UKL20: Can Policy Actions Destabilize the SocioEconomic System?

 

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 UK2000 BAU model compared to the UKL20 BAU model. Notice that after 2000, the historical controller for UK2 =  (CO2+EG - LU - L) was destabilized as a result of CO2 reductions.

The UKL20 BAU model is on a growth-and-collapse path unless the UK1 and UK2 historical controllers are stabilized.

For my current and future posts see Blog Roll: The United Kingdom. You can run the  UKL20 BAU Model yourself on my Google site.

Notes

• A Green New Deal First Report of the Green new Deal Group
• Stern Review (2006): The Economics of Climate Change
• The Global Justice Report A plan for equality and prosperity within Planetary boundaries.
• Institute for New Economic Thinking UK economists and thinkers from a range of disciplines who challenge conventional wisdom and advance ideas to better serve society.
• Peak Oil Forecast and Global Warming A negative feedback loop for CO2 Emissions.
• A More Conservative Peak Oil Forecast No one knows the future!
• UK Climate Change Act of 2008 CO2 reductions mandated by law.
• Policy Wedges and State Space Simulation Models Policy wedges based on simulation models present a rational way of setting policy targets.
• Leverage Points: Places to Intervene in a System Donella Meadows lists twelve ways to intervene ins systems (below) not all of which are very effective. I have found, at least with quantitative State Space models, that reducing growth rates to stabilize the system has immediate effects. From a political point of view, reducing growth rates is a non-starter (see the Growth Treadmill).
  
  
  
  
  
  
  

Google AI Summary

After 2000, the Climate Change Act of 2008 was the major policy action in Great Britain. Of course, other policy actions were taking place. However, before 2000, The UKL20 model was stable; after 2000 it was not.

UKL20 Codes and Measurement Model

The UKL20 Measurement Model defines the state space of the UK DCM model: UK1 = (Growth-CO2-LU), UK2 =  (CO2+EG - LU - L)  UK3 = (LU + EG + N). Notice that (1) the component explaining the most variance (63.4%) is not an overall growth component but rather an historical growth controller, (2)  CO2 Emissions are important indicators in both UK1 and UK2 and (3) Both UK1 and UK2 are unstable components in the UKL20 model.

UK2000 BAU

In the UK2000 BAU Model, the UK2 historical controller is stable (coefficient less than 1.0). The UK2000 BAU Model is an example of a Moving Equilibrium Model which is very common in socio-political systems and which can easily have weak feedback loops destabilized by policy actions. Essentially, the canonical Neoclassical Economic Model is a Moving Equilibrium Model.

UKL20 BAU

Both the UK1 and UK2 state space components are unstable.

Shock Decomposition

The UK1 and UK2 historical controllers behave differently under historical conditions (unstable) and stabilized growth rates. In a stabilize system at equilibrium, policy measures have permanent effects.

Unstable

A positive one standard deviation shock to UK1 (first column, second row) in the unstable system results in an initial reduction in the (CO2 and LU) but after five years an increase in growth again. Shocks to UK2 (second column, first row) result in permanent decreases in growth. The effects are all small and the two historical feedback controllers are both weak.

Stable

A positive one standard deviation shock to UK1 (first column, second row) in the stabilized system results in a permanent reduction in the (CO2 and LU). Shocks to UK2 (second column, first row) result in permanent decreases in growth. The effects are all small and the two historical feedback controllers are both weak.