World-System (1960-present) How will a Negative Shock from the US Affect the Economy of Venezuela?

Nov 16, 2025. NBC News is reporting (here) that:

The nation’s most advanced aircraft carrier arrived in the Caribbean Sea on Sunday in a display of U.S. military power, raising questions about what the new influx of troops and weaponry could signal for the Trump administration’s drug enforcement campaign in South America.

If the US were to take some kind of military action against Venezuela (whatever the pretext), the result would be a strong negative shock to the Economy of Venezuela, which has been through many shocks in the late 20th and early 21st Centuries. According to Wikipedia (here):

An ongoing socioeconomic and political crisis began in Venezuela during the presidency of Hugo Chávez and has worsened during the presidency of successor Nicolás Maduro. It has been marked by hyperinflation, escalating starvation, disease, crime, and mortality rates, resulting in massive emigration.

The VEL20 US-input model (see the Notes below) is based on 50 years of data (1960-2010) drawn from the World Development Indicators (see the Boiler Plate). Without knowing the extent of the shock or whether it might actually happen, we can at least assume that the shock will be negative and ask how the economy has behaved to a large, standardize shock in the past.

The graphic above shows a one standard deviation negative shock (Impulse Response) to the state of the Venezuelan Economy transmitted from the US (see the Measurement Models in the Notes below):

• The First Column shows the effect of a negative shock from US Overall Growth (US1) to (1) VE1, Overall Growth in the Venezuelan Economy (continuing negative effect), (2) VE2, the GDP-Unemployment Controller (continuing negative effect) and (3) VE3, the Environmental Controller (temporary positive effect).
• The Second Column shows the effect of US Financial Markets (US2) on (1) VE1, Overall Growth (temporary positive), (2) VE2, Unemployment (continuing positive effect) and (3) VE3, Environmental (continuing negative effect).
• The Third Column shows the effect of US Globalization (US3) on (1) VE1, Overall Growth (permanent negative), (2) VE2, GDP (continuing negative) and (3) VE3, Environmental (continuing negative).

The overall effect, as might be anticipated, of US military action would be very negative for the Economy of Venezuela, one more negative shock in a long history of negative shocks. The Trump II Administration would probably argue that, in the long run, the effects would be positive if the illegitimate Administration of President Nicolás Maduro were ended. Everything depends on what would happen after any military action and no one knows the future.

One possibility (which seems unlikely) is that Venezuela would return to Business-As-Usual with a competent Centrist, technocratic Administration. You can experiment yourself with the VEL20 BAU model (here) and explore various scenarios.

Notes

For more information on other Geopolitical Options, see the Venezuelan Blog Roll (here). For more information about how the Dynamic Component State Space models were constructed, see the Boiler Plate.

VEL20 Measurement Model

USL203 Measurement Model

VEL20 US Input System Matrices

 

 

World System, Economic Systems, Political Systems and Neoliberalism

 

I've always been both impressed and confused by David Easton's model of the Political System: Impressed because of the System's Perspetive and Confused  because it does not seem to match my concrete experience with the Political System in the US which right now seems to be dominated by Neoliberalism. In the post, I'm going to put the two ideas together and sort out the result.

Notes

ChatGPT Definitions

Political System

Economic System

Neoliberalism

World-System (0-2000) What Caused the Industrial Revolution?

                 

The graphic above is a time plot of World Aggregate Production (W_Q) taken from Maddison (see the Boiler Pate).  The growth of Capitalism is typically data from 1500-Present with a clear visible take-off starting in the 19th Century. The burning question is "Why"!

ChatGPT (an AI Systems) produces the graphic above as an answer to the question "What Caused the Industrial Revolution".*** One can quibble with some of the links in the graph ("Why aren't Profits plowed back into the production process?", "What about Environmental Impacts?", etc.), but the graph is a good place to start.

The Kaya Identity is another good place to start (notice the Kaya Identity does not have feedback loops).

The causes of the Industrial Revolution are not possible to consider in one post, but I think there is a causal explanation that has been missed and I will investigate it in future posts.

Notes

*** Actually, my question was about feedback loops in the Industrial Revolution but you can asked the "What Caused" question yourself here. Google AI provides the following answer:

AI Overview

The main causes of the Industrial Revolution include 

• a combination of the Agricultural Revolution, which freed up labor and increased foodproduction;
• technological innovations like the steam engine and new machinery that mechanized production;
• access to natural resources such as coal and iron;
• economic and political factors like capitalism, available capital, and supportive government policies;
• and an increase in population growth and made, which created both a work force and demand for goods.

Agricultural advancements

The enclosure movement:Landowners consolidated smaller plots of land, making farming more efficient and forcing many rural laborers to seek work in cities.

New farming techniques:Innovations like Jethro Tull's seed drill increased crop yields, supporting a larger population.

Technological innovation

New inventions:

Key inventions like the spinning jenny, water frame, and steam engine revolutionized production in the textile and other industries.

Mechanization:

Machines could produce goods faster and more cheaply than by hand, leading to the development of the factory system.

Economic and political factors

Capitalism:

An economic system with private property and free enterprise encouraged investment and risk-taking.

Available capital:

A large amount of money was available for investment in new businesses and technologies.

Supportive government:

Policies, such as those protecting property rights and patents, encouraged innovation and industrial growth.

Abundant natural resources:

Britain, the birthplace of the revolution, had large deposits of coal for power and iron for machinery, often located near waterways for transport.

Growing population:

Population growth provided both a large workforce for factories and a bigger market for consumer goods.

Improved transportation:

Systems like canals and later railroads made it cheaper and faster to transport raw materials and finished products.

References

World-System (1960-2150) La French TECH Cycles

In a prior post (here) and in prior posts on the French Economy (here), I have found that the French Economy (or at least my model of it) is approaching a Steady State. My hypothesis is that the approaching steady state might (in addition to a lot of other forces) be creating Political Instability. However, no one knows the Future and we have to entertain other hypotheses.

The current 2025 Noble Prize in Economics offers another hypothesis. History teaches us that new technologies and Creative Destruction will eventually break steady states and send Economic Systems on to new Attractor Paths. The hypothesis is the essential argument of Kondratiev Wave Theory (here) and is embraced by World-Systems Theory. An alternative forecast for France is that the Steady State will not happen due to La French TECH.

The graphic above plots two historical forms of French Technology: Productivity (TECHP) and Efficiency (TECHE) (see the Notes below). Notice that they are both cyclical (echoes of Schumpeter's Creative Destruction model which is also cyclical but unstable). Notice also that TECHP (productivity) peaks before TECHE (efficiency): once a productivity peak is reached, focus turns toward efficiency until all gains are exhausted.

Unfortunately for France, both of these technological peaks (at least in my model which is estimated from World Development Data) are going to be reached in the near future: (1) reinforcing the steady state or (2) creating more instability and a search for new technologies to put the economy on another growth path. Since we do not know the Future, nothing is guaranteed.

For more on Stable French Technology Cycles see the post here. Schumpeter's Creative Destruction model predicts unstable Creative Destruction cycles and the French Technology Cycles are stable.
 

Notes

FR TECH Measurement Models

The two types of Technological Change  (TECHP and TECHE) are explained in a post on Technology in the United Kingdom which also is a good comparison to the French Model. Essentially, TECHP is productivity (output per capita)  and TECHE is efficiency (for example, CO2 emissions relative to energy consumption).

World-System (1960-2150) Unstable Cycles in Colombia

 

Notes

CO_L20 Measurement Matrix:

CO_L20 BAU System Matrix:

CO_L20 BAU Stabilized Sytem Matrix:

World-System (1960-2500) Unstable System Cycles in Latin America

 

In an earlier post (here and here), I found that the best forecasting model for Argentina was the LA20 Model (Latin America Regional Economy). Out until 2100 (the furthest out the IPCC is willing to go on Global Emission Scenarios), it looks as if Latin American Integration would provide a desirable future, at least for Argentina (here). This post explores what happens after 2100, out to 2500. Of course, no one knows the future (especially out to 2500), but the LA20 Model is a computer program that can be run out to any date. Sometimes it is insightful just to see what happens!

The LA20 Model is unstable and cyclical (the eigenvalues and AIC statistics are presented in the graphic above for the Business as Usual BAU model).  In the Phase Plot, above, time moves from left to right and cycles increase in magnitude and severity.** Although the short-term future might look endurable, the long-term future is not. Luckily, a lot (maybe everything) can change after 2100, especially in the face of Environmental Crisis.

Another reason to look at long-run cycles in Latin America is that cycles (particularly Kondratiev Waves or K-Waves) are discussed extensively and qualitatively in World-Systems Theory. It is refreshingly concrete to see actual historical cycles tested with a statistically estimated model. However, a future of unstable cycles is probably one reason why Latin American Integration has been so problematic.

Notes

** And will require that bailouts increase in magnitude and severity.

LA20 BAU Measurement Matrix:

The State Space of the LA20 model has three components that explain 99% of the variation in the indicators: LA1=(Overall Growth), LA2=(LU-Q-EG) an Unemployment Controller and LA3=(N+L-CO2-Q) a Population Controller. LA1 reinforces the conclusions of Balanced Growth Theory (all major parts of the Economy have to grow together). LA2 balances Unemployment (LU) against overall production (Q) and Energy Use (EG)--reducing LU requires increasing energy-intensive production. LA3 is a Malthusian-Environmental component balancing Population (N) and Labor Force (L) Growth against Emission (CO2) intensive production (Q).

The unstable LA20 BAU model has cyclical periods under a decade but no effective damping time (table above). 

The stable LA20 BAU model also has cyclical periods under a decade but damping times of about 150 years.

NOTE: Periods in both models are longer than those assumed by Kondratiev Waves or K-Wave models (45-60 years). LA2 could be expanded to a Marxian Economic component with (0.901 L - 0.272 Q - 0.239 EG - 0.144 L) where the standard Marxian Economic component is (Q - wL) assuming fixed Ricardian wages. Most of these ideas (Malthusian, Marxian Economic, Balanced Growth Theory and Kondratiev Waves or K-Wave) can be combined in Systems Theory models. However, the result for LA does not mean that the ideas can be generalized to all regions, countries and time periods (see Unified Growth Theory).

You can experiment with the LA20 BAU model here. Suggestions are given in the code for how to stabilize the model.

Ex. 1.0 Can you find a way to eliminate cycles once the model has been stabilized? 

The solution to this Exercise can be found in the LA_TECHP model which I will describe in a future post. 

Descriptions of the how the Dynamic Component State Space models are constructed are given in the Boiler Plate.

World-System (1950-2100) The New "Axis of Evil" BAU Scenario

 

In a prior post (here) I found that most scenarios for the "New Axis of Evil" (Russia, China and India) led to collapse of the system, except for one: the BAU (Business as Usual) Scenario. In one interpretation of the BAU scenario, the AXIS is allowed to dominate the World System and the US without interference from other countries. Although the scenario seems unlikely and might well lead to World War III, in this post I will take it seriously and see what happen between the present and the year 2100.

In another interpretation of the BAU Scenario, the AXIS is necessary to drive exponential growth of the World-System and of the Hegemonic leader (the US). I like the Functionalist explanation. Functionalism suggests we focus on the World-System, which I think is the right focus. In this post, I will present a model that demonstrates the Functionalist explanation for the New Axis of Evil.

The Functionalist explanation hypothesizes that the Axis-of-Evil is necessary to stimulate military spending and growth of all participants.

Politicians, on the other hand, seem to have no concept of a World-System which leads to a Contradiction: are there systemic considerations that affect the AXIS? The graphic above shows the non-system view: exponential growth forever, the US1 and the World System (W1) driven independently by the Axis.

The graphic above shows the US1 growth system forecast when driven by the AXIS model. The function of the AXIS is to stabilize the system, at least in terms of US growth.

The same is not true for World System growth (W1) in the graphic above. In other words, US growth, given AXIS input, is at the expense of the World System.

You can run the AXIS_of_Evil models here.