World-System (1980-2100) Will Political Instability Hurt the French Economy?

 

Recently, the NY Times reported (here) that "...after three government upheavals in France since last summer, the damage to the French economy has already been done." In this post, I will take a look at the data. Recent data on French GDP comes from the World Bank and ends in 2024. The graphic above shows French Real GDP (GDP in constant 2015 US$) with a forecast and 98% confidence intervals out to 2100. 

French GDP is forecast to grow until about 2045 and then collapse after that. 

In terms of "damage to the French economy," the 2020 COVID-19 Pandemic was a major shock (outside the lower 98% confidence interval). In 2024, French GDP was a bit above the forecast attractor path (dashed red line). Political turmoil might reasonably be expected to bring the economy back to the attractor path but not create another COVID-style shock.

Possibly the most concerning aspect of the GDP forecast is the collapse starting around 2045. Why is the French Economy forecast to be in Growth-and-Collapse mode?

If you have been following my prior postings on the French Economy (here) you will see that France is approaching a Steady State Economy (maybe).*** French GDP, on the other hand, is best predicted by the World System (see the Notes below), which is in growth-and-collapse mode (see the WL203 Model). To avoid this future, some geopolitical re-orientation** will be needed.

Looking at the AIC statistics (below). One approach would be to reorient the French Economy to Business as Usual (BAU, [16.16 <  AIC =  21.38 < 25.79]) with no external geopolitical alignments, which produces the steady-state forecast above.  Compared to the World System model (W, [-97.78 < AIC =   -46.24 < -9.145]) which has the best AIC, this will require some geopolitical work. One path would be through the Random Walk (RW, [ -67.1 <   AIC =  -56.52 < -47.09]) which has a very good  AIC but is not predictive of the future.

One charitable analysis of current French Political Instability is that it is part of a Random Walk walk process to find a different Geopolitical Alignment. There is no guarantee that the process will end in a Steady State Economy.

You can experiment with the FRL20 BAU model here and explore alternative futures.

Notes

** The New York Times also reports (here) that France's ability as a geopolitical actor has been compromised by the current Political Instability.

*** The issue surrounding unending (exponential, unstable) Economic Growth, Limits to Growth, Steady State Economies,  and Growth-and-Collapse Modes have been uncovered (again--the debate has been ongoing since the 1970s) in the 2025 Nobel Prize for Economics. Joel Mokyr, a historian and one of the recipients, argues (here) that a Steady State Economy where growth has ended is unlikely. If history is any guide, new innovations will always break the Steady State and create more opportunities for growth. However, see my discussion of French Technology Cycles here and here. Also see Joseph Schumpeter's Creative Destruction model (here). I will review all these models in a future post, but as an obvious summary: no one knows the future. I can only report on forecasts from models and wait to see what happens to the actual French Economy.

AIC Statistics

Technology Models

The Nobel Price in Economics was recently award to Phillipe Aghion, Peter Howitt and Joel Mokyr for their work on How Technology Drives Economic Growth. Reviewers have claimed that their work has relevance for current Growth Policy. For this post, I can just point out that the two technology input models, TECHE (TECH Efficiency) and TECHP (Tech Productivity) are reasonable competitors but not the best models.

An interesting point is that the Aghion-Howitt model with Creative Destruction defaults to a Random Walk (RW) with drift.

I will investigate La French TECH in a future post (here).

World-System (1960-2100) Geopolitical Linkages: Canada, Mexico and the US

 

A recent article in the New York Times (here) suggests that Trump II Administration bullying (Trade Threats to both Canada and Mexico) might bring the two countries (CA and MX) closer together. It's hard to imagine Geopolitical Linkages between Canada and Mexico without the US. Mexico has strong cultural and economic relations with the Southwestern US and Canada has solid culture and economic relationships with the entire Northern US. There are strong inertial forces that will keep the Free Trade Agreements between the three countries moving forward well beyond the limited and inconsistent influence of the Trump II Administration.

The results presented below also suggest (not unexpectedly) that President Trump is tinkering with a system that he does not understand.

In this post, I will put the Growth Components (CA1, MX1, and US1, presented in the Notes below) of the three countries (CA, MX, US) together in a systems model and see what shape the future dynamics might take.** The first question would be which model would be best (from an AIC perspective), the two country model (CA1, MX1) or the three country model (CA1, MX1, US1)? The AICs  for the models are presented in the Notes below. From the AIC perspective, the three-country World-System linkage model is best.

But, let me clarify these results. I assume that politicians follow a BAU strategy: "our country is able to make it's own decisions without regard for other countries or the World System". The reality is, however, that each country is part of the World-System, whether they like it or not and whether they do or do not take into account World-System forces. The BAU results in the Notes suggest that CA and MX might reasonably consider going it alone together. The history of US, Canada and Mexico Free Trade Agreements also suggests that the countries understand the importance of the US as Hegemonic Leader of the World-System. Strong inertial forces will keep the three countries trading with each other long past the Trump II Administration. Inertia does not mean that there are not tensions and contradictions in the system!

The problem with forecasts from the WS-linkage model (above) is that each country will face a possible growth-and-collapse, Limits-to-Growth future. The US will peak a little later (2050) than CA or MX (2025). So, right out of the gate, World System linkage will seem like a bad idea to growth-obsessed politicians. From the standpoint of Environmental Damage from growth, Degrowth would be a positive outcome. So my assumption is that growth-obsessed politicians will turn away from a Limits-to-Growth future and focus on a BAU strategy such as NAFTA or the USMCA (the Trump I version of  NAFTA).

If each country (MX, CA, US) focuses on business-as-usual and their existing linkages (which  is very likely after the Trump II Administration), each country could experience unlimited exponential growth well after 2150 driven by the US, which is the unstable part of the system (you can experiment with the MX_CA_US model using the code provided here). At least unstable, unlimited growth was the vision prior to the Trump II Administration. 

I have suggested here that the Trump II Administration  is essentially taking the US on a Random Walk. If Trump is successful, the result (graphic above) could be a steady state (well after 2150) for all three countries if the US Random Walk persists (you can experiment with setting the US to an RW here; try to determine when the steady state will occur--it's way off in the future). 

In the short-run (year-to-year), the Mexican Economy is also a Random Walk (here). Additionally, setting the Mexican Economy to a Random Walk (graphic above) destabilizes the system and pushes the US into collapse mode. President Trump has to be careful with his RW-policy-approach because it can also destabilize the system.

All of the above is a round-about but necessary way of getting to the question of what effect will Trump Shocks have on the USMCA system? The graphic above shows how a negative shock to the US will affect each country, to include the US. Both MX and CA will be affected negatively to about the same extent and take over twenty years to reach equilibrium again. The US will respond positively in the first years (a prediction of the Shock Doctrine) but will eventually have to deal with the negative consequences for about the same twenty years. In other words, 

the Trade War works in the short run but in the long run helps none of the parties.

You can experiment with the MX_CA_US Model here and the MX_CA_US_W Input Model here. You can experiment with the MXL20 model here, the USL20 model here, the CA_LM model here and the WL20 model here.

In a future post, I will explore finding a steady state for the World System and what it's effect on the MX_CA_US_W Model could be.

 Notes

** More information about how the dynamic component state space models can be found in the Boiler Plate.

AICs

The AICs are: (CA1, MX1 = [104 > AIC=121.6, 137.5]) and (CA1, MX1, US1 = [112.5 > AIC=138.5 > 163]) for the Business-as-Usual Models (BAU) and (CA1, MX1 = [58.03  > AIC=101.6 > 134.2]) and (CA1, MX1, US1 = [ 51.14 < AIC=94.59 < 132.4]) for the World System (WS) input model (smaller is better for the AIC).

MX Components

CA Components

US Components

World Components

World-System (1960-2006) Seven Futures for Argentina

 

At the 2025 Conservative Political Acton Conference (CPAC, here) meeting in Washington, DC, Argentinian President Javier Milei gifted Elon Musk the "chainsaw for bureaucracy," a symbol of the deep cuts they both want to make in both the US and Argentina's bureaucracy. Elon Musk waved the chainsaw around on stage at CPAC. Milei has been president of Argentina since 2023 and is considered a right-wing libertarian as is Musk (currently). Milei considers himself aligned with the United States although prior Argentinian governments have sought closer ties with China and Russia (according to chatGPT). This post explores which of those Geopolitical Alignments might be best for Argentina. Another post (here), looks at the Economy of Argentina and whether bureaucracy is the problem.

From the time plot above, the BAU model (no input from other countries) exhibits unstable exponential growth, probably what most economists (including Javier Milei) would want. Alignment with China (CN), on the other hand, would produce unstable collapse. How Argentina would isolate itself from the World Economy is unclear but the country does have geopolitical options with China.

The more moderate alignments (the World-System, W, the US and the Latin American Regional economy LAC) all produce stable economic growth and a resulting steady state economy at some time in the future. Although a steady state economy might be preferred for environmental reasons, it is probably not an end-result embraced by current Argentinian elites. You can run the Argentinian state space model (AR20) under these various geopolitical influences here.

Geopolitical Alignment with Russia (RU) produces the strongest unstable exponential growth. Finally, alignment with Mexico (MX) is not much better than a Random Walk (RW).

Since the Random Walk is similar to the political strategy of the current Trump II Administration in the US (here), it is worth simulating the same future path for Argentina in the time plot above.  The result for Argentina is not the same as the US. Under a Random Walk there are neither growth nor collapse scenarios for Argentina.

Notes

The Akaike Information Criterion (AIC) statistics for all the Argentinian models are presented below.

In the Measurement Matrix below, 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 Error Correcting Controllers (ECC) are (Growth-EF), (LU+EF+KOF-Q), (EF+CO2-KOF-LU). It is interesting and somewhat unusual that, in Argentina, growth is controlled by the Ecological Footprint (EF) and the EF is important in the other two ECCs.

State Space Model Estimation

The Measurement Matrix for the state space models was constructed using Principal Components Analysis with standardized data from the World Development Indicators. The statistical analysis was conducted in an extension of the dse package. The package is currently supported by an online portal (here) and can be downloaded, with the R-programming language, for any personal computer here. Code for the state space models is available on my Google drive (here) and referenced in each post.

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.

While the app is still available, there have been some interesting developments. In earlier forecasts, the Atlanta Fed was showing GDP growth predictions outside the Blue Chip Consensus. Right now, after unorthodox economic policies from the Trump II Administration, the EconomyNow model is predicting a drastic drop in GDP (the Financial Forecast Center is only predicting a slight drop here).

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, (2) the new Right-Wing Republican administration plans on withdrawing the US from all attempts to study or ameliorate Climate Change and (2) the IPCC does not produce any RW modes for the World System (but seem my forecasts here).