World-System (1970-2060) US Debt Crisis

The US just had another debt crisis to join France (here), Germany (here) and Canada (here). Debt Crises have been quite the political spectacle, almost closing down the government in the US and toppling governments in European countries. Hitting the Debt Ceiling and Government shutdowns are nothing new for the US (here). Deficit Hawks have used the repeated crisis to impose Austerity on the US Government, threatening to dismantle Social Security, Health Care and Welfare programs while giving tax cuts to the wealthy. 

What is somewhat confusing about all this is that there is a branch of Economics called Modern Monetary Theory (MMT) that suggests that there can be no debt crises when governments control their own currency, as do the governments in the US, France, Germany and Canada. Populist  Deficit Hawks argue that everyone understands that we can accumulate too much debt and wind up in bankruptcy. MMT counters that if individuals go into too much debt they cannot simply print money to get out of debt as modern governments can. As long as there are slack resources in the US Economy, government deficit spending will not create inflation. If you are not familiar with the theoretical arguments, the controversies make interesting reading (here and here).

From the perspective of Systems Theory, Debt Crises reveal yet another Error Correcting Controller (ECC) that is being used to control outputs of the Political System. Regardless of theoretical and rational considerations, the DEBT ECC triggers an important feedback loop we need to understand. If governments have to go into debt to address the Climate Crisis or any other of the many Overlapping Crises, ideas about DEBT will assert themselves as a constraint on spending.

In the graphic above, I have displayed a history of US Debt from 1970 to the present and a forecast for the future out to 2060 by political administration. Debt has been fairly close to the (increasing) attractor path except during the Clinton Administration when it went down, during the Obama Administration when it went up and during the Trump I Administration when it went way up (above the 98% prediction interval) as a result of the COVID-19 Pandemic. The USL20 model's forecast for the future is that US Debt will be declining but with rather wide prediction intervals. Given the historical data, almost anything can happen.

Notes

Data are taken from the World Development Indicators (WDI). All variables are in standard scores. The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app. Prediction intervals are generated using a Bootstrap algorithm in the R programming language. The Akaike Information Criterion (AIC) is used for model selection.

You can run the WL20W US BAU Model here. From my perspective, the future of US Debt depends on the future of the US economy, which is unknowable but about which I have a forecast (here).

 

World-System (1980-2060) Five Futures for Russia (one surprised me)

 

Now that the Syrian Regime has collapsed (here), questions about what the collapse will mean for Russia are begin discussed (here). Russia did not intervene when rebels overran the Syrian capital and the question is "why" given that Syria fought not be become a Russian puppet state (a topic I will cover in a future post). In this post, I will concentrate on some possible future geopolitical alignments for Russia, one of which is to go it alone (BAU). One of the interesting and controversial models is to link to the EU, which would be by far the best choice for Russia, the least likely to happen in the medium term future and certainly the least discussed openly right now.

The graphic above presents five futures for Russia based on the RUL20 model (here):

• BAU The Business As Usual model is unstable and cyclical (you can run the model yourself here). BAU is a fairly good model but not the best model (91.26 < AIC = 130.2 < 163.5). Unfortunately, the BAU model encourages military expansion because currently Russia needs Ukraine to prevent a Malthusian Population Crisis (to be covered in a future post).
  
  
• RW The Random Walk model would be best interpreted as a descent into Chaos, today being like tomorrow except for random shocks. The RW is actually not a bad competitor model for Russia (110  < AIC =  128.9 < 147.3) and may be quite likely if Russia looses the War in Ukraine.
  
  
• W Rather than isolating itself (BAU model), the World Linkage model assumes that Russia becomes an Open Society with Political and Economic links to all countries in the World-System (right now, Russia is a Semi-peripheral authoritarian country trying to become a Core country through military force). The W-Linkage model is not a very good competitor (126.4 < AIC = 155.6 < 190.1) and retains the unstable cyclical nature of the Russian System.
  
  
• US Linking to the US has never been seriously pursued in Russia, although the Glasnost period in the 1980s is about as close as the two countries came (67.98 < AIC = 114.3 < 150.7)--maybe because it would lead to cyclical collapse for Russia. 
  
  
• EU Russia joining the European Union (EU) is, to me (somewhat surprisingly), the best option (of the models considered here) for Russia (58.25  < AIC =  102.2 < 144). It would allow Russia to continue growing exponentially and benefit from trade with the EU (particularly oil, natural gas and agricultural trade with Ukraine). Maybe this dream scenario will happen at some time in the distant future, but I am not holding my breath.

There are certainly many other futures for Russia, but the graphic above seems to bracket the options from continued exponential growth to collapse. Let's just assume that Business as Usual with continued military expansion is, at least in the short run, the best prediction. To me, since the BAU model is cyclical and in the process of heading for a downturn (as of 2024), the best response would seem to be to keep supporting Ukraine and allow Russia to continue on the path of cyclical downturn. This does not seem to be the preferred path of the New Trump Administration in the US, starting in 2025.

Notes

Data taken from the World Development Indicators (WDI). All variables are in standard scores. The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app. Prediction intervals are generated using a Bootstrap algorithm in the R programming language. The Akaike Information Criterion (AIC) is used for model selection.

You can run the RUL20 BAU Model here. You can change any coefficients in the System Matrix, F, to see what effect your changes will have on the system. Reasonable counterfactual values can be determined from the coefficient bootstrap confidence intervals:

LCI is the lower confidence interval and UCI is the upper confidence interval. In probability, the system can clearly be stabilized.

You can also run the EUL20 model here.

There is a small cottage industry of articles on Russia's Future many of them envisioning "Five" futures. Most of the articles are behind paywalls but here is one you can read from Casey Michel at The Atlantic Coouncil.

Has Germany Become a Steady State Economy?

 

The IMF (here) among other commentators (here) think that the German economy is in trouble. The conclusions are based on the assumption of Unlimited Economic Growth. What if the techno-optimist assumption is wrong? What if growth cannot continue forever and our macro-TechnoSocial systems must become Steady State Economies? Is there any evidence that any economies are already reaching Steady State and what are the implications, good or bad, if they are? HINT: from the graph above, the Deutsch Empire (DE) has been in a steady state since 2010. I'll explain all this in a future post.

If you want to experiment yourself with the DEL20 systems model, you run it on line and experiment with coefficients here. Notice that the two error correcting controllers in the Measurement Matrix are (EF-GDP), the Ecological Footprint compared to aggregate production and (N-CO2), population minus CO2 emissions. In other words, environmental constraints are creating the steady state in Germany not economic policy failures.

You can implement the current Neoliberal policy measures creating unlimited economic growth. Just change one coefficient in the System Matrix from F[1,1] = 0.95349473 to F[1,1] = 1.04, a not unreasonable four percent growth rate. What happens to the Ecological footprint and to CO2 emissions?

Notes

Data taken from the World Development Indicators (WDI). All variables are in standard scores. The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app. Prediction intervals are generated using a Bootstrap algorithm in the R programming language.

You can run the DEL20 BAU Model here.

World-System (1970-2050) Five Futures for Syria

 

In a prior post (here) I presented one collapse scenario for Syria, now that the long standing Assad Regime has fallen. In this post, I will explore some alternatives (in the graphic above). A description of the SY20 model is provided below.

• BAU The Business-as-Usual model is probably the best description of the Assad Regime. It was a unstable regime maintained by force. One fear about the collapse of the regime is that the future will be chaotic. Using the Akaike Information Criterion (AIC), the BAU model is one of the best models (-54.37 < AIC = -10.37 < 23.99) describing the SY20 system (see Notes below, the smaller the AIC, the better). 
  
  
• US Diplomatic relations between Syria and the United States are currently "nonexistent". Syria was put on the State Sponsors of Terrorism list in 1979 and is the only country that has remained continuously on the list. From the period of the "War on Terror", the U.S. government has imposed a series of economic sanctions on Syria. After the government crackdown during the 2011 Syrian revolution; the US (alongside the European Union and Arab League) withdrew diplomatic recognition. The US has provided political, military and logistic support to the Syrian opposition. The new Syrian government might seek stronger linkages with the US, but the projections above are not very promising and somewhat unlikely (

  107.6 < AIC = 161.3 < 203.3).

   
  
  
• RU Diplomatic relations between Russia and Syria have had, up to now, a long, friendly and stable history. Unfortunately for Bashar al-Assad (the current and now deposed president), Russia failed to defend the regime even though it had been providing military support up to the final coup. From the graphic above, the projection for Russia's support of Syria is cyclical and not much better than a Random Walk. The RU Puppet model, which Syria long resisted, would not be the best model for the future (97.65 < AIC = 162 < 219.9). Russia has it's own set of problems (not dissimilar to Syria) which I will cover in a future post.
  
  
• RW The Random Walk model essentially makes no predictions about the future except that tomorrow will be like today with the addition of random error. Notice that it is not much different from either the US, RU or World models when taken as input. For the RW model (55.99 <  AIC = 95.64 < 125.5).
  
  
• W Maybe somewhat surprisingly, linking Syria with the World System would not produce a result much better than a random walk (119.4 < AIC = 177.1 < 217.6). However, in World-Systems Theory, Syria is a Peripheral Country with weak institutions and a small share of World wealth. 
  
  
• MEA The worst possible future for Syria is linkage with the MiddleEast-Africa. Projections indicate a severe collapse for the system (97.65 < AIC = 162 < 219.9).

In significant ways, these future projections for Syria do not capture the real problems for both Syria and Russia. In the Measurement Matrix, presented below, the primary feedback components for Syria are 1) Environmental (SY2 = 0.6926 EF - 0.4920 Energy Use) where EF is the Ecological Footprint and 2) Globalization induced unemployment (SY3 = 0.8838 LU - 0.363 KOF) where KOF is an index of globalization. I will cover these issues in future posts.

Notes

The SY1 state variable is a relatively equal weighting of six indicators from the World Development Database plus the KOF Index of Globalization, the Ecological Footprint (EF) and the UN Human Development Index (HDI). The FR2 index is (EF - EnergyUse) and the FR3 index is (Unemployment-Globalization) error correcting controllers (ECC), respectively. The major component creating the collapse in Syria is FR2, the environmental component. It should come as no surprise that Syria is in environmental crisis (here).

The SY20 model has no indicators describing the now-collapsed Syrian dictatorship so the future will be dominated by continuing environmental problems and globalization-driven unemployment. A government of rebel commanders is unlikely to address any of the issues that led to collapse

The SY20 model also does not capture trade relations, particularly with Russia (a vital supplier of essential commodities). I will cover Syrian Trade in a future post.

You can run the SY20 BAU model here. The model is unstable (see the System Matrix below).

You can stabilize the system by setting F[2,2]=1.012095084 to some number < 1.0 but greater than zero and rerunning the model. What results to you observe?

To give you a brief idea of what the Syrian Battle Space was like (a mess) here is a map from 2021.

Word System (2000-2100) Collapse of Syria

The New York Times (here) is reporting that the Syrian government has collapsed and the country has been overrun by rebel forces. The NYT is also saying that predicting Syria's future is challenging "...as the government’s sudden demise took many people who have watched the region for years by surprise." 

It must be the timing of the collapse that is surprising (as is often the case with dictatorships). The collapse itself was predictable, as can be seen from the graphic above. The SY20 model is based on data up to 2010 and predicts system collapse after 2040, so the current collapse is a little premature but still predictable.

Notes

The SY1 state variable is a relatively equal weighting of six indicators from the World Development Database plus the KOF Index of Globalization, the Ecological Footprint (EF) and the UN Human Development Index (HDI). The FR2 index is (EF - EnergyUse) and the FR3 index is (Unemployment-Globalization) error correcting controllers (ECC), respectively. The major component creating the collapse in Syria is FR2, the environmental component. It should come as no surprise that Syria is in environmental crisis (here).

The SY20 model has no indicators describing the now-collapsed Syrian dictatorship so the future will be dominated by continuing environmental problems and globalization-driven unemployment. A government of rebel commanders is unlikely to address any of the issues that led to collapse.

You can run the SY20 BAU model here.

US Healthcare Expenditures: Three Futures

A few days ago, the New York Times (here) reported that the CEO of United Health Care (the US largest insurance company) was shot and killed on the street in New York City. A large manhunt is underway trying to find the shooter. The motives remain unclear. However, the assassination has brought to the surface wide discontent with the US Healthcare system (the shooter had written the words "delay," "deny," and "depose" on shell casing found at the scene).

Until we know more about the shooting and until the Trump II Administration takes office (promising, at minimum, to change the system), what do the data on US Healthcare expenditures say about the system. Comparing countries, the US HC System is the most expensive in the World due to higher medical prices in the US. From the historical data in the graphic above, the curve of US Health expenditures peaked sometime before the COVID-19 pandemic of 2020.

After 2020, my state space models generate these projections: (1) If Healthcare (HC) expenditures keep pace with government health care expenditures (the black line in the figure above), expenditures will peak at a high level sometime after 2020. (2) If HC expenditures are driven by the World system (WL20) or the US system (USL20), they will continue to decline until well after 2020.

The Trump II Administration, scheduled to take office in early 2025, seems to favor privatizing the entire system which in some way might not be very different from the current system and might well be worse if providers are allowed to charge whatever they want for procedures and medicines.

Notes

SH.XPD.CHEX.GD.ZS is taken from the World Development Indicators and standardized.

My recommendation is to control the US Healthcare system with policy wedges similar to proposals to control CO2 Emissions with policy wedges.

World System (1980-2100) Six Futures for France

The New York Times (here) is reporting that the recent collapse of the French government will "...further burden its weak economy" and have ripple effects across Europe. The analysis, however, might be confusing cause and effect. Weakness in the European Union (EU) economies, to include France, might be creating the observed political instability. What I want to explore, starting with France, is whether we are observing the emergence of Steady State Economies in the EU, and that this should not be confused with "weakness". Business commentators and economists, at least in the US, seem convinced that economies can grow forever or, at least, for the foreseeable future. For example, the DICE model (a neoclassical integrated assessment model) grows forever unless a limit is put on technological change. So, it is no surprise that the FR20 (France Twentieth Century model, the dashed blue line marked FR) driven by the US Economy grows forever (dashed red line marked US in the graphic above). Unfortunately, for neoclassical economic theory, this is not the best description of the current French economy using the Akaike Information Criterion (AIC).

Three other models, the Random Walk (RW, dashed blue), the Business As Usual (BAU, black line) and the EU model (right beneath it) are probably what classical economists would identify as the Steady State Economy. Growth reaches an asymptote around 2100. Finally, the FR20 model is driven into collapse mode by the World System (dotted green line).

If you prefer central tendencies in your forecasts, then you probably would conclude that the Steady State Economy is the most likely future. If you are a techno-optimist, you will probably prefer the US-driven future. If you are a Degrowth advocate, you will probably prefer the FR or the W scenario.

Without committing myself to some unknowable future, it seems clear to me that the steady-state and collapse scenarios will not be accepted without resistance. Demonstrators will take to the streets, governments will fall, right-wing political groups will grow in appeal and we will enter a period of chaos. Maybe this is why the Infinite-growth scenario is so appealing.

Notes

FR1 is the dominant state variable of the FR20 system with data taken from the World Development Indicators (WDI). The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app. Prediction intervals are generated using a Bootstrap algorithm in the R programming language.

The FR1 state variable was created from the following weighted indicators (the first row of the Measurement Matrix) and explain 98% of the variation. 

The first six indicators in standard scores are taken from the World Development Indicators (WDI). KOF = KOF Index of Globalization, EF = Ecological Footprint, HDI = Human Development Index. The second two components: FR2=(CO2+EF-KOF) and FR3 = (LU-L-N-HDI) describe environmental and Unemployment Error Correction Controllers (ECCs).

You can run the FRL20-BAU model here. 

French Debt, Collapse of the Government and COVID-19, World-System (1950-Present)

 

Le Monde (here) is reporting that, after a vote of no-confidence, the coalition government of Emmanuel Macron is about to collapse. Earlier this Summer, Macron had called snap elections in which he did not get enough votes to retain power without forming the coalition government. Now that government has fallen, supposedly over the problem of Central Government Debt.

The graphic above displays the shocks to the (Q-DEBT) error-correction controller that triggered the collapse. The 2020 COVID-19 shock initially decreased (Q-DEBT) as the economy contracted, but after that DEBT increased dramatically to deal with COVID-19 and stimulate the economy. The effects of the COVID-19 shocks are still with us even though the media seems not to highlight the connection.

Debt has been a problem in the European Union (EU) since the  European Sovereign Debt Crisis from 2010 through 2024 (which can also be seen clearly in the graphic at the beginning of this post). Debt is a problem in the EU since states do not control their own currency and cannot print Euros when needed. Modern Monetary Theory (MMT) suggests that the Euro-zone single currency is at the root of the problem. 

If the currency-inflexibility problem is not resolved, the forecast for (Q-DEBT) in the graphic above is for increasing problems, especially when future shocks create instability.

One question you might have is how important DEBT is to the French Economy. If we include DEBT in the Measurement Matrix (below) is doesn't become important until the Fifth and Sixth components and explains under 0.3% of the variation.

The two debt components, FR5 and FR6, capture the (DEBT+Unemployment+Ecological Footprint-KOF Globalization) and (L+KOF-DEBT) controllers, respectively.

The time plots of FR5 and FR6 (above) suggest that the two components are random walks being thrown around by shocks. To me, the results says that the Political System is mostly preoccupied with chaotic components that can be leveraged for political advantage. I discuss the future path of the FR dominant components here.

Notes

Q =  NY.GDP.MKTP.KD, DEBT = GC.DOD.TOTL.GD.ZS,  both from the World Development Indicators (WDI). All variables are in standard scores. The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app. Prediction intervals are generated using a Bootstrap algorithm in the R programming language.

The FR1 state variable was created from the following weighted indicators (the first row of the Measurement Matrix) and explain 98% of the variation. 

The first six indicators are taken from the World Development Indicators (WDI). KOF = KOF Index of Globalization, EF = Ecological Footprint, HDI = Human Development Index. The second two components: FR2=(CO2+EF-KOF) and FR3 = (LU-L-N-HDI) describe environmental and Unemployment Error Correction Controllers (ECCs).

You can run the FRL20-BAU model here. 

US CO2 Forecasts: Will Trump II Make a Difference?

US President Donald Trump recently announced that he was pulling the US out of the Paris Climate Agreement. This is somewhat of a hollow gesture because he has done it before in the first Trump administration, only to be reversed by the next Democratic Administration. But, there are still strong indications that the Trump administration is no friend of environmental regulation and would like to undo regulations that restrain polluters (see Project 2025 below). We cannot know the future and we cannot know whether or not the Trump administration will be successful in their efforts to roll back environmental regulation, but we can make forecasts and then look back four years from now, after the Trump II administration, and see what effect their policies have had.

The time plot above is a forecast of US CO2 emissions out to 2040. The period from 1960 until the present shows how well the model works in tracking actual emissions (the solid back line). The dashed red line is the step-ahead forecast, the dashed blue and green lines are the 98% bootstrap prediction intervals. US CO2 emissions dropped in the 1980's but then continued climbing until a peak after 2000 (during the Bush II Administration). From there forward the model predicts a decline in CO2 emissions out to 2040 and to levels lower than in the 1960s. What causes the forecast decline?

The best model for US CO2 emissions is driven by dynamics in the World System. The best model was determined by comparing seven competitor models. The state of the World System is described by three state variables: (1) An overall state variable describing all the indicators, (2) A second independent state variable describing biodiversity and food production and (3) A third state variable dominated by world oil and agricultural markets. The effect of changes in the state of the World System on US CO2 emission can be seen from the shock decomposition diagram above. Growth of the World System and expansion of food production increase US CO2 production while increase in World oil prices decreases US CO2 production. 

The best way to limit US CO2 production is to allow world oil prices to increase and to stabilize the growth of the World System.

As growth of the World System stabilizes, there will be less demand for US industrial and energy production. Stabilizing world population will limit demand for agricultural products and destruction of biodiversity. Rising oil prices increase the attractiveness of renewable energy and will help build the infrastructure for electric transportation vehicles. The Paris Agreement may or may not have an impact on growth of the World System. However, US natural gas production through fracking has had an impact of keeping gasoline prices down, which is counterproductive.  

Unfortunately, US Oil Prices are controlled by the World Market. Any shocks to prices will increase inflation and create political problems for the administration in power. In a future post I will look at the World Oil Market and the expected future path for prices.

Project 2025

Project 2025 is a political initiative published in April 2022 by the American conservative think tank the Heritage Foundation (you can read the full report here). Somewhat surprisingly, in the 922 page report, CO2 emissions are only mentioned on page 378 under Conservative reforms for the Office of Energy Efficiency and Renewable Energy (EERE). Project 2025 calls for the EERE to focus on energy access and energy security rather than "entirely on the reduction of CO2 emissions." Project 2025 calls for the EERE to shift away from prioritizing "...decarbonization of the electricity sector, the industrial sector, transportation, buildings, and the agricultural sector". If the Trump Administration abolishes the EERE or changes it's mission without picking up the CO2 Emission priority in some other Federal Agency, any changes may or may not affect the trajectory of emissions which are on a strong anticipated downward path.

To put all this in context, the New York Times (here) also predicts that CO2 admissions for the EU, US, and China are reaching, at least around 2100, a steady state.

US Inequality

ChatGPT a generative artificial intelligence model lists eight causes of increasing income inequality in the US (Wikipedia list twelve--see below). A GINI coefficient measures the level of income inequality as a percentage with 0=(complete equality) and 1=(complete inequality, one person owns all the wealth). Above 50% is considered high and the US (above 40% right before COVID-19) is considered a country in the middle range.

The history of income inequality after 1970 (in the graphic above) shows major deviations from the bootstrap 98% prediction intervals: (1) during the Ford and Carter administrations (low), (2) during the Bush I, Clinton and Bush II administrations (high) and (3) during the Trump I administration, low as a result of COVID-19. 

One commonly mentioned cause (regressive taxation) that I can test easily is displayed above. Effective taxation, over the period 1980-2024, is mostly steady with shocks during the Bush I, Trump (result of COVID-19) and Biden administrations.

What will happen in the future under the Trump II administration is speculative. Results from my four models (see below) are displayed above: (1) The RW and BAU models predict continuing high inequality and (2) the US and World System models show peaking and declining inequality, the greatest decline being as a result of World System forces. Clearly, the RW and BAU models would be favored by Trump and any future Republican administrations. As a practical matter, World System linkage would be similar to policies favored by the Obama Administration even though the effects were cyclical.

My tentative conclusion is that Income Inequality would stay high until the end of the Trump II administration and certainly not go down. After that, we would need policies driven by something other than Neoliberalism.

Causes of Income Inequality

Typical causes include: (1) Globalization, (2) Technological Change, (3) Decline in Unions, (4) Stagnant Wages, (5) Executive Compensation, (6) Education, (7) Skills mismatch, (8) Regressive Tax Policy, (9) Erosion of Social Safety Nets, (10) Inheritance, (11) Real Estate and Investment gains, (12) Racial and Gender Inequality, (13) The history of Segregation, (14) Rising Healthcare Costs, (15) Affordable Housing Shortage, (16) Lobbying by the wealthy and powerful, (17) Campaign Finance, and (18) Neoliberalism.

I have tested four models using the AIC: (1) A Random Walk (RW) Model, (2) A Business As Usual Model (BAU), (3) a US Economy Model and (4) a World System model. In the short run (year to year), the RW model is best. As an attractor path, the BAU model (no input variables) is best. From the discussion above, my conclusion is that, in addition to historical determinants, generating inequality is simply an output of the US Capitalist System.

 

Hardship and the 2024 US Presidential Election

 

The scramble is on among the Main Stream Media outlets to explain the factors that led to Donald Trump's victory. There seems to be agreement that the COVID-19 unemployment and the COVID-19 Inflation made the US Economy the main issue. However, my work with John Shefner and Aaron Roland on Hardship leads me to think that single-variable explanations are too limited. So I constructed a Hardship Index (similar to Shefner,  Roland and Pasdirtz, 2015) for the US from 1980-2009 (US_HARD1, see the  graphic above, click to enlarge) and made projections (with prediction intervals) for the period during and after the Trump administration.

The HARD1 index (which explains 70% of the variation in the indicators, see below). reaches a low point right during the Trump I administration (2017-2020, dashed red line in the graphic above) and then begins climbing back up during the Biden Administration (2020-2024) and should keep climbing during the TRUMP II Administration (2025-?). 

The incoming administration will have it's work cut out for it and nothing I have heard, so far, suggests that there are any plans to address hardship. I will update the index again in 2029 to see how the Trump II Administration did.

I should also comment that forces in the World system (similar to those found by Shefner,  Roland and Pasdirtz, 2015 for Mexico in the 1990's) were driving the decline in HARD1 for the US. These forces have now reversed direction and will be difficult for the TRUMP administration to do anything about.

In a future post, I will explain why the HARD1 forecast took a turning point in 2020 and what World System forces explain the longterm trend in HARD1. The primary forces in the WL20 model are found in environmental and world market conditions.

Hardship Index

The following indicators (from Shefner,  Roland and Pasdirtz, 2015) were used to construct the HARD (Hardship) Index. All data were taken from the World Development Indicators (WDI).

In addition to HARD1, two other indexes were constructed, HARD2 (dominated by Unemployment) and HARD3 (dominated by Inflation). Each index explained another 10% (0.841% and  0.933%, respectively) in the indicators. So, indeed, Unemployment and Inflation were important components of US Hardship, but the other indicators also played a role. Whether the US Electorate made a good choice in electing the TRUMP II administration to resolve their issues with hardship will have to wait and be seen over the next four years.

Forecasting Model

The model used to create the Hardship forecast (in the graphic at the start of this post) is a generalization of the Atlanta Federal Reserve's GDPNow Model.

US Taxes

At the 1988 Republican National Convention, presidential candidate George H. W. Bush  famously said "Read my lips: no new taxes." In fact, taxes went down in the first part of the Bush I Administration (see the graphic above, click to enlarge), but started going up again and reached the lower 98% prediction interval right before the Clinton administration. And, taxes continued to go up until hitting the upper 98% prediction interval right before the Bush II Administration. In fact, taxes appear to go up during Democratic administrations and go down during Republican administrations, while bouncing around a cyclical attractor path (dashed red line above). What's going on here and what might we predict for the new Right-Wing Republican Administration scheduled to take office in early 2025?

First, I can easily predict that tax revenue is going to be lowered. I can also predict that tax revenue will return to the attractor path and increase sometime during or after the Trump administration. History clearly makes the prediction. But what is driving the cyclical attractor path and the prediction of future increases in tax revenue after 2030?

Aggregate tax revenue is being driven by growth in the US SocioEconomic system. When the economy does well, the government increases its revenue. This should be no surprise. But that's not all that is going on because actual tax revenue itself cycles around the attractor path.

What is driving the actual taxation cycle (and this should also be no surprise) are political shocks (see the graphic above, click to enlarge). Republican administrations, starting with Bush II and continuing with Trump I, pass massive tax cuts that eventually have to be rolled back (even during the same administration e.g., the expensive War on Terror starting after Sep 11, 2001 during the Bush II administration).

The assumption is that these cyclical tax cuts help the wealthy and fuel the deficit. I will look at the effects of tax cuts in a future post, but for the present I want to emphasize that tax cuts are both a political football and a countercyclical approach to balancing the economy. Tax cuts could probably be a more effective automatic stabilizer if politics was more rational.

 

Alternate Futures for the US

 

The graphic above (click to enlarge) shows four alternative futures for US1, an index of overall growth in the US SocioEconomic System (see the measurement matrix below). It is based on computer simulations of alternative estimated state space models. I would argue that the graphic says a lot about why US voters decided the way they did in the 2024 Presidential Election and what we can expect from the new, Right-Wing Republican Administration after 2025.

First, why did the MAGA movement embrace an extension of the American First isolationist movement? The Foreign Policy of the Obama Administration (2009-2017) was directed toward the World System and was not Isolationist. The World System input model (W) in the graphic above put the US on a slower overall growth path (dotted green line). I would argue that voters were well aware that growth of the US Economy and the US standard of living was slowing (see Economist Kathryn Ann Edward's comments here). The realization led to a Right-Wing backlash (the same thing that happened in Germany during the Inter-War (WWI-WWII) Years, see Arno Mayer's The Persistence of the Old Regime).

Second, the President-elect's policy pronouncements and transition plans suggest abandoning the World System and doing everything possible to stimulate unlimited endogenous economic growth in the US: eliminating regulation, ignoring white-collar crime, closing borders to immigrants, abandoning environmental regulation (allowing businesses to exploit free environmental resources), eliminating labor regulation (a restraint on profits), dismantling the Welfare State, slashing business taxes (another restraint on profits), eliminating funding for and control over education (a stimulus to wage growth and a limit on profits), etc.

The red and the blue dashed lines in the graphic above show possible time paths for the US Economy unleashed.  The models predict uncontrolled, unending exponential growth for the US System. They are, I would argue, a business man's fantasy. Nothing can grow forever and eventually limits will be reached (my models suggest sometime after 2050). Most of us living at the present moment, me included, will be dead by then. It will be someone else's problem.

There is another possible time path for the US SocioEconomic System: the Random Walk (RW, the solid line in the graphic above). No one can know the future. Attempts to dismantle failing US Institutions may or may not happen as imagined. The new Administration's cabinet picks, so far, are not reassuring. Essentially, in a Random Walk, today is like yesterday except for random error, actions by people who are making it up as they go along. 

I am always surprised that commentators can seem so confident about what happened in the 2024 Presidential election and what will happen as a result of it. I'm not. My advice for the future is to take defensive positions and not follow Economic Bubbles that might develop in response to crippling of US regulatory institutions. 

We know our current systems are failing and need to be rebuilt. In future posts I will look more carefully at all of these systems.

US Measurement Matrix

The graphic at the beginning of this post applies the weights from row [1,] of the state space measurement matrix to 36 indicators of US development from 1950-2010. After 2010, the results are simulated from four state space models: RW (Random Walk), W (World System input), US (components from rows [2,] and [3,] in the measurement matrix), and BAU (a Business as Usual model with no inputs).

Measurement Matrix 

     L.US.E. L.US.U. GDP.US.  GDP.C.  GDP.I.  GDP.X.

[1,]  0.1955   0.138  0.1978  0.1972  0.1961 -0.1402

[2,]  0.0669   0.200 -0.0462 -0.0554 -0.0355  0.0751

[3,] -0.0312   0.239  0.0284  0.0314 -0.0272  0.2229

      GDP.G. P.US.TBILL. P.CPAPER. P.FED.FUNDS.  P.CPI.

[1,]  0.1976     0.00429  -0.01554       0.0127 0.19773

[2,] -0.0377     0.40583   0.40460       0.3998 0.00996

[3,]  0.0541     0.07630  -0.00165       0.0986 0.02128

     P.GDP. P.SP500. V.NYSE. P.S.P.DPR. P.S.P.EPR.

[1,] 0.1967   0.1868   0.166     -0.146     -0.112

[2,] 0.0337  -0.1076  -0.131      0.144      0.128

[3,] 0.0240  -0.0277   0.165      0.321      0.384

     Q.H.Starts.   K.US.      M1      M2 P.WPI.    Q.A.

[1,]     -0.0202  0.1974  0.1953  0.1979 0.1932  0.1918

[2,]      0.0392 -0.0418 -0.0145 -0.0325 0.0612  0.0766

[3,]     -0.4666  0.0446 -0.0318  0.0472 0.1051 -0.0973

        Q.I.   O.B. P.FUELS. P.W.AG. P.W.MFG. Q.OIL.

[1,]  0.1967 -0.173   0.1834  0.1983   0.1990 -0.113

[2,]  0.0374  0.186   0.0269  0.0131   0.0125  0.312

[3,] -0.0683  0.110   0.2538  0.0489   0.0232 -0.145

       N.US. IMM.US.   U.US.   CAPU     EF Globalization

[1,]  0.1951  0.1440  0.1967 -0.141 0.1867        0.0818

[2,]  0.0746  0.0546  0.0477 -0.153 0.1096       -0.2964

[3,] -0.0642 -0.1371 -0.0589 -0.164 0.0303        0.3905

        CO2 Q.FOSSIL.

[1,]  0.180     0.129

[2,]  0.155     0.283

[3,] -0.110    -0.157

 Fraction of Variance 

 [1] 0.698 0.854 0.900

Atlanta Fed Economy Now

My approach to forecasting is similar to the EconomyNow model used by the Atlanta Federal Reserve. Since the new Republican Administration is signaling that they would like to eliminate the Federal Reserve, the app might well not be available in the future.

Hurricane Forecasting

My vision for SocioEconomic system forecasting is to follow the US National Oceanic and Atmospheric Administration's (NOAA) approach to hurricane (Economic Crisis?) forecasting using Spaghetti Models (see below).

Currently, Economic forecasting does not use Multimodel Inference but it is getting there! The best state space model for the US SocioEconomic System in the graphic at the beginning of this post is the World System (W) model based on the AIC Criterion.

Climate Change

Another comparison for what I have presented above are the IPCC Emission Scenarios. These scenarios are for the World System. Needless to say, the new Right-Wing Republican administration plans on withdrawing the US from all attempts to study or ameliorate Climate Change.