Oh, I assumed most people were familiar with systems theory. It's one of the more useful math stuff to pick up. I strongly recommend reading Thinking in Systems if you haven't.
Flows are movement. Money in, money out. Heating. Leakage of heat. Turning on the water tap. Draining water. Mining oil. Selling oil.
Stocks are how much is there. Money in the bank. Debt unpaid. Temperature of the room. Water in the bathtub.
For some reason, we like to measure flow even though it doesn't help much and it's actually the hardest to measure. You can't measure economic health by taxes paid, and it's hard to estimate whether a room will be warm based on how hot the heater is.
Stocks are easiest to measure. And they're effective too. Most flows are based on stock. If you took a historical count of stocks or flows and tried to model the future, flows are not good because they don't take into account structural changes. You may have a steady expense and income and suddenly it changes - maybe you're on the brink of divorce, maybe you're moving to a new city. People are likely to worry about how much the new rent is but don't account much for how much new income they make from the move. Or vice versa - they underestimate new expenses and overestimate new income.
Flows are good at predicting near term, bad at long term, and terrible at figuring out a solution.
More likely, it's based on other stocks - you spend more when at certain health levels, or based on the amount of money in a bank account, or perhaps your perception of the economic climate. If I have a windfall, I pay debts until my balance is a certain number. Or I buy meals for friends and family. Or give to charity, etc.
If things are tight, I don't spend, even though most of the time not spending means I have more to spend. It's based on some other stock, like how many people are on Slack, indicating how likely I am to lose my job or get a promotion.
So the easiest way to monitor is by having a bunch of different money stock (bank accounts) and monitor whether they're going up or down.
muzani|1 year ago
Flows are movement. Money in, money out. Heating. Leakage of heat. Turning on the water tap. Draining water. Mining oil. Selling oil.
Stocks are how much is there. Money in the bank. Debt unpaid. Temperature of the room. Water in the bathtub.
For some reason, we like to measure flow even though it doesn't help much and it's actually the hardest to measure. You can't measure economic health by taxes paid, and it's hard to estimate whether a room will be warm based on how hot the heater is.
Stocks are easiest to measure. And they're effective too. Most flows are based on stock. If you took a historical count of stocks or flows and tried to model the future, flows are not good because they don't take into account structural changes. You may have a steady expense and income and suddenly it changes - maybe you're on the brink of divorce, maybe you're moving to a new city. People are likely to worry about how much the new rent is but don't account much for how much new income they make from the move. Or vice versa - they underestimate new expenses and overestimate new income.
Flows are good at predicting near term, bad at long term, and terrible at figuring out a solution.
More likely, it's based on other stocks - you spend more when at certain health levels, or based on the amount of money in a bank account, or perhaps your perception of the economic climate. If I have a windfall, I pay debts until my balance is a certain number. Or I buy meals for friends and family. Or give to charity, etc.
If things are tight, I don't spend, even though most of the time not spending means I have more to spend. It's based on some other stock, like how many people are on Slack, indicating how likely I am to lose my job or get a promotion.
So the easiest way to monitor is by having a bunch of different money stock (bank accounts) and monitor whether they're going up or down.