What Controls the US Political System?

Aug 24, 2026 What’s Behind the U.S. Treasury’s Latest Attempt to Lower Interest Rates The Treasury Department said it could begin to buy back more of its debt, and bond market investors are assessing the potential effects on borrowing costs.

 

This page is UNDER CONSTRUCTION but you can explore the images and links to answer the Questions below.

There is currently, within Political Economy, a dust-up concerning the role of Debt . These controversies are nothing new (see the US Debt History, below), but there is a new element. Modern Monetary Theory (MMT) has helped boils the arguments down to two contradictory positions: (1) The Government is just like any other household organization and must control its debt and (2) Because the US Government can print it's own money (unlike a household or a firm), Debt should never be a problem.

In this post, I use Systems Theory and State Space Models to test these two positions. Because the models are behavioral rather than theoretical, they show that debt is a powerful controller of the political system, the same as in a household or firm.

 One of the first questions, before getting to the question of "Control," is how should we represent the Political System in terms of inputs and outputs. In a typical Economic model, the Political systems is Exogenous and produces inputs for the Economic System. There is no feedback between the Economic and the Political System. This is a simplification. Clearly, a Financial Crisis generates demands for Political activity. However, the economic model wants to be able to manipulate the Exogenous Input variables to suggest policy actions.

The other simplification in Economic Models is to assume that the inputs from the political system involve government expenditure (Keynesian Economics), and control of the Money Supply or Monetary Economics. Government Expenditure (G) and the Money Supply (M). The indicators G and M are certainly important variables but it is hardly the entire picture.

From David Easton's Political System we would conclude that the outputs of Government are "Any and All Authoritative Decisions". For me, Easton's output description is too broad but is still useful. However, operationalizing "Authoritative Decisions" has always been a struggle. Maybe it can't be operationalized, but here is my current attempt which is surely incomplete (see Shefner et. al, 2015).

Notes

Shefner et. al. (2015) Austerity and Anti-Systemic Protest: Bringing Hardship Back In.

Questions

1. Thinking of the Political System "as a system," how would you specify the Inputs and Outputs (see David Easton's Political System)?
2. Does Voting control a Democratic Political System? If not, what do you think controls the Political System?
3. Do you agree with the arguments being made by Modern Monetary Theory?

Links

• David Easton's Political System The major application of Systems Theory to Politics.
• Systems Theory the transdisciplinary study of systems, i.e., cohesive groups of interrelated, interdependent components that can be natural or artificial.
• State-Space Representations In control engineering and system identification, a state-space representation is a mathematical model of a physical system that uses state variables to track how inputs shape system behavior over time through first-order differential equations or difference equations. 
• Debt  an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual.
• Health System a set of organizations, institutions and resources whose primary goal is to produce actions for the promotion, restoration or maintenance of health.

History of US Debt

From ChatGPT, I've divided the history into the Pre- and Post-War periods.

Pre-WAR

Post-WAR

Wikipedia Links

• Modern Monetary Theory a heterodox macroeconomic theory concerning the role of fiscal and monetary policy in sovereign governments that borrow and issue government debt in their own currency.
• Monetary Economics  the branch of economics that studies the nature, role, and impact of money and monetary institutions. It provides a framework for analyzing money and its core functions—as a medium of exchange, a store of value, and a unit of account—and examines how money can achieve widespread acceptance, including through its role as a public good.
• Money Supply  In macroeconomics, money supply (or money stock) refers to the total volume of money held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation (i.e. physical cash) and demand deposits (depositors' easily accessed assets on the books of financial institutions).
• Political Economy an interdisciplinary field in political science and economics that studies the relationship between political and economic systems, including how they influence each other.
• The Political System he form of political organization that can be observed, recognized or otherwise declared by a society or state.
• David Easton (June 24, 1917 – July 19, 2014) was a Canadian-born American political scientist. From 1947 to 1997, he served as a professor of political science at the University of Chicago.
• Keynesian Economics named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output and inflation.
• Government Spending all government consumption, investment, and transfer payments.
• Austerity a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both.
• Financialization  a term sometimes used to describe the development of financial capitalism during the period from 1980 to the present, in which debt-to-equity ratios increased and financial services accounted for an increasing share of national income relative to other sectors.
• Debt Crisis a situation in which a government (nation, state/province, county, or city etc.) loses the ability of paying back its governmental debt.
• 
  

USL20 POL_SYS Measurement Model

USL20HC Measurement Model

USL20 Austerity (AUST) Measurement Model

USL20 Hardship (HARD) Measurement Model

USL20 Financialization (FINZ) Measurement Model

USL20 Debt Crisis (DEBT) Measurement Model

 

 

 

World System (1950-2000+): The Economy of Canada

This page is UNDER CONSTRUCTION but you can go ahead an explore the Questions presented below using Wikipedia links and State-Space Models.

Unemployment is an important historical controller in Canada as is the Ecological Footprint. Here is a chatGPT report on the Unemployment effects of a Trump Trade War:

You can run the CA_L20 Model on my Google site using R-code.

Notes

• The Economy of Canada an advanced and diversified mixed economy. The nation relies upon its abundant natural resources and well-developed international trade networks. As of 2026, it is the eleventh-largest in the world in nominal terms. Its GDP per capita in purchasing power parity (PPP) terms ranks third among G7 countries.
• The Politics of Canada The political system functions within a framework of parliamentary democracy and a federal system with strong democratic traditions. Canada is a constitutional monarchy where the monarch is the ceremonial head of state.
• The History of Canada The period from the arrival of the Paleo-Indians to North America thousands of years ago to the present day. The lands encompassing present-day Canada have been inhabited for millennia by Indigenous peoples, with distinct trade networks, spiritual beliefs, and styles of social organization. Some of these older civilizations had long faded by the time of the first European arrivals and have been discovered through archaeological investigations.
• The Geography of Canada The country has a vast geography that occupies much of the continent of North America, sharing a land border with the contiguous United States to the south and the U.S. state of Alaska to the northwest. Canada stretches from the Atlantic Ocean in the east to the Pacific Ocean in the west; to the north lies the Arctic Ocean.
• Canada-US Relations The countries have had a long and complex relationship that has had a significant impact on each other's history, economy, and culture. The two countries have once historically considered themselves among the "closest allies". They share the longest border (8,891 km (5,525 mi)) between any two sovereign states in the world. Americans rank Canada as one of their respective most favoured nations and historically, a majority of Canadians have held mostly favorable views of the United States. However, the two countries' relations saw rapid deterioration during President Donald Trump's second term due to the 2025 U.S. trade war with Canada and U.S. annexation threats towards Canada.

Questions

1. Do you agree with chatGPT's  analysis of Trump Trade War effects on Unemployment?
2. What might the effects of a Trump Trade War have on Canada's Ecological Footprint?
3. What happened between 1978 and 1996 to create feedback cycles with Canada's historical controllers, CA2 and CA3?

CNL20 Model Measurement Matrix

The CAL20 model has three component state variables that explain 98.4% of the variation in the indicator variables (taken from the World Development Indicators), the KOF Index of Globalization, the Human Development Index (HDI) and the Ecological Footprint (EF). CA1 = (Growth), CA2 = (LU-EF) and CA3 = (EF+L-Q-CO2-N).

CNL20 AIC Statistics

The best CN_L20 Attractor Path model takes input from the North America Regional Model (NA_L20).

CNL20 Regional Model

The best CN_L20 Attractor Path model takes input from the North America Regional Model (NA_L20).

NAL20 Model Measurement Matrix

 

Globalization, CO2 Emissions and Unemployment in Italy (World-System, 1950-2000+).

This page is UNDER CONSTRUCTION but you can study the graphic above and the State Space model outputs below. 

Notes

You can 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. The ITL20 Model is stable and cyclical? A steady state can be maintained by the two historical controllers: IT2 = (KOF+HDI-LU-EF) a Globalization-Unemployment and IT3 = (LU-N-CO2-EG) an Emissions-Unemployment (see below), that is, Globalization and Emissions controllers. chatGPT concludes that these two controllers are tracking structural changes in the Economy of Italy. The historical structure involved IT3 = (Q - CO2) and the emerging structure involves IT2 = (Q -> -CO2). Do you agree?
2. To make things more complicated, how do the two historical controllers (IT2 and IT3) relate to conventional problems facing Italy?
   

Wikipedia Links

• Economy of Italy a highly developed social market economy. It is the third-largest national economy in the European Union, the 8th-largest economy in the world by nominal GDP, and the 12th-largest by PPP-adjusted GDP.
• Politics of Italy  conducted through a parliamentary republic with a multi-party system. Italy has been a democratic republic since 2 June 1946, when the monarchy was abolished by popular referendum and a constituent assembly, formed by the representatives of all the anti-fascist forces that contributed to the defeat of Nazi and Fascist forces during the liberation of Italy, was elected to draft a constitution, which was promulgated on 1 January 1948.
• History of Italy inhabited by humans since the Paleolithic. During antiquity, there were many peoples in the Italian peninsula, including Etruscans, Latins, Samnites, Umbri, Cisalpine Gauls, Greeks in Magna Graecia and others. Most significantly, Italy was the cradle of the Roman civilization.
• Geography of Italy includes the description of all the physical geographical elements of Italy. Italy, whose territory largely coincides with the homonymous geographical region, is located in southern Europe and comprises the long, boot-shaped Italian Peninsula crossed by the Apennines, the southern side of Alps, the large plain of the Po Valley and some islands including Sicily and Sardinia. 

ITL20 Model Measurement Matrix

IT1 = (Growth), IT2 = (KOF+HDI-LU-EF) a Globalization-Unemployment and IT3 = (LU-N-CO2-EG) an Emissions-Unemployment controller.

 ITL20 BAU Systems Matrix

World System (1950-2000+): The UK Economy

 

The video above shows the standard growth forecasts for the Economy of the UK. The forecasts are not great and have generated a lot of handwringing. The Economy seems to be slowing. Typically, commentators go from one time series to another showing that something bad or unexpected is happening. However, commenting on time series graphs is not a causal analysis and does not explain why things are happening. For that you need a model. The uncomfortable fact is that any macro socio-technical economic system is too complex to be understood with verbal exposition. What is possible is to (1) develop a model you can understand, (2) test how well model explains historical data and (3) use the model to forecast the future.

In this post, I will (1) develop a model for the UKL20 Economy, (2) show how it relates to conventional economic models and (3) show how conventional models do not adequately explain economic feedback loops. 

The UKL20 Model

Displayed above is the UKL20 Measurement Model constructed using Principal Components Analysis (PCA). The code names are:

UK1 explains 53.4% of the variation, UK1 + UK2 explain 88% of the variation and UK1 + UK2 + UK3 explain 93% of the variation in the indicators. The indicators are taken from the Kaya Identity:

Where N = Population, L =Labor, LU = Unemployment, Q = Production, E = Energy Use and CO2 = Carbon Emissions. The lower case letters are coefficients in a causal model.

The Kaya Identity works well for short-term predictions but in the long run, there are feedback effects between the extensive variables (N, L, LU, Q, E, CO2). Here is where the Measurement Matrix becomes important. 

The negative coefficients UK1=(-0.324 LU - 0.319 CO2) indicate negative feedback effects on the first historical state variable controller. In a standard direct graph, the negative feedback effects might involve the Labor Force, L, and population, N (see Climate Change, Air Pollution and Health). In the DCM model, the effects are on overall growth which is harder to represent in directed graphs. This is why I analyze the dynamics of the state variables (UK1, UK2 and UK3) rather than the individual indicators (see the UKL20 System Matrix below).

The UK2 = (0.6356 EF + 0.392 CO2 + 0.558 E - 0.321 L) balances the Ecological Footprint (EF), Carbon Emissions (CO2) and Energy Use (E) against the Labor Force (L)

The digraph above is a little easier to understand and the feedback effects are clearer.

Finally, the UK3 = (0.712 LU + 0.417 L + 0.3814 N + 0.2818 EF - 0.2818 KOF)

is a KOF Globalization controller. Notice that the UK1 and UK2 feedback controllers are unstable (see the System Matrix below and Unstable Feedback Loops).

Notes

Neoclassical economists might argue that adding markets for Labor, Production, Energy Use and Emissions are all that is needed. Unfortunately, Markets Won't Save Us.

Kalman, R. E. (2006) A System-Theoretic Critique of Dynamic Economic Models. In System's Theory, we must work from data to model rather than start with a complete, clean theoretical model. The data we need must cover the inputs and output of a real system we are trying to understand. Attributes of the System are: stability, feedback, growth rates, mechanization, controllability, reachability, etc. Neoclassical Economic Models are particularly deficient in attention to stability, feedback and growth rates.

UKL20 BAU System Matrix

If the UKL20 BAU model was represented as a direct graph, it would be:

which is not very insightful but shows all the possible connections between state variables.

It is more insightful, when analyzing interactions between state variables, to use Shock Decomposition Diagrams and Impulse Response Analysis (see the UKL20 BAU model). Notice that the feedback effects are very small.

The time plots of UK1 (solid line), UK2 (dashed red line) and UK3 (dotted green line) are displayed above.