A Steady State Economy for Italy


Italy has been called The Sick Man of Europe simply because growth is slowing. The name-calling is based on the assumption that economies are supposed to grow forever. In a finite planet, the assumption is unreasonable. From the IT_L20 Model, Italy is forecast to be approaching a Steady State Economy after 2045 (see the graphic above). Why is this happening and is it a Success or a Failure?

The simplest answer is that overall growth rates for the IT_L20 Model are stable (Largest eigenvalue < 1.0--see below). A stable economy will always reach a steady state. If the historical controllers are also stable (and they are in Italy), then the steady state can be maintained indefinitely.

However, the relationships between the indicators in the historical controllers are quite complicated and will be a challenge for Italian politics. Consider the following expansion of the Kaya Identity as a Directed Graph:



There are lots of questionable effects within the model, for example the effect of Globalization (KOF) on Energy Use or the effect of Globalization on the Ecological Footprint (EF). And, there are also no feedback effects in the model.



The directed graph above investigates Population feedback effects. Increases in production can, in advancing sectors, create more jobs. More jobs allow families to economically support their children. Downturns in Population (as happened before the turn of the Century in Italy) can be compensated by increased Migration (as also happened in Italy).



Another feedback effect, seldom mentioned,  is from the Ecological Footprint (EF) to Population growth (N). Right now, Italy is thought to be facing a Demographic Collapse, but slowing population growth is the result of the approaching steady state and feedback effects within the system. I discuss Demographic feedback effects in another post (here) and leave exploring other feedback effects for the Questions below..

As for Globalization, Google AI comments:
I discuss systemic political solutions to  managing the Steady State Economy in another post (here). Italy is well-positioned to embrace systemic political solutions if it is recognized that the economy is not failing but rather reaching a  Steady State Economy that needs a differenet form of government.

Notes

Run the ITL20 Model in R-code (here). For more of my posts see Blog Roll: Italy, the Boiler Plate and the Introduction to State Space Models.


Questions

  1. What other feedback effects might there be in the Directed Graph above?
  2. How might we decouple economic growth from unemployment, resource use and environmental damage? Consider Green Globalization compared to De-growth and compared to issues presented by the Steady State Economy which Italy is actually facing.

Wikipedia Links


ITL20 Measurement Model


The IT_L20 Model State Space has three components that explain 97.3% of the variation in the indicators which are taken from the World Development Indicators. The first component, IT1 = (Overall Growth). The second component, IT2, is an historical controller balancing the KOF Index of Globalization and Human Development Index against Unemployment and the Ecological Footprint, (KOF+HDI-LU-EF). The third component, IT3, is another historical controller balancing Unemployment against Population, CO2 emissions and Energy use.

ITL20 BAU Model


The ITL20 BAU State Space Model is stable and cyclical reaching a steady state sometime in the 21st Century.


The cyclical components, L2 and L3, that control the IT_L20 Model are typical of steady-state economies. Notice that the cycle times, in years, are quite long. 






.




 

Comments

Post a Comment

Popular posts from this blog

UKL20: Can Policy Actions Destabilize the SocioEconomic System?

Image
  Typically, when commentators talk about Policy Actions such as the UK Climate Change Act of 2008 , the assumption seems to be that governments will never do enough and that the more aggressive the policy targets the better . Seldom are the effects on the political-economic system taken into consideration and seldom is consideration given to stabilizing the political-economic system before policy measures are enacted. In the graphic above, I have plotted two forecasts for UK1  (the dominant state variable in the UKL20 BAU Model ). The top graphic shows system collapse in the Business-As-Usual ( BAU )  model  which, as estimated from the World Development Indicators , is unstable. The lower graphic shows the stabilized version of the BAU model reaching a steady-state after 2046 (the model is stabilized by reducing growth rates). My next question is whether the  Climate Change Act of 2008  destabilized the system. In the Notes below, I present the U...
Read more

Steady State Economy for Germany?

Image
  Jun 1, 2026  Germany Has Lost What It Did Best  Pro-growth handwringing. 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 ...
Read more

Steady-State Economy: Political Philosophy

Image
In a prior post ( here ), I commented that the Political Philosophy of a Steady-State Economy  "remained to be worked out". What I mean by the comment is that when we work through all the popular political philosophies (see table in the Notes below) and end up at  Steady-State Economy  and General Systems Philosophy , we start to run into some contradictions. The graphic above summarizes the problem (there are actually six growth modes that contain the three above--see below). We know the history of Societal Collapse , it has happened before and is obviously not sustainable. We also hypothesize that unstable exponential growth will eventually reach limits on a Finite Planet (the Limits to Growth ) and create living conditions that are not sustainable. Growth Limits, however, are a hypothesis that can't be proven until it is too late. From General Systems Theory  we know that the only way to create a  Steady-State Economy  is by reducing growth rates and ...
Read more