Topic 4: The Circular Economy

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Topic 4 The Circular Economy

• David Letson
• University of Miami

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Main Points

• Economic ecological systems
• Environmental economics overlapping systems.
• Overlap not evident to many economists
  ecologists.
• How to account for natural resources?
• Circular flow model

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• Overlapping Systems
• Natural World
• Economics

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What Price for Environmental Quality?
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The Economy as a System

• Kenneth Boulding
• Open closed systems.
• Cowboy economy
• Spaceship economy
• Image of frontier.
• Thinking systemically.

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Another economic system Input-output analysis
(Leontief)

• input requirements x outputs final demand
  in each sector.
• GDP is value added by each productive sector.
• Value contributed by each sector, for all
  outputs, is final demand on each sector.
• Economy as connected sectors of production

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Where do natural resources appear in our economic
system?

• Prices?
• Example of Exxon Valdez.
• Fishery closures.
• Lost tourism.
• Property damage.
• Cleanup spending.
• Others?

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Why think systematically?

• Accounts should recognize exchange of assets.
• Otherwise, resources have no value at the margin.
• Result may be a costly fiction.

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Robert Repetto Goes to Costa Rica.

• Deforestation and erosion have degraded fisheries
  and water-based recreation.
• Natural capital depreciation larger than foreign
  debt.
• Foreign debt carefully recorded natural resource
  losses are not.

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Closed System Circular flow diagram

• 1st law of thermodynamics matter and energy.
• 2nd law of thermodynamics entropy.
• Three functions of natural resources
• physical input into production
• waste assimilation
• aesthetic amenity.

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The Circular Flow
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Is our circular economy sustainable?

• Recall 1st fundamental theorem of welfare
  economics.
• No theorem that would guarantee sustainability.
• Will scale and configuration of the economy allow
  natural resource functions?