The 2nd Law (part 3) – The Missing Linkage Between Economy and Ecosystem. Mankiw’s Ten Principles and Thermoeconomics

Recalling the previous post about ecological sustainability [1],

The 2nd Law (part 2) – My Issue with Ecological Sustainability and World Economy (Mankiw’s Ten Principles)

what is missing is strong linkage between the world economy and the limited biocapacity of the planet Earth.

The missing link between economy and ecosystem has been already pointed out by many researchers [2].

World Economy and Ecosystem: Mankiw’s 10 Principles and Thermoeconomics

Both, natural ecosystem and world economy are complex system and theirs outcomes are not easy to define analytically, to predict and to manage.

Briefly, world economy have been described by Mankiw’s Ten Principles and outcomes are mainly due to [1]:

  • Decision Making and Supply-Demand’s law (invisible hand)
  • Regulation by Government and Policy Makers

Regarding the ecosystems, the Global Footprint Network is attempting to provide a measure about the biocapacity of each country as well as for all over the world. This year (2014), human activities have consumed all the biocapacity available on 19th of August [3].

A possible link between the world economy and the ecosystem might be established thanks to Thermoeconomics [4]: that is Thermodynamics applied to Economy.

Without touching topics such as, thermodynamics, information theory and cybernetic, briefly, both ecosystem and economy are two environments that are accessing to the same resources (biocapacity, energy,…) available in the “system” Earth as shown in the Figure below [5]:

Economy and Ecosystem

Ecosystem

The ecosystem, thanks to photosynthesis and Krebs cycles, is efficiently using the resources in the Earth (mass and energy) without producing any waste.

The variables of an ecosystem are its biocapacity (mass: forests, animals, soil, water,…), energy, temperature, etc. and they are regulated by physics’ laws.

Economy

On the contrary, human activity is evolving and economy is growing because of energy dispersal without re-integrating biocapacity consumptions (deforestation, species’ extinctions, water, natural resources, etc) [6].

Values (money), regulations, prices, interest rates, etc. are the variables of the economy. Human behaviors and outcomes of the economy are governed by Mankiw’s ten principles [7].

What economy produce as an exchange for growth is mainly waste and pollution: something that neither the economic nor ecosystem environments are able to use as a resource.

How to Link World Economy & Ecosystem?

Since the beginning of the 19th century, many scientists, biologists, physics and economists, have conducted several studies and developed theories as well in order to address the missing link between economy and the entire ecosystems [2][8].

The same researches, inferred that (thermoeconomic):

Assumption 1: to each money transaction correspond a flow of energy or biocapacity.

Meanwhile, in the economic environment (from Mankiw’s ten principles):

Assumption 2: to each economic interaction among economic actors corresponds a transfer of value that is represented by a monetary flow.

Common economic interactions are:

  • selling\buying: a transfer of money from the consumer to the retailer
  • issuing a loan: a transfer of money from banks to households\firms.
  • transfers of money from central bank to national banks;
  • taxes and subsidies: transfers of money between households\firms and governments.
  • the act of printing money by the central bank incentivize the volume of the economic transactions since more money is putted into the system.

While:

  • producing goods\services means adding a value in the economic environment that is equal to the (price – cost of production).
  • consuming goods\services means decreasing the value in the economic system that is equal to the price paid for the goods\services.

The missing link… at least in theory, in two new principles

How Economy and Ecosystem Interact: Principle N.11

Putting assumption 1 from thermoeconomic and assumption 2 together, here below one missing principle to add at the previous Mankiw’s ten principle that might link World Economy with the Ecosystem:

Principle N.11

To Each Interaction among Economic Actors Corresponds both a Monetary Flow and an Energy Flow.

 

How Economy and Ecosystem Interact: Principle N.12

The new Principle N.12 is about how to deal with complex systems as both economy and ecosystem they are.

In a complex system mostly of the times something strange, new and unexpected happen that is called as “emergent phenomena“.

An example, is the human body. A body is actually a mass o billions of one-celled organism like bacteria.

Well, would a unicellular organism exist without human bodies? Of course, Yes. There are even bacteria that infect our organism.

On the contrary, would human bodies exist without unicellular organisms? No!

Therefore, the questions above suggest us that a human body is an emergent phenomena of unicellular organisms as well as there is also clear hierarchy of existence among complex systems.

What about Economy and Ecosystem?

By answering to the same questions:

  • Would Ecosystem exists without Economy? Yes, as it happened before humankind.
  • On the contrary, would Economy exists without Ecosystem? No way. Economy is an emergent phenomena created by humankind, and humankind is an emergent phenomena of Ecosystem as well. As a matter of fact, human beings can not exist without the support of the Ecosystem: mainly food, water and energy.

Such a reasoning leads to Principle N.12:

Principle N.12

The Economic Environment is an Emergent Phenomena of the Ecosystem.

So, once acknowledged the new Principles  N.11 and N.12 that link Economy and Ecosystem:

what does they mean in practice, both for economic activities and enviroment sustainability?

To be continued…

Feelink – Feel & Think approach for doing life!

Resources

[1]: I. Gruer, “The 2nd Law (part 2) – My Issue with Ecological Sustainability and World Economy (Mankiw’s Ten Principles)”. Posted Sept. 10, 2014, http://www.ivangruer.com.

[2]: Peter A. Corning. “Control Information Theory: The Missing Link in the Science of Cybernetics”. System Research and Behavioral Science. n.24, pp 297-311, 2007.

[3]: Earth Overshoot Day. “Global Footprint Network“. http://www.footprintnetwork.org

[4]: Peter A. Corning. “Thermoeconomics: Beyond the Second Law”. Journal of Bioeconomics. Vol. 4 – Issue 1, pp 57-88, 2002.

[5]: M. Gong, G. Wall. “On Exergetics, Economics, and Optimization of Technical Process to Meet Enviromental Conditions”. International Conference on Thermodynamic Analysis and Improvements on Energy Systems. 10-13 June 1997. Beijing, China.

[6]: A. Annilla, S. Salthe. “Economy Evolves by Energy Dispersal”. Entropy. 11-2009. http://www.mdpi.com/journal/entropy/

[7]: N.Gregory Mankiw. Principles of Economics 6e. South-Western, Cenage Learning.

[8] Peter A. Corning. Holistic Darwinism: Synergy, Cybernetics, and the Bioeconomics of Evolution. University Of Chicago Press. 2005.

[9]: N.Gregory Mankiw. “A Carbon Tax that America could Love with”. New York Times. 01. Sept. 2014.

[10]: Buttonwood’s Notebook. “Energy use and Growth: an Optimistic View”. The Economist. 26 June 2013.

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