China's Long Malthusian Crisis After Mao's Death

 

Thomas Robert Mathus (1766-1834) died 180 years ago but his Essay on A Theory of Population (you can read it here, but few people have) continues to stir strong controversy and continues to be misunderstood. Karl Marx (1818-1883)  considered the assertion that growth would outstrip agricultural production a libel on the Human Race since it was the Capitalist System that would likely fail to produce enough food. Kenneth Boulding (here) was the first to reformulate Malthusian Theory as a General System and point out that it was simply a truism: population growth could not outstrip economic production without creating a crisis. In this post, I will apply a statistical systems model to the Economic growth of China after WWII that clearly identifies the Chinese Malthusian Crisis that lasted from 1975 to 2005 (see the model outputs in the graphic above).

Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio (An Essay on Population, p 4).

Malthus was not a systems theorist. Systems Theory had not been invented when Malthus wrote in 1798.  The quote above is what has made it impossible to reason with Techno-optimists. Malthus was trying to lend some mathematical rigor to his analysis. It made his two equation theory testable and falsifiable. It can easily be proved wrong and is a perfect scientific hypothesis. So why are we still talking about Malthus? Systems theory, invented in the Twentieth Century, allows us to restate the Malthusian theory in a general form that continues to be testable, useful and not casually falsifiable. It is useful because conventional Liberal Economic theory has nothing useful to say about population growth. It is simply an exogenous force that a stable economic system can always accommodate. Liberal Economic theory also has nothing useful to say about unemployment, depression and societal collapse--all these problems are important for China (see below).

So, let me just restated Malthusian Theory as a systems model (above) to avoid sterile arguments. As a system, Malthusian Theory agues that the comparison between agricultural production (QA) and population (N) can (it doesn't have to) function as an Error Correcting Controller (ECC) defining the State of the System (S). If (QA-N) is positive the system can continue growing. If (Q-N) < zero the system will start contracting. People living at the subsistence level will start starving while the wealthy can emigrate (EM). Technological change (TECH) can also intervene (e.g., the Green Revolution) to boost agricultural productivity. During a famine (negative shock to QA), however, technological innovations might not necessarily be immediately available or affordable to a society living at subsistence.

What is typically misunderstood about the Malthusian System is that there should be feedback between the state of the system (S), population growth and production. Famines should be a signal that the system cannot support the current population and that something must be done.

So let's return to China. Here is the Measurement Matrix for the CNL20 State Space model:

The first row, CN, describes overall growth and explains 90% of the variance in the indicators (taken from the World Development Indicators--Databank. The second component, CN2 (Malthus2 in the graphic above) describes the Malthusian Controller (0.55Q - 0.30N). It explains an addition 0.06% of the variation. The third component, CN3, describes a global unemployment measure, (0.82LU - 0.50 KOF) where KOF is an Index of Globalization from the Swiss Economic Institute.

The Malthus2 (CN2) component, in the graphic at the beginning of this post, reaches a low point (Q<N) between 1990 and 2000, but the Malthusian Crisis extends from 1975-2005. Major events in Modern China's History (Death of Mao, One Child Policy, Tianamen Square  Protests and Massacre) happened during the Malthusian Crisis. 

You can run the CNL20 BAU model here. You can run the CNL20 Malthus model here.

Are There Feedback Loops That Control 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

In the Long Run We are All Dead - John Maynard Keynes

Stefan Eich just published (Dec 22, 2024) an essay in Adam Tooze's Chartbook (here) discussing what John Maynard Keynes meant by his famous quote: "In the long run we are all dead." Keynes was writing about the future, which is unknowable, and how we should think about it. I have my own views about the future and in many ways they agree with Keynes or at least with Stefan Eich's interpretation. So, let me clarify my own views by summarizing Eich's article (SE).

First, let me list some quotes from the (SE) article and John Maynard Keynes (JMK):

• “Our power of prediction is so slight, our knowledge of remote consequences so uncertain that it is seldom wise to sacrifice a present benefit for a doubtful advantage in the future.” (JMK)
• ...it was “not sufficient that the state of affair which we seek to promote should be better than the state which preceded it; it must be sufficiently better to make up for the evils of transition.” (JMK)
• ...in Keynes’s hands a critique of the equilibrium analysis offered by neoclassical economics. Indeed, Keynes explicitly extended this theoretical critique of equilibrium theories into a political critique of austerity measures derived from them. (SE)
• ...orthodox economists ... demanded interwar austerity based on the long-run extrapolations of neoclassical economics. (SE)
• ...it was only in the neoclassical long run that the economy was assumed to have finally reached its “natural” state of equilibrium. (SE)
• ...“the long run” of neoclassical economics lacked temporal specification. No one could know whether it would arrive in twelve months or seven years. (SE)
• [Keynes] ... preference for Malthus’s economic theorizing from “the real world” over Ricardo’s more abstract starting points...Since the future of mankind was shaped by the most irregular movements, to draw too straight a line from the present to the future was a sure way to mislead oneself. (SE)
• The ...“long run” of neoclassical economics essentially evacuated politics from the future. (SE)
• Rejecting the naturalized long run thus implied for Keynes at the same time a need to articulate broader future possibilities. This is evident not least in Keynes’s own interest in alternative imagined futures, most famously in his essay on “Economic Possibilities for our Grandchildren” (1930) (SE)
• Postwar Keynesianism’s commitment to perpetual growth coupled with a deep intellectual investment in modernization theory can indeed be read as offering a linear conception of growth as progress that served to stabilize a deficient present. (SE)
• The mode of social change that Keynes embraced in response to this challenge was a notion of open experimentation. (SE)
• Here as elsewhere, Keynes consciously placed himself outside of interwar debates over planning by offering alternative conceptions of decentralized or independent bodies of administration that would be essential for crafting new tools of indirect economic steering—including what we have come to call macroeconomic policy. (SE)
• ...there is no such thing as “the future” but instead only ever a proliferation of multiple yet unformed possibilities, Keynes flagged the centrality of the politics of such future time. (SE)
• The "Long Run" line first appeared in A Tract on Monetary Reform, published in December 1923. More specifically, it appeared in the third chapter on “The Theory of Money and of the Foreign Exchanges” and came in the context of a technical discussion of the quantity theory. (SE)
• Speculative visions of the future are thus performative in the sense that they feed back into how people act in the present. As Keynes argued in the seminal twelfth chapter of the General Theory (1936), our estimates of even the comparably near future are so inescapably obscured by uncertainty that they cannot form any reliable, let alone calculable basis for our actions in the present. And yet we have to act. (SE)

In my blog Facts, Fictions and Forecasts, I present forecasts based (1) on a technique used by the Atlanta Federal Reserve (here) and (2) on an approach to multi-model forecasts used by US National Oceanic and Atmospheric Administration's (NOAA) for hurricane forecasting and the IPCC Climate Change Emission Scenarios. You can see an example applied to the US here and here. For me, these are the kinds of forecasts Keynes was talking about: conditional, probabilistic, and based on historical data rather than theory. Systems Theory helps me develop and interpret the models and resulting forecasts. No assumptions about equilibrium or stability are imposed on the models.

The recommendation for experimentation is interesting. I started my professional career as a program evaluator/statistician with the Nixon-era Wisconsin Alcohol Safety Action Program ASAP in the early 1970s.

The Wisconsin program had a mixed record of success with Alcoholism programs and with the overall project. As I remember the project conclusions, the reduction of speed on Wisconsin highways to 55 mph (largely the result of the 1973-74 Arab Oil Crisis) had more effect on alcohol related deaths than the ASAP programs. The takeaway for me, at the time, was that natural experiments (such as the 1973-74 Arab Oil Crisis) had more impact than government programs. This lead me to Systems Theory, History and to Counterfactual Thinking (what if things had been done differently). 

Now, at the end of my career, I keep writing that I will not be alive to see the future of the US Economy, for example, or any other country's future that I write about. I can only bring my brick to the wall and hope that the methodology is useful at some point in the future.

Should We Bother Reading 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

News from 2025

JANUARY 20, 2025, WASHINGTON DC.

US Presidential Inauguration.

JANUARY 21, 2025, WASHINGTON DC.

Trump Administration imposes tariffs ranging from 20% to 100% on imported goods from China, Mexico and Canada.

JANUARY 25, 2025, GENEVA, SWITZERLAND, World Trade Organization.

China, Mexico and Canada determine that Trump Properties are a Transnational Crime Organization under International Law and forbids the organization from operating within the territorial confines of their countries.

NOTE: Figure above from the New York Times (here). Actually, the attack on Trump properties is already happening in Panama (here) where the Panamanian government has concluded that Trump Properties are a criminal organization and the organization has been banned. In response, Trump vows to take back the Panama Canal.

Failed Systems in the United States

 

The Blame Game has started for the Democrats loss in the 2024 US Presidential Election (here) as have fears for what might happen in the future (here). If you ask the AI System ChatGPT what happens when countries collapse, the answer is that "...overlapping crises disrupt political, economic and social stability". Taking a World-System perspective: political, economic and social systems start to fail.

What happens when systems start to fail (see the graphic above, click to enlarge): the internal workings of the Failed System no longer control inputs or produces reasonable outputs. The system continues to run, if at all, on its own without any feedback between outputs and inputs.

Using the Failed System model, it seems clear (at least to me) that the systems in the US are starting to fail. The Political System failed to prevent a demonstrably (after the first term) incompetent candidate from becoming US President again. The Congressional System failed to Impeach a sitting President for High Crimes and Misdemeanors. The Legal System failed to hold an ex-President with 34 felony convictions accountable. The Educational System failed to produce voters who could apply critical thinking to their voting decisions. The Economic System failed to deal with the COVID-19 Inflation. The Information Systems (mass media, social media, etc.)  failed to produce unbiased information. Pick some system that you understand well and ask yourself whether it is functioning properly.

Do all these failures mean that the US System is collapsing? Of course, we cannot know the future and many of us were surprised that Trump won the 2024 Presidential Election. What I can do is ask a Systems Model of the US Socio-Economic system to project the future. The forecast is presented in the graphic above (dashed red line, click to enlarge) with 98% prediction intervals (the blue and green dashed lines). The solid black line extending beyond 2000 is the dominant state variable for this system. It captures growth in essential variables in the US. The forecast shows that the US System will not peak until after 2050, well into the Post-Trump World of the future.

I have multiple models of the US Socio-Economic system and not all of them predict collapse. Each presents an alternate future and I will not be alive to see which model is most accurate. All the models do show that US growth is slowing. My hypothesis is that the political response to slowing growth (Secular Stagnation) will not be resignation but increasingly unhinged (and possibly Fascist) attempts to return to the Attractor Path of unlimited growth which is an impossibility (here). The Trump Administration will only be the beginning.

The Trump Administration may well destroy the political, legal, economic and educational systems in the US that are currently failing. These institutions will have to be rebuilt whether Trump destroys them or not. The really difficult task is to think about how these institutions might be rebuilt to support a Steady-State Economy and prevent Fascism from triumphing in the post-Trump World.