World-System (1960-2100) A Stable Geopolitical Alignment for Argentina?

Argentina just entered what Paul Krugman has called (here) a Classical Monetary-Financial Crisis. The Peso is collapsing, the Central Bank is trying to defend the currency (but is running out of money) and the US is ready to support Argentina with a $20 Billion Swap Line (Bailout). What triggered the crisis (according to Google AI) is:

After discussing the economics of the crisis, Paul Krugman concludes:

In this post, I'm going to argue that the "alternative strategy" involves Geopolitical Realignment within the World-System. The forecast plot at the beginning of this post shows the ARL20 model being driven by three alternative input systems: (1) the Random Walk (RW, no input, muddle through), (2) the USL20 model (Hegemonic Dominance) and (3) Latin American Integration from the LAC20 model. US attempted dominance of Argentina has been going on since after World War II and it is about to fail (ARL20 model US Input [96.74 < AIC = 106.6 < 117.3]). 

The best Geopolitical model for AR1 (Growth in the Argentinian Economy, see the Measurement Model in the Notes) involves integration with other Latin American countries [63.72 < AIC = 123.9 < 154.1].

Not only is the future forecast for Argentinian growth better under Latin American Integration, but also the system response to shocks is better than the ARL20 BAU model and the integrated system is stable. Under the BAU model (an unstable system), positive shocks to the system reduce growth; under the LA Integration input model (see the Notes), positive shocks increase growth as would be expected.

Latin American Integration, however, has been tried before and has a history of failure. After World War II  the US tried to drive the movement but simply ended up as the dominant Hegemon. A question I will investigate in a future post is whether Latin American Integration would benefit other countries in the region. Until stable Integration does benefit enough countries (a long time in the future?), the Economy of Argentina will likely continue lurching from one crisis to another.

You can experiment with the LA20 BAU model here. Suggestions are given in the code for how to stabilize the model.

Ex. 1.0 Can you find a way to eliminate cycles once the model has been stabilized? 

The solution to this Exercise can be found in the LA_TECHP model which I will describe in a future post. 

Descriptions of the how the Dynamic Component State Space models are constructed are given in the Boiler Plate.

Notes

Reading:

• Why is Trump Bailing Out Argentina -- Paul Krugman (2025)
• The Bubbly Economy of Argentina
• Seven Futures for Argentina
• Austerity and Anti-Systemic Protest (Argentina)
• Unstable Systemic Cycles in Latin America

Please see the Boiler Plate for a description of the DCM State Space Models.

 ARL20 model  Measurement Model:

The ARL20 State Space includes three Historical Feedback Controllers: AR1=(Growth-EF) Overall Growth balanced against the Ecological Footprint (EF). AR2=(LU+EF+KOF-Q) an historical feedback controller balancing Unemployment (LU), Ecological Footprint (EF) and Globalization (KOF) against Output (Q). AR3=(EF+CO2-KOF-LU) an historical controller balancing Ecological Footprint (EF) and CO2 Emissions against Globalization (KOF) and Unemployment (LU). Together, the components explain 98.8% of the variation in the indicators.

 ARL20 model  LA Input Model:

Compare the LA Integration System matrix (above) with the  ARL20 BAU model. Notice that (1) all the coefficients in the System Matrix (F)  are reduced in size and (2) the largest effects in the Input matrix (G) are from the LAC Unemployment (LU) controller (LU-Q-EG=1.57) and the LAC Labor Force Controller LA3=(N+L-CO2-Q=1.6)  on AR2 (Argentina's unemployment Controller).

 ARL20 model  LA Shock Input:

The shocks are from the LACL20 Model (see below): (1) A shock to growth of the Latin American Region increases growth in Argentina. (2) A shock to the Unemployment (LU) controller (LU-Q-EG) reduces growth. (3) A Shock to the Populaton-Labor Force Controller (N+L-CO2-Q) increases growth. An explanation of Historical Feedback Controllers can be found in the Boiler Plate.

LACL20 Model Measurement Model:

The LAC State Space contains one growth component (LA1) and two Historical Feedback Controllers (see the Boiler Plate): LA2=(LU-Q-EG) an Historical Unemployment controller balancing Output (Q) and Energy Use (EG) explaining 2% of the variation in the indicators. LA3=(N+L-CO2-Q), an Historical Labor Force controller balancing Population Growth and Labor Force with CO2 Emissions and Output.