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.

What is Historical Dialectic Materialism?

 

I was first introduced to the terms Dialectic Materialism and Historical Materialism in an advanced sociology course on Marxism at the University of Wisconsin, Madison. At the time, I didn't understand how important the concepts were to understanding Quantitative History. Hopefully, I can communiate my understanding in this post.

Notes

The drawing at the beginning of this post pictures Marx and the British museum in the process of researching. When I visited the British Museum, I asked where Marx sat when he was writing and they didn't know but it was probably somewhere in the Socials Science section (reasonably). So, I sat in a chair there and contemplated!

World-System (1950-2100) How to Balance the World System

In an earlier post (here), I found that the US-MX-CA World Trading System could reach a Steady State in a number of ways.

Creating a Steady State in the World System, keeping Industrialization and Environmental Degradation in balance, involves mitigating the cascading effects of Collapsing Oil Markets and collapsing Agricultural markets.

This fictional future is controversial: (1) As long as population growth and technological change continue to increase, the Neoclassical Economic Growth model will never reach equilibrium (unlimited growth forever), (2) In World-Systems Theory, although we live in a World of interacting economic systems, because there is no World Government to legislate a Steady State, there is no governed World System** and (3) the IPCC Emission Scenarios (see the Boiler Plate and the BAU Scenario) envision a scenario where the World-System is eventually in a Steady State. Continued uncontrolled industrialization seems inevitable and, at the same time, inconsistent with environmental balance.

And, worse yet, the best scenario for the US-MX-CA Trading System (using the AIC to evaluate models) is growth-and-collapse (SSP2.0-6.0 in the IPCC Scenarios) when driven by the World System (here). In this post I will explore ways to create a Steady State in the World System because (1) the WL203 Model  is often, in my experience, a good input for country-level World-System models, (2) the IPCC Emission Scenarios are all conducted in terms of the World System, (3) Limits-to-Growth policy recommendations are directed at the World System and (4) I want to address the issue of how environmental balance is supposed to happen without World government.

 

The graphic above presents a number of experiments with the WL203 Model (you can run the experiments yourself here). These futures look a lot like the IPCC Emission Scenarios because growth of the entire World System produces emissions. 

There are three growth-and-collapse scenarios: WL20, F[1,2] = 0 and F[2,3]=0. The magnitude of collapse is increased by reducing the effects of feedback loops from Food Production (F[1,2]=0) and decreased by reductions in the feedback effects of Oil Production (F[2,3]=0). Reducing both feedback effects to zero produces a high-level steady state (F[1,2] = 0 and F[2,3]=0). Setting growth in the World System to a Random Walk produces an immediate steady state (F[1,1]=0). 

The counterfactual experiments are discussed more fully in the Notes below. But, what do the model results mean in a practical sense for policy action:

• Oil and food production (through the oil-driven Green Revolution) are essential for Industrial society. We typically don't think of oil markets and agricultural markets as historical feedback controllers, but they will become controllers when Peak Oil is reached (oil is a non-renewable resources). Electric vehicles, wind and solar energy serve to reduce feedback effects from Oil Markets.
• Current uses of oil (burning in combustion engines, making plastic bottles, medical devices, industrial fertilizers, etc.) will be restricted after Peak Oil. It would be prudent to reduce industrial growth rates and conserve existing supplies of all scare, non-renewable resources.

All of these policy measures are being attempted to some extent (but reducing growth rates seems to be the most difficult). My assumption is that the only way to motivate global action is from entering growth-and-collapse mode and then focussing political action, if it is not too late (result from the WL203 Model here suggest that there will be a rebound (see the Recovery Forecast below in the Notes) after 2115 and the World System could recover). Environmental Mitigation will most likely not be undertaken voluntarily.

Notes

** In World-Systems Theory, the hyphen between "World" and "System" indicates a world of systems. The term "World System" indicates a one-world system. The World System is typically used by the IPCC in Integrated Assessment Models (IAMS). The Contradiction here is that there is no World Government to manage environmental degradation.

The time plot above shows the dominant component from the WL203 Model. From 1950 to 2008, the blue line tracks the actual data. From 2008 to 2108, the different time paths are created by setting various elements in the WL203 Model System Matrix (F) to zero or one. Let me first describe how the state space is constructed and then describe the System Matrix (F) (more information about the models is available in the Boiler Plate).

The approximate state space is constructed using Principal Components Analysis (PCA). The PCA measurement matrix is presented above. The first component (W1) is the dominant component and explains 87.4% of the variation in the underlying indicators. The other two components (W2 and W3) are historical feedback controllers. 

The first component, W1=(Growth-LP), is overall growth compared to the Living Planet Index (LP), an indicator of the state of global biological diversity. Over time the LP Index peaks after 1975 and declines after that (see the graphic above). In the future, the (Growth-LP) historical controller might become more important but right now, the decline in global biological diversity will just continue.

The second component, W2=(LP+P.Wheat.-GWP-TEMP), is an historical feedback controller that links the LP index and the Agricultural market (P.Wheat.) to Gross World Product and Global Surface Temperature. For the period from 1970-2000, W2 was in positive territory. From 2000 to the present, W2 has become negative meaning that GWP and Global Temperature are not in balance with Biodiversity and Agricultural production.

The third component, W3=(P.Oil.-OIL-EF), is also an historical feedback controller for Oil Markets and the Ecological Footprint. From the graphic above, the Oil-Market-Footprint controller seems to be reaching a steady state (Peak Oil) but this can mean that  (1) Oil Prices will keep climbing as supplies dwindle or (2) Prices will decline as demand declines.

The System Matrix, F (above), shows the interaction between the three state variables (column [,4] is the constant term in the statistical model). The system is stable (ignoring the constant) and cyclical (periods and damping time over hundreds of years). 

Results of manipulating the System Matrix:

• WL20 In the graphic above, the dark black line is the basic model forecast: slowing growth in the present and collapse shortly after that.
• F[1,2] = 0 The coefficient -0.02519461 is the negative feedback effect of food production, W2. Without this feedback effect, collapse happens more rapidly.
• F[2,3] = 0 The coefficient -0.05250691 is the negative effect of the Oil-Market-Footprint W3, on food production, W2. Eliminating this feedback effect reduces the amount of collapse after 2050.
• F[2,3] = F[3,2] = 0 Eliminating the interaction between W2 and W3, leads to gradual growth and then a steady state after 2100.
• F[1,1] = 1 Finally, setting growth to a Random Walk, results in an immediate steady state.

What do these results mean in terms of balancing and controlling the World System? 

First, the World system has it's own feedback mechanisms that will limit growth. It should be no surprise that Peak Oil and damage to Agricultural production systems will put the World System in a growth and collapse mode. The two systems (Oil Production and the Green Revolution) are intimately linked and can fail together to provide energy and food for the Industrial Revolution. 

Second, a World Government would be helpful in minimizing the effects of collapse but I can't see nations agreeing to be governed before 2100 (current effects by the United Nations have been unsuccessful). 

Third, our current Integrate Assessment Models (for example, the DICE model) seem to have none of these feedback effects. 

Fourth, my results seem to align with the IPCC Emission Scenarios which makes sense because system growth, energy emissions and global temperature are intimately liked (I will do a more detailed comparison on a future post).

No one knows the future; all we have are projections from models. Politicians who claim that all the model projections are a hoax simply rely on their gut instincts to say that everything will be fine--a massive act of ignorance, denial and hubris before the fall.

Recovery Forecast

Since the WL203 model (here) is cyclical and stable, the prediction for the far-distant future (after 2130) is for recovery. But notice that the system does not reach the same level it had reached in 2000; Entropy takes it's toll.

World-System (1950-2000) How Does the Russian Economy Work?

 

From Google AI:

World-System (1950-2000) How Does the Economy of Switzerland Work?

The United States recently imposed punishing tariffs on Switzerland. To understand how a trade war might affect the Economy of Switzerland we need to understand how the economy works. Socio-technical systems are complex systems that, in spite of claims to the contrary, no one can understand fully. What we can understand are mathematical models and I have one (a state space statistical model),  the CH_LM model (see the Boiler Plate for a more detailed description of the models).

Not surprisingly, the bottom line is that the Swiss economy is an Export Controlled economy. Tariffs will trigger long-term adjustments to economic growth. What follows is a detailed explanation.

There are two important components to a Dynamic State Space Model: the Measurement Matrix and the Systems matrix. The Measurement Matrix (below) shows how the indicator variables are weighted in the state space, that is, how the state space is defined.

The five indicators variables are Q (Aggregate Production), N (Population), U (Urbanization), XREAL (Real Exports), X (Nominal Exports) and L (Labor). The first component, CH1, is overall growth (the variables are all similarly weighted). The second component, (CH2), is a historical feedback controller for (X-HOURS)--exports and employment have to stay in balance. Finally, the third component, (CH3), monitors the relationship between Urbanization and Export Employment. Together they explain approximately 100% of the variation in the indicators!

The time path of the three state variables is presented above. CH1 seem to be reaching a steady state after 2000. CH2 = (X-HOURS) reaches a low point (X < HOURS) around 1975. And, CH3 = (U-HOURS-X) reaches a low point (high Urban Export Employment) around 1995.

The important point to understand about the historical controllers (CH2 and CH3) is that they control the economy over decades, not from year to year, as in conventional economic models where price changes have relatively immediate effects.

The interaction between growth and the historical controllers is determined by the System Matrix, below.

Notice that one of the diagonal coefficients of F is greater than 1.0, meaning that CH2 = (X-HOURS)  makes the system unstable. To understand the dynamics the model, we can look at a shock decomposition of the Systems matrix, below:

Let's just look at the growth-effects of a shock and the historical feedback effects of a shock to CH2 = (X-HOURS). The rows of the shock decomposition diagram show the effect of subjecting CH1 to a one standard deviation shock (row 1 above) and then (row 2) subjecting CH2 to a one standard deviation shock (both are large shocks to make effects clear). 

A shock to economic growth takes about 4 years to work it's way out of the system with the full shock not being felt by either CH2 or CH3 (CH3 peaks quickly and returns to equilibrium). A shock to the Export-Employment controller (second row) takes about 4 years to be corrected (middle graphic) and has a negative effect on CH1 and a negative effect on CH3 (which is over-corrected after about 7 years).

In other words, shocks such as the imposition of US Tariffs will have a multi-year effect on economic growth but will be met by historical feedback responses from the Export-employment controller and the Urban-Export-Employment controller. 

If you would like to experiment with the CH_LM model, you can run the BAU code here. You can experiment by stabilizing CH2 = (X-HOURS) to see what effect stability will have on the Shock Decomposition. You can also look at the effect of going on a Random Walk (RW) for new trading relationships. The problem with the Random Walk (RW) is that it might product a period of declining economic growth while new trading partners are found; a new attractor path must eventually be found in a matter of years.

The Business-as-Usual Scenario (BAU): Models vs. Reality

The Intergovernmental Panel on Climate Climate Change (IPCC)  started publishing Emission Scenarios in 1990s and almost immediately abandoned using a Business-as-Usual (BAU) scenario because it was thought to be misleading. BAU implied that nothing was being done but governments and industries were adopting some sort of Climate policies (even if they were just Greenwashing). What Business-as-Usual really meant was becoming murky.

With the Fifth Assessment Report (AR5) in 2014, the IPCC began using an handful of Representative Concentration Pathways (RCPs, see graphic above for RCP1--RCP5). Unfortunately, what happened is that the Worst-Case Scenario (RCP8.5) became the BAU scenario. In 2020, Hausfather and Peters wrote an article in Nature and on the Carbon Brief Blog arguing the Worst-Case or BAU scenarios were unlikely and interfered with policy development.

First, the IPCC tackled a really difficult (unsolvable?) problem (the Future is Unknowable) in a very intelligent way (maybe the only way) and I have used the approach extensively in all my economic and environmental projections (see the Boiler Plate). But, I haven't given up on the BAU Scenario because it can be defined precisely with Systems Theory (not that a precise definition will reduce confusion but at least I can try).

A BAU Model df = A dynamic system model without inputs.

In reality, it is very rare to find closed systems. Everything is related to everything.  This is why scientists construct experiments, to control (isolate) system inputs. When we are study socio-economic-environmental systems, we cannot conduct experiments; we cannot control system inputs. But, we can construct dynamic models and we can control the inputs of the models.

And, in my experience, the mental models of most policy makers involve BAU systems, systems without inputs. For example, when politicians impose protective tariffs (a favorite policy choice of the Trump II Administration in the US), they seem to uniformly forget that their country is embedded in a World-System where there will be second-round effects and retaliation. If the BAU model is the most likely mental model used by Policy Makers, it needs to be involved as a comparison for different (provably better, at least within the models) policy measures.

Systems Theory also helps here by helping define the Policy Space as filled with alternative systems, many of which will have inputs. Starting with the BAU model helps us define the other models.

Notes

From Google AI:

World-System (1950-2000) How Does the Syrian Economy Work?

 

Technological Long Waves

The Kondratiev Wave is an important element of World-Systems Theory. The graphic above is taken from Andreas Goldschmidt and gives historical specifics for technological cycles. Goldschmidt's formulation allows for the idea to be tested (one of the models I always test), is partially consistent with economic Growth theory (particularly if we do not assume a functional form for exogenous disembodied technological change in the Solow-Swan Model) and I can present some examples.

• The Iranian Economy prior to 1979 and associated Tech Bubble.

The Iranian Revolution

 

This documentary presents many of the historical issues surrounding the Iranian Revolution: The transition from Feudalism, Modernization, Westernization, Religious Reaction, Petrostate politics, the role of the US Government and the CIA activities in Iran, etc. Very much worth a watch.

Notes

Further reading:

• Iranian Revolution a series of events that culminated in the overthrow of the Pahlavi dynasty in 1979.

• Strait of Hormuz a strait between the Persian Gulf and the Gulf of Oman. It provides the only sea passage from the Persian Gulf to the open ocean and is one of the world's most strategically important choke points.

• Iran-Contra Affair a political scandal in the United States that centered on arms trafficking to Iran between 1981 and 1986, facilitated by senior officials of the Ronald Reagan administration

• Iran Nuclear Program one of the most scrutinized nuclear programs in the world, has sparked intense international concern.

• Pahlavi Iran the Iranian state under the rule of the Pahlavi dynasty. The Pahlavi dynasty was created in 1925 and lasted until 1979 when it was ousted as part of the Iranian Revolution, which ended the Iranian monarchy and established the Islamic Republic of Iran.

• Iran-Iraq War an armed conflict between Iran and Iraq that lasted from September 1980 to August 1988. Active hostilities began with the Iraqi invasion of Iran and lasted for nearly eight years, until the acceptance of United Nations Security Council Resolution 598 by both sides.

• Iranian Economy a mixed, centrally planned economy with a large public sector. It consists of hydrocarbon, agricultural and service sectors, in addition to manufacturing and financial services, with over 40 industries traded on the Tehran Stock Exchange.

• The White Revolution a far-reaching series of reforms to aggressively modernize the Imperial State of Iran launched on 26 January 1963 by the Shah, Mohammad Reza Pahlavi, and ended with his overthrow in 1979.

• Modernization Theory holds that as societies become more economically modernized, wealthier and more educated, their political institutions become increasingly liberal democratic and rationalist.

• Foreign Policy of the Kennedy Administration The United States foreign policy during the presidency of John F. Kennedy from 1961 to 1963 included diplomatic and military initiatives in Western Europe, Southeast Asia, and Latin America, all conducted amid considerable Cold War tensions with the Soviet Union and its satellite states in Eastern Europe.

Blog Roll:

• Stabilizing the Iranian Economy Easy but not easy!
  
• A Deep Dive into the Iranian State Space Cycles vs. Control.
  
• The Iranian Revolution Still being worked out today.
  
• Will Israel and US Attacks Hurt the World-System? Yes
  
• How Does the Iranian Economy Work? Not like a Neoclassical, free-market economy.
  
• What was the Impact of the Iranian Revolution? Elimination of Cycles!
• Iranian Globalization and Unemployment Created the discontent that led to the Iranian Revolution.