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) Technological Change in the United Kingdom

On September 18, 2025 Donald Trump and Keir Starmer signed a Technological Prosperity Deal between the US and the UK covering joint technological advancement. Aside from giving the US President a chance to ride in the Golden State Carriage with King Charles, what was the motivation for the visit and the Technological Prosperity Deal?

The Economy of the UK is driven by Technological Productivity (TECHP) change;  without accelerated Technological Productivity growth, the UK is facing a Steady State Economy or even Limits to Growth. 

In this post, I present results from the UKL20_TECHP model to explain the forecast. The TECHP Indicators and index construction are explained in the Notes.

The forecast for a steady state TECHP, with 98% bootstrap confidence intervals, is presented above. There have been spurts of growth in TECHP, one when the UK joined the EC (European Community, precursor to the EU, in1973) and one after Brexit. The first TECHP component, 

TECHP1=(-0.511 co2 + 0.182 e + 0.616 q - 0.571 l)

explains 60% of the variance in the productivity indicators. TECHP1 is an historical feedback controller balancing CO2 emissions per capita (quality of capital, co2) and Employment per capita (l) with Output per capita (q) and Energy per capita (e). In other words, higher quality capital stock (lower CO2 emissions and energy use) is associated with greater productivity and lower employment (capital-labor substitution). The UKL20_TECHP model predicts that this process is reaching a steady state.

The Technological Prosperity Deal is an attempt to put off the steady state and approach the 98% upper confidence interval where TECHP reaches a much higher level, but still a steady  state.

You can experiment with the full TECHP model here.

Notes

The Measurement Matrix for the TECHP state space:

The indicators are co2 (Carbon Dioxide Productivity), e (Energy Productivity), q (Output Productivity) and l (Labor Productivity). TECHP1 explains 60% of the variation in the indicators.

The System matrix for the full UKL20_TECHP model:

The  UKL20 Model Measurement Matrix is presented below (TECHP is one of the better drivers for the UKL20 Model--see the Akaike Information Criterion statistics below). 

The state space components are UK1=(Growth-CO2-LU),   UK2=(CO2+E-Q),     UK2=(L+N+LU+EF-HDI). Note that all the components are historical feedback controllers, particularly Growth (UK1) is controlled by CO2 Emissions and Unemployment (LU).

The models (AIC = Akaike Information Criterion, smaller is better):

• RW Random Walk [11.69 < AIC = 20.71 < 30.63]
• BAU Business As Usual [81.86 <  AIC = 87.22 < 91.8 ]
• W World WL20 Input [34.58 < AIC = 60.83 < 82.67]
• US USL20 Input [29 < AIC =  63.25 < 90.17] 
• UK UK2_UK3 BAU Input [83.88 < AIC = 89.88 < 94.15]
• EU European Union [60.47 < AIC = 79.99 < 97.75]
• TECHP Technical Productivity [27.43 < AIC = 48.29 < 66.77]
• TECHE Technical Efficiency [61.16  < AIC = 73.08 < 82.33 ]

World-System (1975-2150) Breaking Cycles of Austerity in France

 

The background graphic above was from a protest in Aug 2012 (you can see the small peak in AUST1--see the Operational Definitions in the Notes below--in the overlay time series plot). Emmanuel Macron took office in 2017, right after AUST1 hit bottom. His government has been riding the AUST1 Recovery wave since then. From my Business-As-Usual (BAU) model of French Austerity (here), AUST1 can be expected to peak in the next few years and decline after that. However, the decreasing Cycles of AUST1 will continue well past 2150. 

The BAU model, however, is not the best model for French Austerity. In the long-run, AUST is better seen as being driven by the EUL20 model (which is also steady state). In future posts, I will look at Austerity in the European Union (EU). In the short run, the best model is a Random Walk (RW)--validated by the Macron Administration's inability to form a government and retain a Prime Minister. The attractor path for the RW model is presented above (dashed red line). The RW attractor path suggests that AUST1 should be kept at a low level aside from random movements.

Austerity is a difficult component of Neoliberal Theory (see below). Especially, the dominant controller, AUST1, depends on external forces such as US Military support and the Russian-Ukrainian War which is forcing military expenditure up and creating the budgetary crisis with Health, Education and Welfare.

For an understanding of why Austerity has become such an issue in France, keep in mind that the Economy of France is becoming a Steady State Economy (see the FRL20 Model). One interesting hypothesis is that cyclical processes such as Austerity become more important as the system reaches a steady state and the dream of unending exponential growth (Techno-Optimism) is over. Promises can no longer be made that growth will solve Social Inequality problems. The New Axis of Evil can be used to motivate increased military expenditure but, to avoid reducing Social Expenditure, Debt will have to be used to drive the economy, creating another focus for Protest and wide-spread civil unrest.

You can experiment with the FR_AUST model here. For more information about how the models are constructed see the Boiler Plate.

Notes

More reading:

• Six Futures for France
• French Debt, Collapse of the Government, and COVID-19
• Shefner, 2015 here and here.
• Macron has No Good Options
• How Does the Economy of France Work?

Theoretical Considerations (it's bigger than just Austerity):

Austerity, as a theoretical concept, is part of Neoliberalism (see the graphic above and Shefner, 2015 here and here). I will explore the other aspects of French Neoliberalism in future posts.

The data for the AUST index is taken from the World Development Indicators (WDI). The indicators and definitions are listed in the table above. NOTE: AUST is entirely measured by budgetary categories as percentages; the cyclical nature of the index is a result of percentages hitting up against limits [0%,100%].

The AUST index contains three components that explain 94% of the variation in the indicators. 

AUST1 = (0.433 GED + 0.4571 MIL - 0.4477 G - 0.393 GE - 0.4701 GH)  

AUST2 = (0.822 GHE - 0.357 GED - 0.377 GE) 

AUST3 = (Overall Growth) 

AUST1 and AUST2 are historical feedback controllers for the budgetary categories defining Austerity. AUST1 focuses on controlling Education, Military expenditure, Overall Government Expenditure and Health Expenditure. AUST2 focuses on controlling Health and Education Expenditure.

In the Economy of France, Austerity, Debt and Globalization (KOF) are closely related. The relationship can be seen from the Measurement Matrix above when DEBT and WorldGlobal (KOF) are added to the model. In future posts, I will investigate all the indicators of Neoliberalism in France.

The state space of the French Economy is dominated by three components explaining 98% of the variation in the underlying indicators: 

FR1=(Overall Growth)

FR2= (CO2+EF-KOF)

FR3=(LU-L-N) 

FR2 and FR3 are Historical Feedback Controllers regulating Environmental Impacts of Globalization and Unemployment, respectively. EF is the Ecological Footprint and KOF is the Index of Globalization.

You can run the FRL20 Model with code available in Google Sites.

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).