Are There Feedback Loops in the Economy?

 

From a general historical perspective, feedback control in economic systems is an easy question to answer. We are still not in the Great Depression of the 1930s, the Dot-Com Bubble, the Subprime Mortgage Crisis, the Great Recession or the COVID-19 Pandemic shocks. Somehow, we got out of these shocks and the Economy is growing again. 

Here is one oft-repeated quote from the Great Depression:

“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

― Andrew Mellon

Andrew Mellon was Secretary of the Treasury in the US during the Great Crash. Although his reported statement to President Herbert Hoover  is second hand and  somewhat heartless, it is probably also somewhat accurate. Eventually, all the excesses that developed during the Roaring Twenties in the US were liquidated during the Great Depression. The economy returned to a growth path, possibly not until after WWII. Eventually, economic systems recover, even from the worst tragedies.

Market Fundamentalism agues that markets eventually clean up their own problems,  Prices and production collapse but eventually recover. We have to just wait the process out. While the adjustment process is happening, a lot of people's lives will be ruined, but that is unfortunate.

The causal diagram above (an expanded Kaya Identity) describes the role of the market in controlling aggregate production and prices. It is sometimes called the AD-AS model (Aggregate Demand-Aggregate Supply). It is the basis of market fundamentalism and can be applied to Labor Markets, Energy Markets and Carbon Markets. It has even been applied to marketable birth licenses by Economist Kenneth Boulding (here).

Unfortunately and to my knowledge, market fundamentalism has not been applied to the overall problem of Climate Change. However, a market for global temperature would not solve the problem. System Theory argues that there should be negative feedback between system outputs and system inputs. Again and unfortunately, there certainly is and it is called a preventive Malthusian Check on population growth.

If global temperature gets too high, many parts of the planet will become unlivable. And, however unlikely, the entire planet could become unlivable as a result of the Runaway Greenhouse Effect. There might be many other feedback loops in the system that will prevent a climate catastrophe from happening, but these effects are considered "speculative" by climate scientists (see Ripple, 2023 below).

Readings

• Ripple Many Risky Feedback Loops Amplify the Need for Climate Action
• Dong Human-Nature Feedback Loops
• Hicks Keynes and the Classics
• Bent Hansen A Survey of General Equilibrium Systems

Markets Won't Save Us!

 

Jeff Bezos has recently made changes to the Washington Post (WaPo) editorial policy to emphasize "free markets and liberty" (here). Sorry Jeff, "free markets" won't save us (no matter how much the WaPo writes about them) and here's the proof.

But first, I'm reading an excellent book by Quinn Slobodian titled Globalists: The End of Empire and the Birth of Neoliberalism. I haven't finished it yet, but I would recommend downloading the Kindle version (yes, this gives some money to Mr Bezos but I appreciate Amazon); it's an easy read on your phone while your are waiting somewhere for the future to  emerge. The book goes into the entire history of Neoliberalism (not just the US version) and Neoliberalism is all about markets. Basically, the European Neoliberal argument is that the economy is too complex to understand with simple mathematical models (the Limits-To-Growth Models or the Neoclassical Economic Growth Model or the DICE model) so we have to write laws protecting self-organization markets, the only reasonable way we know to control the Economy. Unfortunately, markets won't control both the Economy and the associated Environmental Systems to include the Demographic system. Here's the proof.

Let's start with the simple Kaya Identity (directed graph version above) used by the IPCC (see the Notes below). If we add employment markets, commodity markets, energy markets and carbon markets we get the directed graph at the beginning of this post. We don't have markets for global temperature or population (see my prior post here). There is nothing in the full market system that controls global temperature to make sure it will not exceed some tipping point and make the Earth unlivable. However, temperature change will happen gradually and begin having negative effects on population via the dashed Malthusian Feedback loop in the original directed graph. Parts of the Earth will become unlivable deserts and flooded coastal areas (with sea level rise). Increases in global temperature will increase forest fires and make affected wooded areas unlivable or at least uninsurable.

Many people, some of whom read my posts, think that Malthusian Crises can never happen or that Technological innovations will allow us to adapt to all Environmental crises (TechnoOptimism). Technological fixes require some drastic changes to the Kaya coefficients in the directed graph above. And, the coefficients of models are expected to change slowly (how quickly will all-electric vehicles be adopted?)

The coefficients e, q, e, and t are parameters in the model and will have to change rather quickly to avoid Environmental Tipping Points. TechnoOptimist assertions can be tested using the Kaya Identity. I'll leave that to you to work out the math as an exercise. You have the tools now.

Notes

Starting with the Kaya Identity also disproves the Neoliberal assertion that the Economy is too complex to be understood. The Kaya Identity is true by definition: if you add more people (N) to a SocioTechnical system you will eventually increase employment (L) which will increase output (Q) which will increase energy use (E) which will increase CO2 emissions and finally raise global temperature (T). If you don't accept the Kaya Identity, plug in some numbers to a program I have written (here) and run the program. Or, plug the parameter values into the Kaya Identity and do a back-of-the-envelope calculation (see more discussion here). To understand Technological change, modify the parameter values. Remember, the Kaya Identity is a model not the real TechnoSocial system. Yes, the real system cannot be understood with arm-chair speculation; models are all that we have.

The Kaya program (here) is very general and can be used to "prove" the  TechnoOptimism position. But, do you really believe that growth can continue forever on a finite planet? This is the argument for colonizing Mars, but that won't work either. There won't be enough space ships for the exponentially growing population to escape from the over-crowded planet.

If markets won't save us, what will? My best guess is that we will continue to hope that markets will save us but in the end it will be Malthusian Crises that control the Kaya System--a topic for a future post. For the time being, you can experiment with the Malthusian Controller here.

You might still not be convinced that markets don't control the SocioEconomic system. Here are a few more proofs.

Let's just focus on commodity markets in the directed graph above. 

Since markets are assumed (by economists) to adjust instantaneously without delays, we can reduce this part of the expanded Kaya Identity to the directed graph above.   All we have done is to modify the L-Q parameter slightly. And, since markets must be stable, (1-pq) < 1.0. In other words, we have increased the impact of labor on production. What this means is that, if markets do anything and if markets are stable and if markets adjust instantaneously, markets increase growth rates slightly. It is a line peddled by Neoliberalism and will probably be emphasized on the WaPo editorial page.

The directed graph above adds a shock, X, to the reduced market model. 

And, as we have found out with the US Egg-Price Shock, instantly adjusting markets leave prices elevated until the shock is over.  Markets do not control shocks. On the other hand, it's not that Economic Planning could have done much about the Bird Flu Pandemic or COVID-19, for that matter.

Should We Read the Classical Economists?

The Classical Economists, Adam Smith (1723-1790), Thomas Robert Malthus (1766-1834), David Ricardo (1772-1823) and Karl Marx (1818-1883), collectively wrote in the 18th and 19th Centuries. All their works are currently in the public domain and available on line (see below). Neoclassical Economics supposedly made their works obsolete and you hear little about the Classics if you take a course in ECON 101. Still, there is a sinking feeling in the Economics profession that We Need Better Economic Models. What might the Classics have to offer? Briefly:

• The Steady State Economy Modern economics assumes that growth can continue forever without limit. The Classics, on the other hand assumed that eventually growth would reach a steady state. For Marx, this was the Communist Society, which he described only general terms. There is evidence that current economies (here) are reaching a steady state and that it will not be the utopia envisioned by Marx.
• Economic Depressions and Business Cycles In Modern economics, cycles and long-waves are not supposed to happen. The market is supposed to adjust any imbalances in supply and demand and regulate the economy. The Classics assumed that booms, busts, panics, bubbles and manias could all happen and required explanation. For example, Malthus and Ricardo were concerned about effective demand, prefigured Keynes and did not assume markets handled all economic problems automatically.
• Historical Determinism Modern economics has no role for History. Models are timeless and general, much as universal physical forces. The Classics, particularly Malthus and Marx, understood that different models were required for different periods. Premodern societies are best described by the  Malthusian Stagnation Model rather than the Neoclassical Growth Model. Marx thought that the Asiatic Model of Production was different from the Capitalist Model.
• Alternative Economic Models can be developed based on the Classics (see below). The models can and should be tested. Right now, the Neoclassical Economic Model is dominant and it is incomplete.
  
  

Modern Economics based on overdetermined, stable equation systems doesn't have a role for cycles, depressions, pre-modern models of production and History. Systems Theory, on the other hand, can easily handle cycles, instability, growth and steady states.  Not that every problem is solved by recovering the past. Both the Classics and the Moderns jumped too quickly from their (mental) models to policy recommendations.  Real SocioEconomic systems are far too complicated to be controlled by simple feed forward systems. The best we can do is analyze natural experiments as they are conducted in History and see if our systems models can capture what happened. 

The bigger problem here is that Economics has been co-opted by Neoliberalism and Market Fundamentalism. What you get in ECON 101 is an attempt to describe the Economic System and an attempt to proscribe policy measures to tell politicians how to run the Economy. These attempts are largely a failure and have little historical justification or empirical support--at least the little that is offered in ECON 101. And, this is what the average student gets, if anything, as an introduction to Economics.

The Classical writers had very few mathematical, statistical or historical tools at their command for understanding the Economic System. They struggled with definitional issues and wrote in a verbose style we no longer find very straightforward. If we trained students to be Classical economists, we would just end up generating an avalanche of speculative, qualitative writing that never gets tested. In other words, we wouldn't get Science.

My recommendation is that we use the new tools available to us, primarily Systems Theory, to move on from both the Classical Economists and current Neoclassical Economics. Critics will argue that this has already been tried an failed, in Sociology by Talcott Parsons (1902-1979) and in Economics by Kenneth Boulding (1910-1993). The critics are wrong but having an argument won't solve anything.

Let me just make these assertions: Economics went wrong by insisting that everything has to be derived from individual, rational behavior, i.e., Homo Economicus. Systems theory argues that the the Economy is not just an aggregation of individual, rational behaviors. The system has both aggregate growth and aggregate feedback processes. We understand the variables involved in Growth (the Neoclassical Growth Model) but we have little understanding of the macro-feedback process and how the Economic System is controlled beyond the Aggregate Demand and Supply model (AD-AS model) which is incomplete. Just consider the simple Impact Model with markets for aggregate production (Q), energy (PE), and CO2 (PC, price of carbon--a market which is very incomplete).

What controls Global Temperature (T)? What controls Population Growth (N)? There are other Human Feedback Loops in the complete TechnoSocial system that we barely understand. The Subprime Mortgage Crisis (2007-2010), the COVID-19 Pandemic (2019-2023) and the resulting economic shocks and fumbled government response made clear that markets didn't help control inflation and we really didn't understand the effect of many supply chain delays and disruptions caused by exogenous shocks. And, the expanded Impact Model above is not a system because there are no feedback loops (just self-loops).

In summary, we should continue to be interested in the Classics because they asked the right questions. We have to get beyond the Classics because the tools available to them (arm-chair speculation) did not produce the best answers. Western Civilization has not collapsed (yet). All the -isms (Liberalism, Communism, Fascism, Socialism, etc.) are flawed. And, we have new questions based on Systems Theory: Is the Economy Stable? Is the Economic System Under Control? What feedback loops are activated by crises? So many questions.

Classic References

These works are available on line:

• Adam Smith Wealth of Nations
• Malthus An Essay on the Principal of Population
• Malthus Principles of Political Economy
• Ricardo Collected Works
• Marx Collected Works
• JS Mill Collected Works
• JM Keynes The Collected Writings

Excellent Secondary Works

These secondary sources are worth tracking down and reading:

• Hicks Keynes and the Classics
• Higgins Economic Development
• Saeed Limits to Growth Concepts in Classical Economics
• Baumol Economic Dynamics
• Boulding The Malthusian Model as a General System
• Galor From Malthusian Stagnation to Demographic Transition
• Ripple Many Risky Feedback Loops Amplify the Need for Climate Action
• Dong Human-Nature Feedback Loops
• Kalman A System-theoretic Critique of Dynamic Economic Models

The Neoclassical Growth Model

 

When comparing the Classical Economists to the current Economic thinking, it is useful to have the Neoclassical Model (Solow-Swan Model) as a causal diagram for comparison. Expressed in Real terms: (1) N = Population, (2) L = Labor, (3) TECH = technology, (4) Q = Production, and (5) z˚ = Capital stock. Technology and population growth are exogenous.

Adding markets for Labor (where W is Wages), Production (where P is Price) and Investment (where i is the Interest Rate), we get the model above.

From the standpoint of Systems Theory, the problem with the Solow-Swan Model is that it is too narrow. The Balanced-Growth Equilibrium is a more realistic model where all the Variables in an Economic System are growing together. For example, in the UKL19 Model Measurement Matrix, the dominant state space component (UK1) is an approximately equal weighting of all the variables in the model (you can run the UKL19 model here). The Overall Growth Component (state variable) explains 99.5% of the variance in all the indicators.

Balanced Growth theory is an important part of World-Systems development. The other components (UK2 and UK3) are feedback state variables. In the case of the UKL19 model, the feedback components involve two controllers, (1) UK2=(X-U-N)  controlling Urban Population and Export growth and (2) UK3=(XREAL+Q-X-L-U) controlling Export prices (XREAL-X), Output (Q) and Urban Labor. Aside from prices in Export markets, these Historical Controllers (UK1 and UK3) are not captured by Economic Theory but are observed when applying Systems Theory.

The Adam Smith Model

In this post, I am not going to start by reading Adam Smith's work and looking for general variables and interconnections (Hage, 1972). I'll do that in some future post. Instead, I will implement Saeed's (2008) Smithian System Dynamics model (see the Notes below) as a causal directed graph and then as a State Space Model (see the Boiler Pate). 

I find that the Smith Model of Saeed (2008), when given a Systems Analysis, is essentially a Small Open Economy (Small Country) model with no state variables, equivalent to a Random Walk (RW).

Starting from the Kaya Identity (see the Boiler Pate),  Saeed (2008) can be seen to have focused on four variables: Labor (L), Capital (K), Production (Q) and Technology (T). Translating Saeed's (2005) model to a directed graph yields the causal diagram above (Saeed's System Dynamics model is a little more complicated, see the Notes below, but I have reduced it above to the basic linkages).

From the standpoint of Systems Theory, the model's one obvious limitation is that there are no input variables.  Saeed (2008) resolves the problem by adding Population growth (N) as an input and concludes that "Population is the Limit-to-Growth" in the Smith model. Before exploring Saeed's conclusion, let's explore the basic Smith model further because there are other conclusions that can be drawn.

First, we can add initial conditions as exogenous variables and, second, we can add coefficients to the directed graph (above).

Then, with Directed Graph Reduction Theorems (see the Notes), we can reduce out all endogenous variables or any endogenous variables that we choose. For example, we can (1) add coefficients (as above) and (2) reduce out Capital and Technology and get the digram below:

where:

A = l/(1-e) * i/(1-k) * t/(1-d)

This result is the causal interpretation of the Labor Theory of Value which has plagued Marxists analysis since it was borrowed from David Ricardo (see Schumpeter, 1944). Given an initial condition for Labor (L0), the model makes an equilibrium prediction for the ultimate value of production (Q). Also notice that the coefficient e, k and d must all be less than one for the model to predict a positive value for Q.

To analyze the stability of the model we can make it dynamic by adding self-loops to the directed graph (above). For stability, the coefficients (b-d), t, Q, and d (capital stock depreciation) must all be less than 1.0 in value.

Returning to Saeed's model, simulated time paths for the model are provided in  Saeed (2008). We can use that data to estimate a state space model. The Sytem matrix for the estimated model is presented above.** Notice that all the coefficients, except for the constants [0.51, 0.52 and 0.53], are all zero (the constants are the initial conditions of the model). The model can be recognized as the Small Open Economy (Small Country) model with no state variables, meaning that the economy is entirely at the mercy of exogenous World-System forces. 

You can run the Smith Small Country model here. It is essentially no different from a Random Walk (RW) which is also run in the code. In future posts, I will provide examples of countries in the World-System where the Small Country model is the best descriptor.

Notes

** Notice that I have reduced Technology (T) out of the model. It is never really defined adequately by the Classics so there is really no possibility of estimating undefined variables. The Capital Stock (K) can also be reduced out of the model since there is no long-term Capital Stock data for any country in the World-System.

Speed's System Dynamics Model

Saeed (2008) summarizes Adam Smith's Wealth of Nations with the following paragraph:

If you have read the Wealth of Nations, the summary will be entirely inadequate. However, Saeed's goal is to formulate the basic model as a System Dynamics model (below) and then develop other Classical models (Ricardo, Marx, Schumpeter, etc.) and explore how Limits to Growth enters all the Classical models. He started from Benjamin Higgins (1968: 57) Classical model.

To construct my causal diagram of Saeed's System Dynamics model (at the beginning of this post), I trace all the linkages between the "level" variables (L, K, T and Q) and connected them as nodes in a directed graph (digraph).

The benefit of what Saeed has accomplished will become clearer as we move on to the other Classical Economists in future posts.

References

• Saeed Limits to Growth in Classical Economics
• Adam Smith Wealth of Nations
• Schumpeter Capitalism, Socialism and Democracy
• Huggins and Entwisle Introduction to Systems and Design
• Higgins Economic Development

 

About

 

The Classical Economists (in order above: Adam Smith, Thomas Robert Malthus, David Ricardo, Karl Marx and Joseph Schumpeter)* left a vast trove of theoretical writings and economic observations that is not intensely studied today (ECON101 is mostly textbook Neoliberalism). The only classical economist I read in college was Karl Marx in a graduate Sociology Course and was restricted mainly to summary readings and the Communist Manifesto.

There has been somewhat of a resurgence of interest in the classics in World-Systems Theory (an extension of Marxian Economics** focusing on the exploitation of Peripheral Nations) and System Dynamics (see Saeed 2005) prompted by the Limits to Growth.

My purpose in this blog is to translate the Classical Economists into Systems Theory which allows the testable*** ideas to be formalized and used to estimate systems models with historical data (see the Boiler Plate). This exercise would not be possible without some simplification.

                              

The simplification I used to implement the Classical Economics as causal models is the Kaya Identity (above). The Kaya Identity is true by definition and linkages among the extensive variables: (1) More population (N)  creates more labor, more demand  and more production (Q).  (2) More production (Q) creates more energy (E) use. (3) More energy use (E) creates more CO2 emissions. And, (4) More CO2 emissions create increases in Global Temperature (T). The Kaya Identity is used by the IPCC to create a solid foundation for it's Emission Scenarios. The magnitude of effects in the model is determined by the intensive variables  (coefficients): (1) n = Q/N, (2) e = E/Q, (3) c = CO2/E and t = T/CO2. The ma of magnitude of effects are also determined by feedback effects between the extensive variables. The feedback effects are less well understood and can be estimated and analyzed with Systems Theory.

The Classical Economists struggled with issues of causality, historical dynamics and feedback effects. Neoclassical Economics concentrated almost exclusively on analyzing equilibrium. Neoclassical Economics also did not study the problems of the Steady State Economy or the  Limits to Growth while the Classical Economists did.

The classical Economists have to be read with a purpose. Since they present qualitative, mental models from an early period in the development of Economic Thought, there are many excursions, dead ends and ideas that did not quite work (Schumpeter does a great reading of Marx here, also see Saeed Limits to Growth Concepts in Classical Economics). My purpose in reading the Classics is to develop alternative models that can be tested on World-System data.

Classical Economic Models written in the R Programming Language can be found and run here.

Notes

* Economists I have not included in this list (and there are many, John Maynard Keynes for example) deserve a separate classification. I would include Keynes, for example, in the Modern study of government policy.

** In the US, at least, as a result of Cold War Politics, Marxism is equated to Communism (an ideology) which interferes with an unbiased look at Marxian Economics. Systems Theory allows us to put all the classical economists on an equal footing and find what is "systemic" in their writing.

*** Not everything written by the Classical Economists is statistically testable. Reducing the Classical Economists to systems models ignores most of the richness in their writing but still provides for a wide range of interesting results. Many formal models in Neoclassical Economics (for example the 2025 Nobel Prize in Economics winners model Aghion and Hewitt, 1992) are untestable. All Systems Theory models are testable if data is available.

Classic References

These works are available on line:

• Adam Smith Wealth of Nations
• Malthus An Essay on the Principal of Population
• Malthus Principles of Political Economy
• Ricardo Collected Works
• Marx Collected Works
• JS Mill Collected Works
• JM Keynes The Collected Writings

Excellent Secondary Works

These secondary sources are worth tracking down and reading:

• Hicks Keynes and the Classics
• Higgins Economic Development
• Saeed Limits to Growth Concepts in Classical Economics
• Schumpeter Capitalism, Socialism and Democracy
• Baumol Economic Dynamics
• Boulding The Malthusian Model as a General System
• Galor From Malthusian Stagnation to Demographic Transition
• Ripple Many Risky Feedback Loops Amplify the Need for Climate Action
• Dong Human-Nature Feedback Loops
• Kalman A System-theoretic Critique of Dynamic Economic Models

Boiler Plate

 

Notes

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. 

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 Dynamic Component models (DCMs) 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).

Another comparison for what I have presented above are the IPCC Emission Scenarios. These scenarios are for the World System. Needless to say, (1) 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).

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, (1) 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).

World System

The longest running set of data we have for the World-System is the Maddison Project based on the work of Angus Maddison (more information is available here). Data on production (Q) and population (N) for most countries and regions runs from years 0-2000. More data becomes available as we near the year 2000. 

Available data were entered in a spreadsheet (see Population above, double click to enlarge). Missing data were interpolated with nonlinear spline smoothing using the R programming Language.

In cases where initial values were not available (see GDP above), the E-M Algorithm was used to estimate initial conditions.

From the graph of GDP above (W_Q) for the World System, it can be seen that economic growth from the year 0-1500 was basically flat. The period of British Capitalism (after 1500) had a small plateau of growth. Takeoff does not happen until the Nineteenth Century.

From a system's perspective, the only model that can be tested for the entire period is Kenneth Boulding's Malthusian Systems Model [Q,N] = f[Q,N].

When developed as a State Space model (measurement matrix above) there are two components: W1=Growth and W2=(Q-N), the Malthusian Controller. When more data is available, the Malthusian Controller can be generalized to other SocioEconomic theories.

What the Malthusian Controller shows (plotted as Q-N above) is that a long-developing Malthusian Crisis (Q<N) started in the Late Middle Ages and accelerated through the period of British Capitalism (Dark Satanic Mills) and was reversed spectacularly during the Nineteenth Century.  Takeoff in response to a deepening Malthusian Crisis would not be an unreasonable way to view Modern Economic Growth.

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.

Error Correcting Controllers (ECC)

In another post (here), I presented Leibenstein's Malthusian Error Correcting Controller (ECC). It can be generalized to the dominant ECCs in most theoretical economic models (above). These controllers can be further generalized. For example, (X-U) and (L-U) can be generalized to (N-U), a more general Urbanization Controller which describes market expansion for economic growth. In countries and periods with limited data, (N-U) might subsume all these processes. ECCs describe important feedback processes in SocioTechnical System that are typically not recognized as such in academic literature.

Kaya Identity

The basic theoretical model underlying all the World-System models I crate is the Kaya Identity. There are a number of advantages to starting theoretical development with the Kaya Identity: (1) An "identity" is true by definition Adding other variables to the model ensure that theory construction is on a solid footing. (2) The Kaya Identity is also used as the foundation for the IPCC Emissions Scenarios allowing a linkage between World-Systems Theory and the work of the IPCC.

World Development Indicators (WDI)

After WWII, extensive data sets on all countries in the World-System became available from the World Bank (here). The indicators above where chose to construct the state space for each WDI-based model. Addition indicators can be added for specific forecasts and analyses.