Macroeconomic dynamics in a finite world based on thermodynamic potential

Area of Science:

• Environmental Economics
• Thermodynamics
• System Dynamics

Background:

• Economic systems are dissipative structures dependent on energy and matter flows.
• Human activities deplete natural ecosystems, impacting economic sustainability.
• Existing models often neglect the thermodynamic constraints of resource depletion.

Purpose of the Study:

• To present a conceptual model of the co-evolution of natural and socio-economic systems.
• To integrate thermodynamic principles into economic macrodynamics.
• To analyze the impact of resource depletion, inequality, and inflation on sustainability.

Main Methods:

• Developed a stock-flow consistent non-linear macrodynamics model.
• Incorporated thermodynamic potentials to quantify ecosystem depletion impacts.
• Included natural and forced recycling, and a friction term for waste generation.
• Computed anthropically produced entropy based on metabolizing intensity and frictions.

Main Results:

• Intensity and friction are crucial for sustainability, more so than real GDP growth.
• Resource scarcity, income inequality, and inflation are interconnected.
• Egalitarian societies with moderate inflation demonstrate greater sustainability than unequal societies with low inflation.

Conclusions:

• Thermodynamic modeling provides a robust framework for understanding economic-environmental co-evolution.
• Societal structure and resource management significantly influence long-term sustainability.
• The ECODYCO software offers a practical tool for implementing these dynamics.