Tuesday, June 06, 2017

Doughnut Economics

"Doughnut Economics", subtitled "7 Ways to Think Like a 21st Century Economist", is a recent book by Kate Raworth, February 2017, 320 pages. It has an introductory chapter, a chapter for each of the 7 Ways, and a summary chapter. There is also an appendix of data. It is an easy and fairly quick read.

It is the 1st economics book I have read since the November election. I still can't believe that the US has elected as president the orange, ignorant, mentally ill buffoon/con man, but, after 6 months of escapism, I'm ready to venture back into the real world. This was a good book to come back with. It has a very positive outlook and very little politics until towards the end.

Many of the ideas expressed reminded me of the general mindset of the "The Age of Sustainable Development" online course taught by Jeffrey Sachs that I took in 2014, which I think means that the ideas in this book are very much in line with global, progressive economic thinking.

[Note, I refer the 7 Ways and "Way #1". Please substitute "Way to think like a 21st century economist #1 of 7.]

Ma. Raworth is an economist. She worked at Oxfam for a decade. "She teaches at Oxford University’s Environmental Change Institute, where she is a senior visiting research associate. She is also a senior associate of the Cambridge Institute for Sustainability Leadership, and teaches on the Economics for Transition programme at Schumacher College... She is a member of several advisory boards, including the Stockholm School of Economics’ Global Challenges programme, Surrey University’s Centre for the Understanding of Sustainable Prosperity, and Oxford University’s Environmental Change Institute."

The introductory chapter is titled "WHO WANTS TO BE AN ECONOMIST?" Raworth talks about young economics students becoming frustrated with much of how economics is taught today. [I share this frustration.] The 2008 financial crisis "galvanized student dissent worldwide". [What value is a "science" if it has so little predictive power that it could not predict the 2nd largest financial meltdown of modern history?]

She emphasizes the importance of pictures and visuals, which led her to draw The Doughnut. Interesting, the 1st economics diagrams were modeled after Newton's diagrams. Samuelson's "Economics" became the standard economics textbook of the 2nd 1/2 of the 20th century because people could readily understand its pictures and diagrams.

Peaking ahead to Chapter 1, here is the fully articulated version of The Doughnut - this image comes from Raworth's website:

[joke]Ha ha, Raworth quotes Alfred Korzybski: 'the map is not the territory'. I thought that was A.E. Van Vogt in "The World of Null-A".[/joke]

There is an interesting discussion of the power of verbal framing, following cognitive linguist George Lakoff. Conservatives refer to "tax relief", which assumes taxes are something bad from which we need relief. Progressives should use "tax justice" - who doesn't like justice?

The introductory chapter concludes with the pictures representing the 7 Ways, and the old pictures they replace.

Way #1 is titled CHANGE THE GOAL from GDP to the Doughnut. Raworth likens the ascension of GDP in economic thinking to a cuckoo. The cuckoo lays its egg in another bird's nest. The cuckoo hatches early, pushes the other eggs from the nest, and is fed by the bamboozled other bird.

She traces the history of the definition of economics.

  • Xenophon, Ancient Greece, "the art of household management".
  • Aristotle, Ancient Greece, "Aristotle distinguished economics from chrematistics, the art of acquiring wealth".
  • James Steuart, 1767, " ‘the science of domestic policy in free nations’".
  • Adam Smith, 1776, "‘two distinct objects: to supply a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services’".
  • John Stuart Mills, 1844, "‘a science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth’".
  • Jacob Viner, 1930, "‘Economics is what economists do.’".
  • Lionel Robbins, 1932, "‘Economics,’ ... ‘is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.’".
  • Gregory Mankiw (freshwater conservative economist whose blog I follow), 1997, "‘Economics is the study of how society manages its scarce resources’".

So the latest definitions of economics have no idea of "ends or goals". But modern economics does have built-in assumptions that frame a lot of its current use.
Though claiming to be value-free, conventional economic theory cannot escape the fact that value is embedded at its heart: it is wrapped up with the idea of utility, which is defined as a person’s satisfaction or happiness gained from consuming a particular bundle of goods.
So economics is about consumption. And the best indicator of how much an economy is consuming is GDP. The 20th century picture for Way 1 is the exponential growth curve of GDP. If GDP is not growing, your economy is deemed bad. Hah, I like this quote from Donella Meadows in 1997:
‘Growth is one of the stupidest purposes ever invented by any culture, we’ve got to have an enough.’
What kind of growth do you want?
In the wake of the financial crisis (while still in the midst of crises of poverty, climate change and widening inequalities), the visions offered up by political leaders started to make me feel like I had stepped into a Manhattan deli, hoping for a simple sandwich, only to be confronted by an endless choice of fillings. What kind of growth would you like today? Angela Merkel suggested ‘sustained growth’. David Cameron proposed ‘balanced growth’. Barack Obama favoured ‘long-term, lasting growth’. Europe’s JosĂ© Manuel Barroso was backing ‘smart, sustainable, inclusive, resilient growth’. The World Bank promised ‘inclusive green growth’. Other flavours on offer? Perhaps you’d like it to be equitable, good, greener, low-carbon, responsible or strong. You choose—just so long as you choose growth.

Should we laugh or cry?

The rest of this chapter is an in-depth examination of The Doughnut: "A Twenty-First-Century Compass". [I love compass roses.] The bad space inside the doughnut hole is where people lack the essentials for a fulfilled life - I think these follow the UN Sustainable Development goals. The bad space outside the doughnut is where we are destroying the ecosystem of the planet.
In 2009, an international group of Earth-system scientists, led by Johan Rockström and Will Steffen, took on this question and identified nine critical processes—such as the climate system and the freshwater cycle—that, together, regulate Earth’s ability to maintain Holocene-like conditions (all nine are described more fully in the Appendix). For each of these nine processes, they asked how much pressure it can take before the stability that has allowed humanity to thrive for thousands of years is put in jeopardy, tipping Earth into an unknown state in which novel and unexpected changes are likely to happen.
For each of the 9 processes they proposed a boundary on a measurable quantity - atmospheric CO2, etc. We are already past several of these.

I'm going to include these pretty symbols of balance because I like them. Except for the 3rd one, they all seem feminine to me.

Ancient symbols of dynamic balance: the Taoist yin yang, Maori takarangi, Buddhist endless knot and Celtic double spiral.
The final section is titled "Can We Live within the Doughnut?". Raworth identifies 5 factors that "certainly play key roles":
  1. Population: hopefully stabilizing. "Decades of public investment in infant and child health, in girls’ education, in women’s reproductive healthcare, and in women’s empowerment have at last enabled women to manage the size of their families." Why do I feel that if we do succeed in making it into The Doughnut and saving the planet it will be mostly women who are responsible?
  2. Distribution: rich vs poor countries, carbon hogs vs light users, the 1% vs the 99%. There is much inequity to be addressed.
  3. Aspiration: what do we each wish for, to live The Good Life? Modern corporate marketing tries to make sure that what we wish for includes lots of cool stuff. "As economist Tim Jackson deftly put it, we are ‘persuaded to spend money we don’t have on things we don’t need to make impressions that won’t last on people we don’t care about’".
  4. Technology.
  5. Governance: Karl Schroeder will I'm sure have some answers for us here.

Way #2 is titled "SEE THE BIG PICTURE from self-contained market to embedded economy". Ha ha, the concept of "externalities" in economics has always made me laugh. It's "all the rest of the stuff we choose to leave out to simplify our economic models". Way 2 insists that we factor ALL externalities into our economic models.

The Circular Flow Diagram, going back to Samuelson, was the picture that summarized the 20th century's view of economics.

The Circular Flow diagram, which for 70 years was the defining depiction of the macroeconomy.
Raworth uses the metaphor of a play with its cast of characters. 1st we get the cast from the play "Economics: The Twentieth-Century Neoliberal Story (in which we go to the brink of collapse)" created by the Mont Pelerin Society led by Hayek and Friedman (the Gnome of Chicago) in 1947.
  • THE MARKET, which is efficient - so give it free rein.
  • BUSINESS, which is innovative - so let it lead.
  • FINANCE, which is infallible - so trust in its ways.
  • TRADE, which is win-win - so open your borders.
  • THE STATE, which is incompetent - so don't let it meddle.
Then we have "characters not required on the stage" - including our old friends, the externalities.
  • THE HOUSEHOLD, which is domestic - so leave it to the women.
  • THE COMMONS, which are tragic - so sell them off.
  • SOCIETY, which is non-existent - so ignore it.
  • EARTH, which is inexhaustible - so take all you want.
  • POWER, which is irrelevant - so don't mention it.
Here is the picture for the 21st century, which Raworth names "the Embedded Economy".

The Embedded Economy, which nests the economy within society and within the living world while recognising the diverse ways in which it can meet people’s needs and wants.
And here is the cast of characters in our new play, "Economics: The Twenty-First-Century Story (in which we create a thriving balance)":
  • EARTH, which is life giving—so respect its boundaries
  • SOCIETY, which is foundational—so nurture its connections
  • THE ECONOMY, which is diverse—so support all of its systems
  • THE HOUSEHOLD, which is core—so value its contribution
  • THE MARKET, which is powerful—so embed it wisely
  • THE COMMONS, which are creative—so unleash their potential
  • THE STATE, which is essential—so make it accountable
  • FINANCE, which is in service—so make it serve society
  • BUSINESS, which is innovative—so give it purpose
  • TRADE, which is double-edged—so make it fair
  • POWER, which is pervasive—so check its abuse
This new cast of characters is so much more powerful. The Commons seems to be so central to much of the changes in thinking we need to move forward. I really like this formulation by Raworth:
This new vision prompts new questions. Instead of immediately focusing on making markets work more efficiently, we can start by considering: when is each of the four realms of provisioning—household, commons, market and state—best suited to delivering humanity’s diverse wants and needs? What changes in technology, culture and social norms might alter that?

Way #3 is titled "NURTURE HUMAN NATURE from rational economic man to social adaptable humans". Ha ha, yet another modern economic concept that is always good for a laugh: rational economic man, aka homo economicus.

Thus, by the end of the nineteenth century, the caricature clearly depicted a solitary man, ever calculating his utility, and insatiable in his wants.
Here's his picture:

It is even worse than what Raworth lets on. In the 20th century, homo economicus developed superpowers:

  • The ability to measure the utility of every purchase.
  • The ability to integrate the utility of every purchase over one's lifetime.
Too bad that integrating over time is known to be a cognitive skill mostly lacking in humans - see here, for example. But, giving him these superpowers really simplified the (worthless) models even more.

Again, we find it is all about consumption. I liked the discussion of how "what people are called" has changed.

Throughout the twentieth century, widespread use of the word ‘consumer’ grew steadily in public life, policymaking and the media until it far outstripped the word ‘citizen’: in English-language books and newspapers, that happened in the mid 1970s. Why does it matter? Because, explains the media and cultural analyst Justin Lewis, ‘Unlike the citizen, the consumer’s means of expression is limited: while citizens can address every aspect of cultural, social and economic life . . . consumers find expression only in the market place.'
One of the early pioneers of consumerism, of whom I had never heard, was Edward Bernays, nephew of Sigmund Freud. He invented PR - public relations. Reading his Wikipedia article, he may well be the guy who invented the mind fuck. His masterwork in 1928 was titled, of course, "Propaganda". I just bought it, $11.99.

There was an interesting discussion of what universal values are - surely there are many more than consumerism. This research identified 10 clusters, and gave us another nice circular diagram to give them some organization.

Since the 1980s the social psychologist Shalom Schwartz and colleagues have surveyed people of all ages and backgrounds in over 80 countries, identifying ten clusters of basic personal values that are recognised across cultures: self-direction, stimulation, hedonism, achievement, power, security, conformity, tradition, benevolence and universalism.
Schwartz’s value circumplex, which shows the ten basic personal values that are common across cultures.
So it is not hard to imagine a better way to characterize humans than "consumer". Some suggestions from Raworth for reworking homo economicus's values:
  • From self-interested to socially reciprocating
  • From fixed preferences to fluid values
  • From isolated to interdependent
  • From calculating to approximating ... we should think of ourselves not as rational man but as heuristic man
  • From dominant to dependent
We meet our old friends Richard Thaler and Cass Sunstein in a discussion of nudge policies and cognitive biases. There is also a cautionary tale on how markets can ruin traditional, giving systems in the section titled "Markets and Matches: Handle with Care". Markets can "erase the social contract". Raworth admonishes us:
Beware before you strike a match or start a market: you never know what riches it may reduce to ashes.
Here is our 21st century picture, of social, adaptable humans.

Way #4 is titled "GET SAVVY WITH SYSTEMS from mechanical equilibrium to dynamic complexity". 20th century economics was all about equilibrium - I think based on physics envy, as we saw when they picked their diagrams. The 20th century's picture for this Way is the classic crossing supply and demand curves - probably the most universally recognized economic picture.

The 2008 crash sure didn't make one feel that the economy was at equilibrium - quite the opposite. So let's replace equilibrium with dynamic complexity, where "it is the relationships between the individual parts—shaped by their stocks and flows, feedbacks, and delay—that give rise to their emergent behaviour".

Feedback loops: the fundamentals of complex systems. Reinforcing feedback (R) amplifies what is happening, while balancing feedback (B) counters it.
I think the more traditional terms for these would be positive and negative feedback. They seem to be pretty identical, conceptually.

We hear about Hyman Minsky - hmmm, I thought he had been mentioned in this blog, search says no.

After 2008, when the boom went very bust, many started to search for insights in the long-ignored work of the economist Hyman Minsky, especially his 1975 financial-instability hypothesis, which put dynamic analysis at the heart of macroeconomics.
Some very good news is that academic economics researchers are [FINALLY] working on some economic simulators incorporating complexity and chaos theory and other newer thinking.
Prompted by the 2008 crash, new dynamic models of financial markets are being built. Steve Keen has teamed up with computer programmer Russell Standish to develop the first systems-dynamics computer program—aptly named Minsky—which is a disequilibrium model of the economy that takes the feedbacks of banks, debt and money seriously. As Keen told me in his characteristic style, ‘Minsky finally gives wings to the economic bird, so at last we’ll have a chance of understanding how it flies.’
[Wow, Minsky is available for download at SourceForge.net. I just pulled it down. I sure hope this doesn't mean I'm going to be writing code :-O]

We start to examine the roots of inequality in our economic system, which can be summarized in 4 words: "Success to the Successful".

[I get to use my "Jared Diamond" tag. Somehow he is the only person mentioned in this blog that has his own tag.]

When a society starts to destroy the resource base on which it depends, argues the environmental historian Jared Diamond, it is going to be far less adept at changing its ways if it is also stratified, with a small elite that is quite separate from the masses.
We can see this already, with the ultra-rich making sure they have enclaves to which they can escape if the climate, and with it our civilization, begins to collapse.

Raworth nicely summarizes the difference between the economy we have vs the economy we need.

Today’s economy is divisive and degenerative by default. Tomorrow’s economy must be distributive and regenerative by design.
Divisive => Distributive presages Way 5.

Degenerative => Regenerative presages Way 6.

We must go from being engineers to being gardeners. [Ha ha, I can't resist, my garden is all in, here it is.]

This book by everyone's favorite billionaire Nick Hanauer looks interesting - just purchased, only $9.99.

It’s a vocational shift that has been a long time coming: back in the 1970s, Friedrich Hayek himself suggested that economists should aim less to be like craftsmen shaping their handiwork and more like gardeners tending their plants. Yes, the metaphor may have come from a thinker with extreme laissez-faire leanings, but if anything, it suggests that Hayek never did a hard day’s work in the garden: as any true plantsman knows, gardening is far from laissez-faire. In their book The Gardens of Democracy, Eric Lui and Nick Hanauer argue that moving from ‘machinebrain’ to ‘gardenbrain’ thinking calls for a simultaneous shift away from believing that things will self-regulate to realising that things need stewarding. ‘To be a gardener is not to let nature take its course; it is to tend,’ they write. ‘Gardeners don’t make plants grow but they do create conditions where plants can thrive and they do make judgments about what should and shouldn’t be in the garden.’ That is why economic gardeners must throw themselves in, nurturing, selecting, repotting, grafting, pruning and weeding the plants as they grow and mature.
Other aspects of the more robust systems we need come from "visionary systems thinker Donella Meadows", whose quote on growth I have already included.
effective systems tend to have three properties—healthy hierarchy, self-organisation, and resilience—and so should be stewarded to enable these characteristics to emerge.
Ethics does not play much of a part in traditional economics. How about a Hippocratic Oath for economists? Raworth, with inspiration from "George DeMartino, economist and ethicist at the University of Denver" gives us "four ethical principles for the twenty-first century economist":
  1. act in service to human prosperity in a flourishing web of life, recognising all that it depends upon.
  2. respect autonomy in the communities that you serve by ensuring their engagement and consent, while ever aware of the inequalities and differences that may lie within them.
  3. be prudential in policymaking, seeking to minimise the risk of harm—especially to the most vulnerable—in the face of uncertainty.
  4. work with humility, by making transparent the assumptions and shortcomings of your models, and by recognising alternative economic perspectives and tools.

Way #5 is titled "DESIGN TO DISTRIBUTE from ‘growth will even it up again’ to distributive by design". This, Way #6, and Way #7 all address the issue of economic growth. Raworth lays out the groundwork succinctly.

Rather than accept growing inequality as a law of economic development, an inevitability that must be endured, twenty-first-century economists will regard it as a failure of economic design and will seek to make economies far more distributive of the value that they generate. Instead of focusing primarily on redistributing income earned, they will aim to redistribute wealth too—especially the wealth that comes from controlling land, money creation, enterprise, technology and knowledge. And instead of focusing on market and state solutions alone, they will also harness the power of the commons. It’s a fundamental shift in perspective, and it is well under way.

She reviews a lot of the data on economic inequality a la Piketty.
Wide inequalities lead to poverty in high-income countries too, where the gap between the rich and the poor is now at its highest level for 30 years, leaving a striking number of people short of their essential needs. In the United States, for example, one child in five lives below the federal poverty line, while in the UK food banks have given out over one million packages of emergency food supplies each year since 2014.
This chapter had some ideas new to me - thankfully, it seems that they are mostly wrong. Here is our bad 20th century picture: the Kuznets Curve - you have to suffer rich people, before they decide to go away ?!?!?

Ah, we have met Kuznets before, in Piketty "Capital in the 21st Century". This curve was formulated during Les Trente Gloriouses and was felt to be a good thing. But as Piketty pointed out, it was based on almost no data, and, once you gather and apply the data, it appears to be false. The decline in inequality after WW2 was not the end state. With "The Revenge of the Neoliberals" which started with Reagonomics in 1980, inequality is back to its worst levels ever.

I think that in the past I have mused that maybe up until 100 or so years ago, we might actually have needed for capital to get concentrated, to do things like build pyramids, cathedrals, factories, etc. But I think we are now at the point predicted by both Keynes and Marx [Keynes I have read, Marx I have not] - that there would come a time when capitalism would have done its job and accumulated sufficiently vast quantities of capital that capitalism could be retired. Are we there yet?

No, not quite. Here is another book with data on inequality.

When epidemiologists Richard Wilkinson and Kate Pickett studied a range of high-income countries in their 2009 book, The Spirit Level, they discovered that it is national inequality, not national wealth, that most influences nations’ social welfare.
Raworth summarizes:
With the Kuznets Curve debunked and the damaging effects of inequality now starkly clear, a new mindset is emerging. Its message is simple:
Don’t wait for economic growth to reduce inequality—because it won’t. Instead, create an economy that is distributive by design.


A compelling starting place is to draw a new image, so what picture best encapsulates the principle of distributive design? In contrast to Pareto’s pyramid and Kuznets’s rollercoaster ride, its essence is a distributed network whose many nodes, larger and smaller, are interconnected in a web of flows.

So here is the picture for Way #5.

[I like this picture the least of any of the pictures for the 7 Ways. Too regular, not organic enough. For instance, here is the network composed of all the galaxies in the universe:

Or here is the network representing the tree of life for 2.3 million species:

But I realized, both these networks evolved, under the laws of physics and natural selection respectively. They are laissez-faire networks. And we don't want that, we want "distributive by design". So the fairly homogenous network picture is indeed a better representation. Maybe make it fractal though?]

How to redistribute? For income, redistribution has occurred via a minimum wage, higher wages through unions and collective bargaining, and progressive taxation. We also have our 1st mention of a basic income. But, following Piketty, Raworth suspects we will have to redistribute wealth (aka accumulated capital) as well. She reviews 5 kinds of property and ownership, all of which could be redistributed.

  1. Land - historically a favorite form of wealth to be redistributed.

  2. Money - 1st, via "People's Q.E." (quantitative easing), where the government prints money and, rather than using it to bail out overextended banks, gives it directly to citizens. A flavor of this is "Green Q.E", with, say, the proceeds of a carbon tax being used to pay "carbon dividends" to all citizens. [I have mentioned before that People's QE is basic income but with a time limit - but I think this is wrong, QE is how you create the money, basic income is how you distribute it.]

    Hah, Raworth uses the Keynes quote with one of everyone's favorite phrases, "euthanasia of the rentier".

    A 2nd topic discussed is "complementary currencies", where The Commons creates its own fiat currency. Very interesting stuff.

    A 3rd topic discussed is digital currencies, particularly those based on blockchain tech such as Ethereum.

  3. Labour - "Employee-owned companies and member-owned cooperatives have long been a cornerstone of distributive enterprise design" and definitely give workers more control over the fruits of their labor.

  4. Robots - "the digital revolution has brought a second trend of concentration. Just as it is empowering people with near zero-marginal-­cost production, it is displacing people with near zero-humans-required production." I blogged about "the zero marginal cost society" in my review/summary of Jeremy Rifkin's book of the same name. The conclusion there was that zero-marginal-cost-to-produce-goods breaks economics - yet another reason for 21st century economics.

  5. Ideas - all these forms of ownership are important, but I think that the most vigorous conflict in achieving redistribution may involve intellectual property. Our old friend FOSS (Free Open Source Software) is discussed, as well as the newer FOSH (Free Open Source Hardware). It is encouraging that there is already so much infrastructure in place like FOSS and the Creative Commons license. Plus we have Wikipedia, the gold standard for demonstrating the power of The Commons.

Way #6 is titled "CREATE TO REGENERATE from ‘growth will clean it up again’ to regenerative by design". Just as Way #5 posits that you can't grow your way out of inequality, Way #6 posits that you can't grow your way out of pollution and other environmental degradation. The "Environmental Kuznets Curve" is the official picture of bad 20th century thinking, I think this picture is at least equally important:

The caterpillar economy of degenerative industrial design ... "take-make-use-lose".
Our friends the extractive industries pull from the ecosystem, usually creating a "sacrifice zone" as I learned in "This Changes Everything", blogged here. But the sink side will get us before the source side, in the form of the CO2 that burning hydrocarbons puts into the atmosphere. [I guess we could consider garbage landfills as sacrifice zones for our whole consumer society?]

The corporate world has become aware of this problem. Here is the "Corporate To Do List":

  1. Do nothing, aka, "business as usual".
  2. Do what pays. Using fewer resources and producing less waste through production efficiencies is normally good for corporate profits.
  3. Do our fair share. Hah, ‘doing our fair share’ can too easily slip into ‘taking our fair share’.
  4. Do no harm, an ambition that is also known as ‘mission zero’: designing products, services, buildings and businesses that aim for zero environmental impact.
  5. Be generous by creating an enterprise that is regenerative by design, giving back to the living systems of which we are a part. Completely embrace positive-sum thinking.
Here's our 21st century picture for the chapter - the caterpillar above becomes a butterfly!

The butterfly economy: regenerative by design.
Regenerative design will involve a new and improved mindset.
While regenerative designers now ask themselves, ‘how many diverse benefits can we layer into this?’, mainstream business still asks itself, ‘how much financial value can we extract from this?’
Some mainstream businesses have partially embraced regenerative design. But,
Shaped to fit in with existing corporate interests, circular economy strategies to date have typically been: top down, driven by large corporations; in-house, with companies seeking to establish control over their used products; opaque, thanks to patented materials and proprietary technologies; and fragmented into disconnected parts, within and across industries. That is by no means a strong foundation for building a regenerative, let alone distributive, industrial ecosystem. Take one illustration: a growing number of manufacturers are seeking to recover their used products, such as cars and clothing, in order to reclaim and reuse their parts and materials. But with the average Westerner owning more than 10,000 objects made worldwide, such an individualised approach is highly unlikely to succeed, and furthermore it would lead to highly concentrated corporate control over the economy’s material round-flow. Here’s the nub of it:
Regenerative industrial design can only be fully realised if it is underpinned by regenerative economic design.
. . . and that is currently sorely missing. Making it happen calls for rebalancing the roles of the market, the commons and the state. It calls for redefining the purpose of business and the functions of finance. And it calls for metrics that recognise and reward regenerative success.


The monopoly of monetary metrics is over: it’s time for a panoply of living metrics.

This chapter also raises the concept of biomimicry as a useful role model and/or tool chest for regenerative design. This is new to me. Raworth mentions Janine Benyus as an expert on biomimicry. I just purchased her book, "BIOMIMICRY Innovation Inspired by Nature", $8.99. Hmmm, published in 1997. Benyus helped launch AskNature.org in 2008; the site has had over 2M users.

Raworth notes that finance needs to rethink its role in the scheme of things just as business does. Again, we get new thinking about currency.

Finance that is in service to life, however, goes beyond redesigning investment to redesigning currency. Just as a currency’s design—its creation, its character and its intended use—can be distributive within a community, as we saw in Chapter 5, it can also be regenerative of the living world.
Raworth references several "living metrics" that are now in use: [Here's a good new word: limnology, the study of inland fresh water bodies like lakes.]

Again, it is encouraging to see actual steps being taken in the right direction.

Way #7 is titled "BE AGNOSTIC ABOUT GROWTH from growth addicted to growth agnostic". [Yay, almost done! But, saying that, this chapter is 2-3x as hard to summarize/refactor as any of the others. Chock full o' information I guess.] Way #5 and Way #6 take potshots at Growth, Way #7 unleashes a full broadside.

Here’s the conundrum:
No country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one.
After discussion, we get a rephrasing of the conundrum:
We have an economy that needs to grow, whether or not it makes us thrive. We need an economy that makes us thrive, whether or not it grows.
Growth is usually shown as exponentially curving upward. That is our bad 20th century picture for this chapter.

One of the greatest promoters of growth was Walt W. Rostow, "who, in 1960, published his seminal book, The Stages of Economic Growth, renowned for its dynamic theory of economic development. " Hah, the book is subtitled "A Non-Communist Manifesto". Wikipedia says "Prominent for his role in the shaping of US foreign policy in Southeast Asia during the 1960s, he was a staunch anti-communist, noted for a belief in the efficacy of capitalism and free enterprise, strongly supporting US involvement in the Vietnam War." So he was on the John Birch Society side of things in the 60s. [I wasn't.]

W.W. Rostow’s Five Stages of Growth (Twentieth-Century Journey)
  1. Traditional society
  2. Preconditions for take-off
  3. Take-off
  4. Drive to maturity
  5. Age of high mass-consumption
There is a metaphor of a plane taking off and cruising. But, 20th century economic thinking never figured on the plane landing!

Raworth reviews classical economists' thinking on growth.

The founding fathers of classical economic theory may never have seen airplanes or heard of GDP, but they had an intuitive understanding that things that grow must eventually slow to a stop. They believed, with mixed feelings, that the end of economic growth was inevitable, and they had different views on what would bring it about—or, as systems thinkers would say, on which limiting factors would ultimately counter GDP’s reinforcing feedback.
  • Adam Smith believed that every economy would eventually reach what he called a ‘stationary state’ with its ‘full complement of riches’ ultimately being determined by ‘the nature of its soil, climate and situation’.
  • David Ricardo, in contrast, believed that the stationary state would be brought about by the cost of rising rents and wages squeezing capitalists to the point of near-zero profits ...
  • John Stuart Mill, for one, could hardly wait for the stationary state to usher in what many would now call a post-growth society. ‘The increase of wealth is not boundless,’ he wrote in 1848. ‘A stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on.’ ...
  • John Maynard Keynes, 1948: ‘the day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems—the problems of life and of human relations, of creation and behaviour and religion’.
This brings us to our 21st century picture: the exponential growth curve is replaced by the S curve.

The S curve of growth. Early economists acknowledged what most of their successors have since ignored: that economic growth must eventually reach a limit.
Every country can be put somewhere on that curve - Raworth likens it to the children's game "Pin The Tail On The Donkey". Many of the most developed countries are showing signs of reaching the plateau at the end of the curve.
  • In early 2016, Mark Carney, governor of the Bank of England, warned that the global economy risked being trapped in a ‘low growth, low inflation, low interest rate equilibrium’.
  • The Bank for International Settlements—effectively the central banks’ central bank—concurred, noting that ‘the global economy seems unable to return to sustainable and balanced growth . . . the road ahead is quite narrow’.
  • The IMF meanwhile advised that ‘our projections continue to be progressively less optimistic over time . . . policymakers should not ignore the need to prepare for possible adverse outcomes’.
  • The OECD itself agreed that the world was in a ‘low-growth trap’ with growth ‘flat’ in high-income countries.
  • And the influential US economist Larry Summers declared that we have entered ‘the age of secular stagnation’.
Can the plane we are all on keep flying or not? 2 opposing view points:
The keep-on-flying passengers: economic growth is still necessary—and so it must be possible.

The prepare-for-landing passengers: economic growth is no longer possible—and so it cannot be necessary

Raworth discusses the justifications put forward by these 2 opposing views. On the "growth is still necessary" side:
First, growth is on the way, argue technology optimists such as Erik Brynjolfsson and Andrew McAfee [both at MIT]: thanks to the exponential growth in digital processing power, we are entering the ‘second machine age’ in which the fast-rising productivity of robots will drive a new wave of GDP growth.

What’s more, argue green growth advocates such as the UN, World Bank, IMF, OECD and EU, future growth can become green by decoupling GDP from ecological impacts. In other words, while GDP continues to grow over time, its associated resource use—such as freshwater use, fertiliser use and greenhouse gas emissions—can fall at the same time.

I bolded "decoupling", because the next question growth advocates must answer is, how much decoupling?

The challenge of decoupling. If GDP is to continue growing in high-income countries, its associated resource use must fall not just relatively or absolutely but sufficiently absolutely to move back within planetary boundaries.
Looking at models of growth, we learn that in the 1950s, "Robert Solow, father of economic growth theory," [another MIT guy] created a model of economic growth based on productivity gains, labor, and capital. But his model never came close to working: "to his surprise he found that capital invested per worker explained a mere 13 percent of the American economy’s growth over the previous 40 years".

Some early 21st century economists did better, with an important ramification.

In 2009, physicist Robert Ayres and ecological economist Benjamin Warr decided to construct a new model of economic growth. To the classic duo of labour and capital they added a third factor of production: energy (or, more precisely, exergy), the proportion of total energy that can be harnessed for useful work, instead of being lost as waste heat. And when they applied this three-factor model to data on twentieth-century growth in the United States, UK, Japan and Austria, they found that it could explain the vast majority of economic growth in each of the four countries: Solow’s mystery residual, long assumed to reflect technological progress, turned out to reflect the increasing efficiency with which energy is converted into useful work.

The implication? The last two centuries of extraordinary economic growth in high-income countries are largely due to the availability of cheap fossil fuels. It makes sense when you break it down: the energy contained in a single gallon of oil is equivalent to 47 days of hard human labour, making current global oil production equivalent to the daily work of billions of invisible slaves.

This drives home to me that we have to get this - fixing the world - right this time. The huge boost that cheap fossil fuels have provided was a 1-time deal. There aren't enough fossil fuels left for a do-over.

Other factors in the keep-on-flying vs the prepare-for-landing debate:

  • "the promise of renewable energy";
  • "the sharing economy";
  • "the digital economy", with its reduced use of physical resources.
Raworth identifies 3 ways "in which today’s high-income economies, and others following their path, are locked into and addicted to pursuing GDP growth."
  1. Financial - investors want good rates of return on their money, and economic growth makes it much easier to achieve such rates.

    We once again return to the interesting topic of currencies and their purposes.

    The pressure for shareholder returns is, however, just one manifestation of how financial gain drives growth. Indeed this expectation of gain is so ingrained that we hardly notice its most unusual feature: it runs counter to the fundamental dynamic of our world. Given time, tractors rust, crops rot, smartphones break, and buildings crumble. But money? Money accumulates forever, thanks to interest. No wonder it has become a commodity itself and, hence, is so underinvested in creating the productive assets—from renewable energy systems to circular manufacturing processes—that are needed to underpin a regenerative economy.

    What kind of currency, then, could be aligned with the living world so that it promoted regenerative investments rather than pursuing endless accumulation? One possibility is a currency bearing demurrage, a small fee incurred for holding money, so that it tends to lose rather than gain in value the longer it is held.


    Imagine, then, if a demurrage-bearing currency could be designed so that, instead of boosting consumption today, it boosted regenerative investments in tomorrow.

    I think I ran into "demurrage" - having to buy stamps to keep your dollar bills valid - a few years ago, but searching this blog turned up nothing. It is certainly an interesting concept, akin to negative interest rates.

  2. Political - Raworth describes 3 political lock-ins:
    1. Hope for raising revenue without raising taxes;
    2. Fear of the unemployment line;
    3. Power in the G20 family photo.

  3. Social - it's our old friend consumerism again:
    Despite being far richer than kings of old, we are too easily trapped on a treadmill of consumerism, continually searching for identity, connection and self-transformation through the things that we buy. Keeping up with the Joneses has us forever chasing the promise of that next purchase.
    In place of consumerism, we have, via the New Economics Foundation, "five simple acts that are proven to promote well-being: connecting to the people around us, being active in our bodies, taking notice of the world, learning new skills, and giving to others."

    Growth also helps create an atmosphere that supports inequality. The low-wage earner who doesn't want to raise taxes on millionaires because they might be one someday might be a little less likely to feel that way in a steady-state [I started to write "stagnant" but remembered, verbal framing ...] economy. "In the words of Henry Wallich, governor of the US Federal Reserve in the 1970s, ‘Growth is a substitute for equality of income. So long as there is growth there is hope, and that makes large income differentials tolerable."

Raworth changes stage #5 of Rostow's model of growth to "Preparation for landing" and adds a stage #6: "Arrival". I include this except from this chapter's final section "Welcome to Arrivals Lounge" because several times in reading and thinking about this book, I found myself thinking "Man, I wish Keynes were here ..."
Second, whatever else happens on arrival, I will bet one thing: that John Maynard Keynes and John Stuart Mill will be there waiting to greet us, ready to get to work on figuring out the economics—and the philosophy and politics too—of the art of living in a distributive, regenerative, growth-agnostic Doughnut economy.

The summary chapter is titled "WE ARE ALL ECONOMISTS NOW", resolving the question posed by the title of the introductory chapter.

Ours is the first generation to deeply understand the damage we have been doing to our planetary household, and probably the last generation with the chance to do something transformative about it. And we know full well, as an international community, that we have the technology, know-how and financial means to end extreme poverty in all of its forms should we collectively choose to make that happen.
My stock line is "How can you go into any Kroger, Costco, Lowe's, or Bed, Bath, and Beyond and say that there is not enough to go around?"

Let's conclude with the final paragraph of the book:

'Be the change you want to see in the world’ is Gandhi’s most famous phrase, and in terms of remaking the economy, today’s economic innovators are doing him proud. But with all due respect, I want to riff on Gandhi’s theme. When it comes to new economic thinking, draw the change you want to see in the world too. By combining the well-known power of verbal framing with the hidden power of visual framing, we can give ourselves a far better chance of writing a new economic story—the one that we so desperately need for a safe and just twenty-first century.

It’s easy to get started. Just pick up a pencil and draw.

This was an enjoyable read. Focusing on the economics rather than the politics was refreshing, as was the hopeful, can-do attitude. The book touched on what seem to be to be recurring themes that I have encountered in my quest to figure out how we get to a post-scarcity utopia:

  • universal basic income, universal health care, universal ... The 12 necessities. I listed some of these here.
  • People's QE, aka helicopter money. Following the 2008 meltdown, the Fed increased by 3x the amount of $ in circulation. "Hyperinflation!" howled the conservative economists - of course when none appeared, they denied they had ever predicted it. If they would just try The Plan - print helicopter money and distribute it as basic income until inflation shows signs of life, which I don't think it would.
  • the Piketty tax, aka capital tax, or, the term Raworth uses which I think is the most easily understandable, wealth tax.
Wow, Scott Santens, a basic income advocate whom I support on Patreon for $5/month, just published an amazingly comprehensive article on how to implement, and in particular how to fund, basic income. So many creative new taxes!

Despite recent political setbacks, I believe it is important to be defining what we want "the safe and just space for humanity" to look like. As time passes we will move from broad strokes to finer details. Minsky the simulator will achieve self-awareness - or at least give us a tool to reconfigure the parameters of an economy, run the simulation, and see if that gets us into The Doughnut.

Then, if the millennials decide to start voting and we get some representative progressive government, we'll be ready to go!

One final point - I hope that humanity will continue to grow by moving out into at least the rest of our solar system. But it will be centuries before this even larger system in which we are embedded is developed enough to help with our problems here on earth. So for now we should all stick with "There is no Planet B".


Arcoloeo said...

Power is understanding Sustainability is a cultural human paradigm to change S21 crisis, far from comsumism, individualism, inequity and financiarization created in antropocen edge.

Chris Heinz said...

Steve & Chris wrote a song that paraphrases some of "Dougnut Economics".