+
government
expenditure
income per capita
R
+
H ealth-GD P
loop
+
+
+
health
-
productivity
R
+
N utrition loop
nutrition
+
+
+
+
agriculture
production
+
population
-
-
+
B
employment
Agriculture
-water loop
+
water stress
B
+
+
H ealth-GD P
-energy loop
+
water demand
fuel prices
+
renewable
energy
-
Legend:
➝ (+) Positive link
⇢ (-) Negative link
emissions
+
+
fossil fuel
consumption
Environment
+
GDP
Advantages of T21 Approach
• Incorporates cross sector relations based
on real world causal relations
• Takes account of long term effects, which
may indicate tipping points and ‘cliffs’
• Includes impacts of resource depletion,
climate change, population shifts, etc.
• Illustrates and compares the effects of
different sets of policies on all indicators to
bring policymakers together
Examples of Its Application
• China on energy, food, population, and
GHG emissions
• USA on CAFE Standard
• Mali on meeting growth targets
• Natural disasters in Jamaica
• Food security for IFAD
• Green Economy for UNEP
Ti
m
e
(Y
ea
r)
19
8
2
1
9
85
1
98
8
19
9
1
1
9
94
1
9
97
2
0
0
0
20
0
3
20
06
2
0
09
2
01
2
2
0
1
5
20
18
2
0
21
2
02
4
20
2
7
20
30
2
0
33
2
03
6
20
3
9
20
42
2
0
4
5
2
04
8
USA: Impact of CAFÉ on GDP
GD P
3.5E+13
3E+13
2.5E+13
2E+13
1.5E+13
1E+13
5E+12
GE Fast Cafe
GE Fast base
USA: GHG Emissions
Fossil Fu e l GH G e m ission s
10000000000
9500000000
9000000000
8500000000
8000000000
7500000000
7000000000
6500000000
6000000000
5500000000
Ti
m
e
(Y
ea
r)
19
82
19
85
19
88
19
91
1
99
4
19
97
20
0
0
20
03
20
06
20
09
2
01
2
20
15
20
1
8
20
21
20
24
20
27
2
03
0
20
33
20
3
6
20
39
20
42
20
45
2
04
8
5000000000
GE Fast Cafe
GE Fast base
Examples of Its Application
• China on energy, food, population, and
GHG emissions
• USA on CAFE Standard
• Mali on meeting growth targets
• Food security for IFAD
• Green Economy for UNEP
Contributions of T21
• Learn about important relations in country
• Improve data base
• Bring together many interest groups to work
together on cross sector issues
• Illustrate results of different policies to reach
decisions about policies for common good
• Demonstrate values of policies to public
• Provide basis for monitoring and evaluation
Application of T21
• Identify partners to work with in country,
establish an advisory council, and gather data
• Train team of local experts to use and further
develop the model
• Create with local team a fully functional model
and transfer it to the country
• Examples of many cases on our website:
www.millennium-institute.org
Thank You for Your Attention
Questions and comments are welcome
www.millennium-institute.org
[email protected]