Negative Loop vs Stabilizing Loop Nomenclature

Using the terminology “reinforcing loop” and “stabilizing loop” rather than “positive loop” and “negative loop” is a better practice when making causal loop diagrams (CLDs). A good example of why was given in the discussion earlier this year in a Wall Street Journal article on the housing crisis. In the article, the author discusses a confusion over the use of “negative feedback loop,” stating

A recent Ahead of the Tape column concerned how a “negative feedback loop” describes what it means when things keep going from bad to worse. But in response to the column, several readers argued that it is technically a “positive feedback loop.”

Here’s why. Negative feedback loops are broadly referred to in engineering and biology as an input into a system that tends to offset the system’s general direction, leading to a state of equilibrium. Positive feedbacks, on the other hand, reinforce the general direction.

One could easily argue that economists should stick with these definitions when talking about the economy. By that logic, interconnected trouble in the economy — say, when weak housing hurts consumer spending, leading to more weakness in housing and spilling into more corners of the economy — is actually a positive feedback loop.

Or not. Economic downturns, and the processes that propagate downturns, are commonly called “negative.” Calling this dynamic “positive” would be confusing for readers unaquainted with the technical language — a view shared by Yale economist John Geanakoplos, who was quoted in the column.

I would argue it is better overall to just skip that discussion altogether and use the terms “reinforcing loop” and “stabilizing loop.”

Posted under Causal Loop Diagrams