Friday, June 30, 2017

Capitalism 3.0

Capitalism 3.0 is a 2006 book by Peter Barnes, Co-Founder, Working Assets. It is subtitled "A Guide To Reclaiming The Commons". It is 216 pages, 10 chapters in 3 parts of 4, 4, 2 chapters, with a preface and an appendix. It is a very easy read. There are many interesting facts and people of whom I had not heard before. And there is also a sensible scheme to protect the commons from the predation of capitalism.

Being a successful businessman and entrepreneur, Barnes unappologetically believes in capitalism and the power of markets. But he also sees the downside of the corporate operating system: short-sighted focus on profits, and no thought whatsoever for future generations, the planet, or all the other species with whom humans share the earth. So to counterbalance the unrestrained greed of the corporate sector, Barnes proposes the establishment of a commons sector. This is the 3rd or 4th economics book I have read recently in which The Commons plays a major role.


In the preface, we meet the guy who in 1968 coined the phrase "The Tragedy of the Commons", Garrett Hardin. He was an ecologist. Per Wikipedia, "Hardin blamed the welfare state for allowing the tragedy of the commons; where the state provides for children and supports over-breeding as a fundamental human right, Malthusian catastrophe is inevitable." He sounds like a real charmer. Pretty old school - he was a neomalthusian. Ugh, also from his Wikipedia article: "A major focus of his career, and one to which he returned repeatedly, was the issue of human overpopulation. This led to writings on controversial subjects such as advocating abortion rights, which earned him criticism from the political right, and advocating eugenics by forced sterilization,[citation needed] and strict limits to non-western immigration, which earned him criticism from the political left".

Barnes sees The Commons as victim of the market and government - the only 2 options Hardin believed could manage a commons.

if the commons is a victim of market and government failures, rather than the cause of its own destruction, the remedy might lie in strengthening the commons.
This lead him to a seminal question: "who should own the sky?". He proposes that we all own the sky, as a commons. He created the Sky Trust proposal, and his book before this one, "Who Owns the Sky?: Our Common Assets And The Future Of Capitalism", 2003.

Barnes traces his business career. He grew up helping his "father crunch numbers". He was a journalist for Newsweek and The New Republic. He was president of Working Assets, which donates 1% of its top line (gross) to "nonprofit groups working for a better world". Hunh, Credo Mobile is part of Working Assets. All of which lead him to some hard questions about capitalism.

Is capitalism a brilliant solution to the problem of scarcity, or is it itself modernity’s central problem?

...

When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature.


Part 1 is titled "The Problem". It explores our current system, which Barnes labels "Capitalism 2.0.", including some of its history.

Chapter 1, "Time to Upgrade" likens our world economic system to a computer operating system that needs an upgrade. I have said many times that money, and by implication, the economy, is a software system whose parameters we can tweak until we get it to be something we all can live with, so I like his metaphor. We meet our old friend Jared Diamond yet again. His book "Collapse", blogged here, is totally a cautionary tale for our times.

past human civilizations (Sumer, Rome, the Maya, Easter Island) did on a smaller scale what our own economic system seems bent on doing planet-wide: they destroyed their resource bases and crashed. The pattern is hauntingly familiar. First, the civilization finds a formula—agriculture, irrigation, fishing, capitalism—for extracting value from ecosystems. Because the formula works so well, the civilization’s leaders become blindly attached to it. Eventually, the key resources on which the formula depends become depleted and the inflexible civilization collapses like a house of cards.
Barnes sums up the challenge:
The question our generation faces is: will we change our economic system voluntarily, or let the atmosphere change it for us?
Barnes defines The Commons:
This notion of the commons designates a set of assets that have two characteristics: they’re all gifts, and they’re all shared. A gift is something we receive, as opposed to something we earn. A shared gift is one we receive as members of a community, as opposed to individually. Examples of such gifts include air, water, ecosystems, languages, music, holidays, money, law, mathematics, parks, the Internet, and much more.

These diverse gifts are like a river with three tributaries: nature, community, and culture.

Here is the worth 1000 words pic. We should always remember how rich we are.

Barnes defines 2 terms, neither of which I like very much:

  1. Illth, from John Ruskin - the opposite of wealth: poverty, pollution, despair, illness. Barnes equates illth with economics' "negative externalities", which I continually encounter in reading about what is wrong with economics.
  2. Thneed, from Dr. Seuss - "a thing we want but don't really need ... (Significantly, needs are generic, while thneeds are typically branded.)". As in the last economics book I read, consumerism is presented as a large part of our problem.
Chapter 1 ends with Barnes laying out the "premises of this book".
  1. WE HAVE A CONTRACT. Each generation has a contract with the next to pass on the gifts it has jointly inherited.
  2. WE ARE NOT ALONE. ... Not only do our children and grandchildren matter, so do other beings and their offspring.
  3. ILLTH HAPPENS.
  4. FIX THE CODE, NOT THE SYMPTOMS.
  5. REVISE WISELY. NBDF: if it's Not Broke, Don't Fix it.
  6. MONEY ISN’T EVERYTHING, Money is the blood of our economic system; it shouldn’t be the soul.
  7. GET THE INCENTIVES RIGHT.


Chapter 2 is titled, "A Short History of Capitalism". How did we get where we are? "Two parallel threads emerge: the decline of the commons and the ascent of private corporations.".

The enclosure of the commons accelerated beginning in the 17th century.

The rationale for private property is that it boosts economic production, but the commons has a rationale, too: it provides sustenance for all.
As early as the American Revolution, Thomas Paine recognized that there should be "indemnification for that loss", i.e., enclosure. He proposed this in the form of a national fund, to be paid to all citizens on attaining their 21st year, and every year after they turn 50 - Social Security v0.5. Throughout the history of the US, a tug-of-war has gone on between market forces seeking to enclose the commons, and forces of conservation trying to preserve the commons. It continues to this day.

The commons is mainly assaulted on the source side by enclosure, while on the sink side it is assaulted by externalization - this pollution doesn't show up in any economic models, so how about we just dump it in your air, or water, or ground?

Meanwhile, corporations have continued to grow in size and power. I did not realize that the Supreme Court ruled corporations to be "persons" under the 14th ammendment all the way back in 1886.

In 1955, sales of the Fortune 500 accounted for one-third of U.S. gross domestic product; by 2004 they commanded two-thirds.
I like his concept of Capitalism 1.0, shortage capitalism, vs Capitalism 2.0, surplus capitalism. Here I've been trying to figure out how we get to a post-scarcity utopia, while according to Barnes, we got to post-scarcity in the 1950s - now we just need the utopia to go with it.

Capitalism 2.0 was accompanied by the great servants of consumerism: marketing and advertising - it is no wonder "Mad Men" was set in the 1950s.

In this version, there’s no limit to what corporations can produce; their problem is finding buyers. A sizeable chunk of GDP is spent to make people want this unneeded output. And credit is lavishly extended so they can buy it.
We should not forget that 2 of the largest current net presences, FaceBook & Google, both get most of their revenue from their online ads.

This chart gives a good characterization of the 2 flavors of capitalism encountered so far.

Barnes concludes his short history of capitalism by noting the "Three Pathologies of Capitalism":

  1. the destruction of nature;
  2. the widening of inequality;
  3. the failure to promote happiness despite the pretense of doing so.
On inequality, and globalization:
the rich are rich because (through corporations) they get the lion’s share of common wealth; the poor are poor because they get very little.

...

The whole point of globalization is to increase the return to capital by enabling its owners to find the lowest costs on the planet. Hence the stagnation at the bottom alongside the surging wealth at the top.


Chapter 3 is titled "The Limits of Government". Our "Tragedy of the Commons" guy thought only the government or markets could protect a commons. This chapter explores why government probably is not up to the challenge.

I like this view of the American experiment:

America has been engaged in two experiments simultaneously: one is called democracy, the other, capitalism. It would be nice if these experiments ran separately, but they don’t. They go on in the same bottle, and each affects the other. After two hundred years, we can draw some conclusions about how they interact. One is that capitalism distorts democracy more than the other way around.

The reason capitalism distorts democracy is simple. Democracy is an open system, and economic power can easily infect it. By contrast, capitalism is a gated system; its bastions aren’t easily accessed by the masses. Capital’s primacy thus isn’t an accident ... . It’s what happens when capitalism inhabits democracy.

And we all know this has gotten far worse since 2006, particularly thanks to the disastrous Citizens United Supreme Court decision in 2010 which opened floodgates of political contributions. Studies show your average congressman does what his donors want, not what his constituents want. My feeling is that publicly financed elections are the only solution to this problem, but I'm sure the rich will still be able to find ways to subvert legislators. You would still have the army of lobbyists in DC, which leads us to our next problem: "regulatory capture":
A new agency is created to regulate an industry that’s harming the public. At first the agency acts boldly, but over time its zeal wanes. Reformers who originally staffed the agency are replaced by people who either worked in the industry earlier, or hope to do so after a stint in government. Industry-packed “advisory committees” multiply, while industry-funded “think tanks” add a veneer of legitimacy to profit-driven proposals. Lobbyists meet constantly with agency staffers.
Can we ban lobbyists? Seems pretty anti-1st amendment to me. Hmmm ...


Chapter 4 is titled "The Limits of Privatizaton". Can markets do a better job of protecting the commons via privatization? Barnes gives a more detailed definition of capitalism as an operating system.

Our current operating system is dominated by three algorithms and one starting condition. The algorithms are: (1) maximize return to capital, (2) distribute property income on a per-share basis, and (3) the price of nature equals zero. The starting condition is that the top 5 percent of the people own more property shares than the remaining 95 percent.
These are the rules of the corporations that make up the capitalistic system that is eating the world. Barnes explores 3 ways that corporations could "rise above their profit maximizing algorithm":
  1. enlightened managers might choose a higher goal than profit. A nice idea, but Barnes suspects that in the real world "Corporate communications departments would try to maximize the appearance of social responsibility for the lowest actual cost. We’d see beautiful ads and reports, but little change in core behavior."
  2. shareholders might insist on it. More of this is happening, but I think that in general the investor class is into that "Maximize return to capital" algorithm.
  3. government might require it. But, as we saw with 0 bankers going to jail after the 2008 financial crisis, if the government won't jail individuals, then the corporations are happy to pay fines as a cost of business.
Finally, Barns discusses "free market environmentalism". Started by freshwater economist Ronald Coase in 1960, it posits that "nature can be protected through property rights, provided they’re clearly defined and the cost of enforcing them is low.". Barnes likes the idea, but finds it unworkable. "First and foremost, it lacks a solid rationale for how property rights to nature should be assigned." So rather than privatization, Barnes proposes propertization, which brings us to Part 2.


Part 2 is titled "A Solution". Chapter 5 is titled "Reinventing the Commons". Barnes introduces the commons sector. Its job: to oppose the capitalist system, particularly the 3 pathologies we met in Chapter 2.

The new sector would supply virtuous feedback loops and proxies for unrepresented stakeholders: future generations, pollutees, and nonhuman species. And would offset the corporate sector’s negative externalities with positive externalities of comparable magnitude. If the corporate sector devours nature, the commons sector would protect it. If the corporate sector widens inequality, the commons sector would reduce it. If the corporate sector turns us into self-obsessed consumers, the commons sector would reconnect us to nature, community, and culture.

...

To be sure, building an economic sector from scratch is a formidable task. Fortunately, the commons sector needn’t be built from scratch; it has an enormous potential asset base just waiting to be claimed. That asset base is the commons itself, the gifts of nature and society we inherit and create together. As we’ll see, these gifts are worth more than all private assets combined. It’s the job of the commons sector to organize and protect these gifts, and by so doing, to save capitalism from itself. [My bold]

Barnes estimates that, as of 2005, common assets, natural and social, were at least 50% larger than private and government assets combined. I think that could be off by a factor of maybe 10 or so - as Barnes points out, there are so many common things we take for granted that belong to us all: the natural world, the Internet, stock exchanges, laws, communications media, the arts and other culture, scientific and technical knowledge, universities, libraries, accounting procedures, transportation infrastructure. As I said earlier, we should always remember how incredibly rich we are.

Barnes discusses "organizing principles of the commons sector". He sees a lot of variation in commons institutions. The most important characteristic of a common asset is whether it is limited or inexhaustible.

Some of the variety will depend on whether the underlying asset is limited or inexhaustible. Typically, gifts of nature have limited capacities; the air can safely absorb only so much carbon dioxide, the oceans only so many drift nets. Institutions that manage natural assets must therefore be capable of limiting use. By contrast, ideas and cultural creations have endless potential for elaboration and reuse. In these commons, managing institutions should maximize public access and minimize private tollbooths.
Some of the organizing principles:
  • leave enough and as good in common;
  • put future generations first;
  • the precautionary principle: when in doubt, err on the side of safety;
  • the more the merrier - Whereas private property is inherently exclusive, common property strives to be inclusive. It always wants more co-owners or participants, consistent with preservation of the asset. In addition to the internet and culture, this principle also applies to social contracts like Social Security and Medicare;
  • one person, one share;
  • include some liquitity.


Chapter 6 is titled "Trusteeship of Creation"; it traces the Nature branch of The Commons. Barnes contrasts the the natural world, which is irreplaceable, with consumer goods, which "tend to be massproduced and highly disposable"

The question is whether creation’s irreplaceable gifts are different enough to merit different treatment by our economic operating system. A strong case can be made that they are.
But the current system values capital above all else. We learn of Marjorie Kelly and her book "The Divine Right of Capital" (2003). "Kelly locates many places where capital’s supremacy is written into our codes." It's interesting, there is only one law where capital is constrained, and that is the Endangered Species Act.

Barnes reviews several land trusts, some of which are centuries old. He gives us this definition of a trust:

Trusts are centuries-old institutions devised to hold and manage property for beneficiaries. The essence of a trust is a fiduciary relationship. Neither trusts nor their trustees may ever act in their own self-interest; they’re legally obligated to act solely on behalf of beneficiaries.

Trusts are bound by numerous rules, including the following:

  • Managers must act with undivided loyalty to beneficiaries.
  • Unless authorized to act otherwise, managers must preserve the corpus of the trust. It’s okay to spend income, but not to diminish principal.
  • Managers must ensure transparency by making timely financial information available to beneficiaries.
Trustees are held to a higher standard than corporate managers or "stewards".
A trustee isn’t the same thing as a steward. Stewards care for an asset, but their obligations are voluntary and vague. By contrast, trustees’ obligations are mandatory and quite specific. Trusteeship is thus a more formal and rigorous responsibility than stewardship.
Barnes shows the commonsensical nature of his approach by invoking standard double-entry accounting principles. When we credit a corporation's account with natural resources, where does the corresponding debit show up? "In fact, there aren’t any accounts that could be debited. " Creating common property trusts provides the account for the debit, so that common resources can then be managed by normal business practices.

Barnes defines "commons rent" in a way I have not heard rent defined before: "it’s money paid because of scarcity."

We meet the "underappreciated American economist Henry George". Hmmm, "underappreciated" doesn't seem right to me, he has an institute in his name in NYC and a foundation in his name in London, both presumably promulgating his ideas, FTW! He did not quite make it into the 20th century.

Seeing both the riches and the miseries of the Gilded Age, he asked a logical question: Why does poverty persist despite economic growth? The answer, he believed, was the appropriation of rent by landowners. Even as the economy grew, the property rights system and the scarcity of land diverted almost all the gains to a landowning minority.
Following George's lead, Barnes makes "a bold assertion":
sharing commons rent through per capita dividends isn’t just the best way to bring our economy into harmony with nature, it’s also the best way to reduce poverty. That’s because there’s no other pool of money of comparable size to which poor people have a legitimate claim.


Chapter 7 is titled "Universal Birthrights"; it traces the Community branch of The Commons. We all know the universal birthrights proclaimed in the Declaration of Independence: "life, liberty, and the pursuit of happiness". Interesting, I didn't know that Jefferson got these from John Locke, whose version was "life, liberty, and property". The Constitution gives us more birthrights.

We revisit Monopoly, "a reasonable simulacrum of capitalism". But, where's my $200 for passing Go? Plus, to be like the real world, "Imagine ... a twenty-player version of Monopoly in which one player starts with half the property".

Another example showing a different "economic operating system" is the pro sports leagues. "Each league shifts money from the richest teams to the poorest, and gives losing teams first crack at new players." What fun is a sport without at least a somewhat level playing field?

Barnes sees waves of birthrights:

If we were to analyze the expansion of American birthrights, we’d see a series of waves. The first wave consisted of rights against the state. The second included rights against unequal treatment based on race, nationality, gender, or sexual orientation. The third wave—which, historically speaking, is just beginning—consists of rights not against things, but for things—free public education, collective bargaining for wages, security in old age. They can be thought of as rights necessary for the pursuit of happiness.

...

Universality is also what distinguishes the commons sector from the corporate sector.

Barnes looks at what should go into this third wave:
Without great difficulty, we could add three birthrights to our economic operating system: one would pay everyone a regular dividend, the second would give every child a start-up stake, and the third would reduce and share medical costs. Whether we add these birthrights or not isn’t a matter of economic ability, but of attitude and politics.

Why attitude? Americans suffer from a number of confusions. We think it’s “wrong” to give people “something for nothing,” despite the fact that corporations take common wealth for nothing all the time. We believe the poor are poor and the rich are rich because they deserve to be, but don’t consider that millions of Americans work two or three jobs and still can’t make ends meet. Plus, we think tinkering with the “natural” distribution of income is “socialism,” or “big government,” or some other manifestation of evil, despite the fact that our current distribution of income isn’t “natural” at all, but rigged from the get-go by maldistributed property.

For the 1st new birthright, a universal dividend, Barnes takes the Alaska Permanent Fund as his model.
We could, for instance, have an American Permanent Fund that pays equal dividends to long-term residents of all 50 states. The reason is, we jointly own many valuable assets.
In discussing the 2nd new birthright, a start-up stake for every child, he raises an important fact about inheritance. The early US did away with the European tradition of primogeniture. Having the oldest son inherit all the capital is a great way to keep it concentrated, which is not what the founding fathers wanted, and is not what we want either.

To fund this new birthright, we will of course need new taxes, preferably on the rich, of course.

To top things off, I like to think that the contributors—millionaires and billionaires all—will feel less resentful about repaying their debts to society if their repayments go directly to children, rather than to the Internal Revenue Service. They might think of the Children’s Opportunity Trust as a kind of venture capital fund that makes startup investments in American children.
It is sad reading his justification for the 3rd new birthright, universal healthcare. 11 years later and a small step in the right direction will probably be wiped out soon :-(


Chapter 8 is titled "Sharing Culture"; it traces the Culture branch of The Commons. Barnes discusses the IP bugaboo, and comes up with a statement late in the chapter that sums up my attitude.

To create scarcity where it doesn’t need to exist diminishes rather than enlarges our well-being.
When your local public library tells you they have only 3 copies of an eBook, what can you do but shake your head? They have infinite copies!

Wow, I'm going to get a pic of this and tweet it.

DISNEY STORIES TAKEN FROM THE PUBLIC DOMAIN: Aladdin; Atlantis; Beauty and the Beast; Cinderella; Davy Crockett; The Legend of Sleepy Hollow; Hercules; The Hunchback of Notre Dame; The Jungle Book; Oliver Twist; Pinocchio; Robin Hood; Snow White; Sleeping Beauty; The Three Musketeers; Treasure Island; The Wind in the Willows.

DISNEY STORIES ADDED TO THE PUBLIC DOMAIN: None.

...

Then there’s the Music Performance Trust Fund, set up in 1948. To settle a dispute with the musicians’ union, the recording industry agreed to pay a small royalty from recording sales into a fund supporting live concerts in parks, schools, and other public venues. The fund was, and continues to be, administered by an independent trustee. In 2004 it sponsored over eleven thousand free concerts throughout the United States and Canada.

Meanwhile, we all know about the FBI investigating copyright infringement and the $250,000 fines. This whole enforcement infrastructure certainly does not come for free. "Yet the companies’ price tag for it is exactly zero. (They do pay taxes, but so does everybody else.)"

Another similar imposition on the cultural commons comes from the great engine of Capitalism 2.0, advertising. I don't think I've seen this analyzed before particularly, and I agree 1000% with Barnes attitude on the subject.

What they claim is free speech, I experience as mental trespassing, and so do millions of others. As Kalle Lasn has written, “Our mental environment is a commons like air or water. We need to protect it from unwanted incursions.”

...

Children in America see, on average, one hundred thousand television ads by age five; before they die they’ll see another two million.

...

Every ad thus has an opportunity cost, a cost we experience but advertisers don’t pay.

...

What if we managed advertising as we manage, or could manage, physical pollution?

...

But if we dampened an overheated economy by lowering the volume of advertising, we’d get the benefits of higher interest rates without the pain. In fact, households might save money by buying less.

Wow, a new knob to turn to throttle an overheated economy, to add to the Fed interest rate.

My wife and I do a pretty good job dodging ads. We watch most content on Netflix, iTunes, YouTube, or time-delayed on DVR. All are pretty much commercial free. Watching real-time sports is the main time I'm hit with advertising. My browser has an ad blocker. Plus I think that, in general, I am pretty good at ignoring ads. But Barnes made a telling point: "Every ad has an opportunity cost." The time I spent watching an ad I could have spent doing something else, potentially profitable. So the ad maker clearly owes me for my time.

Barnes also discusses the airwaves, the internet, and scientific patents as part of the cultural commons.

Barnes concludes reviewing the 3 branches of The Commons.

Fortify, Then Enhance

The larger lesson of this chapter is that all three branches of the commons—nature, community, and culture—are under similar assault from corporations, and all need to be fortified. The means of fortification will vary with the particular commons. When commons are scarce or threatened, we ought to limit aggregate use, assign property rights to trusts, and charge market prices to users. When commons are limitless (like culture, the Internet, and potentially the airwaves), our challenge is the opposite: to provide the greatest benefit to the greatest number at the lowest cost.

...

After we fortify, we should enhance; just as we take from the commons, so should we give back. Art and music can be reproduced by corporations, but they don’t come from corporations; they come from the commons. Folk music, country music, jazz, blues, garage bands—these are the roots of our musical heritage. We must nourish the soil in which these roots grow. This, not copyright extension, is the way to enrich culture.


Part 3 is titled "Making It Happen". Chapter 9 is titled "Building the Commons Sector". Here's another 1000 word pic.

I think I've seen the concept of the "time bank" before, a search of this blog didn't turn it up. Time banks provide a complementary currency, which seems to be a trending topic in this blog.

Note that the "Spectrum Trust" is a trust administering the airwaves.

Barnes identifies another very important thing which must be returned to the commons: political campaign financing. "By privatizing our airwaves, in other words, we’ve effectively privatized our democracy." The effect of the alternative fact machine Faux "News" on our political discord cannot be understated.

As we near the end of the book, Barnes begins to try to win the gold medal by discussing more ways to make higher taxes palatable to the rich.

The premise behind a commons tax credit is that wealthy Americans owe more to the commons than they currently pay to the government in taxes. That being so, a commons tax credit would work like this. The federal government would raise the uppermost tax bracket by a few percentage points. At the same time, it would give affected taxpayers a choice: pay the extra money to the government, or contribute it to one or more qualified commons trusts.
Barnes defines 4 roles for government to play in building the commons.
  1. Until it assigns responsibility for a commons to someone else, government is the default trustee, and should be held to trusteeship standards.
  2. Government is the initial assigner and ultimate arbiter of property rights. Instead of privatizing nearly everything, it should assign more property rights to commons trusts and give commons rights precedence over capital’s.
  3. Only government can broker inter- and intragenerational compacts like Social Security and Medicare. We need government to do this again for health insurance and the Children’s Opportunity Trust.
  4. Government can help finance the reacquisition and restoration of previously privatized pieces of the commons. State and local governments in particular have the authority to issue long-term tax-exempt bonds, which can be used to acquire private land and water rights.


Chapter 10 is titled "What You Can Do". I think he is completely correct about the importance of property rights. 3 things to start with:

We should, first of all, start noticing and talking about our common wealth. Whenever we see it, we should point to it and let the world know to whom it belongs. [I find this to be a very easy topic to bring into most conversations.]

Second, we should demand more birthrights and property rights than we have now. Rights that belong to everyone. Rights built into our operating system. Rights that protect future generations as well as our own.

The reason I stress property rights is that, in America, property rights are sacred. They’re guaranteed by the Constitution. Once you have them, they can’t be taken without fair compensation. These protections have greatly benefited those who own private property. They should also benefit those who share common wealth.

Third, we should imagine and design multiple pieces of the commons sector—that is, organized forms we want the commons to take. And we should build and test our models wherever possible.

Barnes now addresses various groups of people, with suggestions appropriate to each role.
  • Parents.
  • Wage Earners.
  • Capitalists. Ha ha. Barnes gives it another shot.
    Well, let me be blunt: you do get too much. But don’t get your dander up; I’m not saying you’re a scoundrel. I’m saying, rather, that capitalism as we know it over-rewards people who own private property. It’s a system flaw, not a personal flaw. Its harm lies not so much in the luxuries it bestows on you as in the necessities it denies to others and the distortions it brews throughout society.

    I don’t expect you to surrender all your excess rewards at once. That would be asking more of you than I’m prepared to ask of myself. But I do ask you to consider doing two things: (1) Give back some of your excess takings now, and the rest when you die. And (2), if fellow citizens ask for a system upgrade that rewards noncapital owners more fairly, don’t fight them. Let them have it. It will work. And it will be good for your kids and the planet.

  • Commons Entrepreneurs.
  • Lawyers. "forge new property rights for the commons."
  • Economists.
  • Religious Leaders.
  • Politicians.
Corporations + Commons = Capitalism 3.0

Like the governor of James Watt’s steam engine, these add-ons will curb our current engine’s unchecked excesses.

...

All Americans will benefit both from nature’s health and from the health of corporations.


The Appendix is titled "Key Features of Corporate, State, and Commons Sectors". Yay, a nice table! I will be lazy and include it as a pic rather than hand coding it in HTML.

Reviewing, I did not mention above Barnes' discussions of "intergenerational pacts". Social Security was #1, with current workers paying retired workers and counting on the next generation of workers to do the same for them.


This was a fun and easy read. A little disappointing that it is 11 years later and I am just hearing about it - meaning, I'm afraid that these memes are not getting much traction. And yet, when you read this book, it all seems so commonsensical.

2 or 3 times, Barnes addressed himself to the "capitalists" - the 1%, the .01%. Basically he kind of says, "Can you all just be a little reasonable?" But probably they won't. I think the most important thing we need to figure out right now is, what is wrong, mentally, morally, spiritually, humanly, with the ultra-rich. and how can we help them fix themselves? Cory Doctorow's attitude in "Walkaway" makes more and more sense - that in their heart of hearts, the ultra-rich know that they really do not deserve their over-the-top wealth - so they are compelled to suppress that fact however they can, pretend that the system is fair, and continue to pile on wherever possible.

But even worse than that are GOP politicians, particularly in the south. Their policies, particularly regarding health care and the medicaid expansion, seem to indicate to me that they really don't care if the bottom 20% financially of their population dies. They may actually view it as a feature. And their base goes along with it because, proportionately, a larger %age of those who die will be people of color - despite the fact that, when you look at absolute numbers, the number of poor whites affected is 3-4x the number of poor people of color. A sound man in a club told me that poor white southerners "would get their d--k cut off if it meant black guys got their d--k and their hand cut off". I have used the word "genocide" in posts, I do not think it is unwarranted.

I think every system of government should have 1 goal: to maximize the outcome of every child. In the US 20% of people & children are nutritionally challenged, and every day a growing child doesn't get enough nutrition is a day they grow fewer brain cells. And every day they don't have access to quality education, the Internet, culture, capital, ... is a day they have fewer opportunities to grow their minds.

I really liked this book comparing the economy to an operating system - because that's what it is. It is a software system that we can tweak or refactor until we get something that works for everyone. The 1% & .01% will all still be richer than any Roman emperor, but we won't be starving and oppressing children. I think we need to get the simulations working to where we can show how it can be done. Surely our real-life game of Monopoly would be more fun for all if the rules were fairer.

After this book, Barnes published 2 more:

I think I will make the latest 1 my next economics read. It will be interesting to see how the ideas of this book have evolved. Plus should be a quick read, and hopefully a shorter review.

[2017-07-14 5:47pm] I forgot to mention. In "Doughnut Economics", Kate Raworth discusses the 4 "realms of provisioning" central to the embedded economy: household, commons, market and state. Barnes gives us a really good way to empower the commons realm - by propertization, as property rights are well understood and tightly integrated into our laws. But what about the household? Does Barnes have any ideas on how to empower and realize the value of the household realm? I'll look for this in his most recent book.

Wednesday, June 14, 2017

Metatropolis

Metatropolis is a shared world collection of 5 stories on the theme "future cities", edited by John Scalzi, 2010, 288 pages. It is subtitled "Original Science Fiction Stories in a Shared Future".

I was very pleasantly surprised at how good this collection is. I only read 4 of the stories because I had already purchased, read, and reviewed the Scalzi story separately - which lead me to this collection. The stories all explore how we move past our current capitalist economy. All the stories were well written page turners. I give this a 5 star rating and strongly recommend it. I am really surprised this came out in 2010.

I want to discuss the content in detail without worrying about spoilers, so,

*********************** SPOILER ALERT ***********************
Many of the attitudes are very reminiscent of Cory Doctorow's "Walkaway", which I discussed here - but come from 7 years earlier?!?!? I noticed 2 overall differences between these stories and "Walkaway".
  1. 3 of the 4 stories feature a reputation economy. Doctorow is not a big fan; in fact, he is a big proponent of a gift economy.
  2. When Doctorow introduced post-sigularity tech in the form of immortality via upload/download, I questioned its necessity, but decided it was OK. But none of the stories here uses any such real science fictiony type breakthrough. All the tech in these stories is stuff that we could feasibly be making in the next 10-20 years. So maybe the immortality was a distraction after all.


The 1st story is "In The Forests Of The Night", by Jay Lake (who died in 2014). The city here is set in the Pacific northwest, where it hides from capitalism in the forests and lava tubes. The Evil Capitalist particularly wants to get his greedy hands on their IP before it becomes open source. There are a messianic figure and a hit woman both in the EC's employ. The messianic figure I really did not get the purpose of. He needed to die christ-like to energize the Cascadians to metastasize? Why did we need the Great Man Theory here?


The 2nd story is "Stochasti-city", by Tobias S. Buckell, who I don't think I have read before. A nomadic carbon neutral society decides to make Detroit carless. Some great ideas here. Some of the ramifications of the gig economy (ha ha, Wikepedia redirects "gig economy" to "temporary work") are explored. Taskrabbits deliver packages of who knows what, and if they get in trouble a gig economy lawyer bails them out. The nomads organize in a city and build things like vertical farms, all from reused materials, before they move on. Good stuff.


The 3rd story is "The Red In The Sky Is Our Blood" by Elizabeth Bear. We have a parallel society based on a reputation economy (with a bracelet with merit dog tags as hardware). They work in collapsed cities, converting abandoned homes. "Some of them are petroleum farms, some are food farms. All salvaged materials."

Here is an interesting exposition by one of the characters, combining a definition of our old friend The Good Life (maybe v0.5) with a cutting critique of the globalized economy.

“All you need to live,” said Shearer. “Food, water, a place to sleep, protection from the elements, connectivity. Exploitation of natural resources, manufacturing — stuff — is a dead technology, Miss Grange. The world needs to invent something new. New ways to live. We’ve proven that upsizing and globalization really don’t work as well as we’d hoped. Economies of scale make stuff cheaper, but they also demand that we move stuff from place to place, and create demand for stuff that’s really not needed. And so rapid growth may lead to rapid collapse. With modern communications, you don’t need to be big anymore to be diversified.”
We also meet the sharing economy, which appears to be rapidly becoming commonly practiced in the real world. I read a quote somewhere to the effect that "ownership was only invented because we didn't have good tech to do sharing". Clearly we have the tech now.

Here's a nice description of their system:

“Okay,” Cadie said. “So really, it’s not all that different from anything else. Except instead of money, you get tags.…”

“Except, instead of contributing to an exploitative economy designed to line the pockets of the top capital holders, we’re contributing to a collective economy in which people know one another by reputation.”

“Until it gets too big.”

“Then we split up,” Homer said. “Subdivide until we reach a sustainable level. Growth—getting as big as possible as fast as possible—is not the only way to survive. Think about dinosaurs and mammals.”


The 5th story is "To Hie From Far Cilenia" by Karl Schroeder. Schroeder has published some very interesting stuff on future governance, I am always glad to find more of his work. This story features alternative realities layered in Augmented Reality trying to create a reputation economy based post-scarcity utopia, existing in parallel with the normal world. They appear to have their own dark net.

This was a really interesting observation, new to me. It touches again an idea to which I was recently 1st exposed in "Doughnut Economics": the power of a currency.

“Did you know,” Fraction said suddenly, “that when Roman provinces wanted to rebel, the first thing they did was print their own money?”


You can see why I liked these stories. New economics upon new economics: reputation economy, gig economy, sharing economy, collective economy, managed employment economy, complementary currency. Good 21st century economic thinking.

What do all these parallel, alternative systems have in common? The removal of the rentier from the economic picture. For sure, good riddance. The "euthanasia of the rentier" cannot come soon enough.

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".