3.10) Stocks As Memory

An important consequence of stock variables in a system is that it allows future dynamics to be determined by the past evolution of the system: it has a memory. To see this, consider the case of chlorofluorocarbons (CFCs) emitted into the atmosphere. When a 1990 ban on the production of CFCs was enacted, previously emitted CFCs do not instantly disappear. The stock of CFCs that had built up in the atmosphere remains and continues to damage the ozone layer until it is eventually depleted by natural processes.

Similarly, eliminating the UKs budget deficit and achieving a balanced budget would not eliminate it debt. As a stock, the debt (unfortunately) has persistence; it serves as a memory of previously unbalanced budgets. [Health Warning: budgetary policy is much more complicated than this simple statement and the debt to GDP ratio is generally reduced by inflation and rising GDP rather than a surplus!]