Wednesday, November 4, 2020

Review of Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

This review was written by Eugene Kernes

Book can be found in:
Genre = Economics
Intriguing Connections = 1) How To Allocate Resources?, 2) Learning Economics: Basic to Advanced

Elaborate Description

Economics shapes society by influencing public policy and public life. There were many ideas of the 20th century which provided for a wealthy world, but some of those ideas are now destroying the very world that provides the wealth. The former economic ideas were useful for the purpose of prosperity but now they are failing to sustain life on the planet. No matter what the new economic ideas are, they need to continually evolve to be useful for the present situation. Raworth is setting up new economic ideas to see prosperity for the 21st century. The major idea presented in this book is the Doughnut. The inner rim represents the minimum needed for human well-being. The outer rim represents the maximum pressure the planet can take.

GDP growth is an idea that dominates policy. Continuously increasing income growth was based on many assumptions which do not apply to how people obtain that income. A metric that only captures part of the economy, the part that has market value. There are many services which support the market but are not included in the metric. GDP growth requires legitimization for which politicians and economists are trying to add adjectives to better enable a kind of growth, but what is needed is a change in the goal. GDP growth as a goal has caused problems for well-being and ecology. The stability of Earth’s climate gave rise to prosperity but human action is now negatively impacting the very resources that gave rise to the prosperity. The generated prosperity is overextending many ecological factors while not providing many of the human basic needs. The new goal should be to get within the Doughnut. The goal is two-fold with access to well-being as the inner rim, with the outer rim representing the limit of ecological damage.

The initial models of the economy missed many factors which were important. They were designed to explain how money flows throughout the system. From Smith’s time, there were three factors of production which are labor, land, and capital. The mainstream economics only focused on labor and capital. The models which Raworth proposes see the economy composed of the market, household, state, and commons embedded in society which is itself embedded in the Earth ecology. Each component of the economy produces in different ways.

Rational economic agent came about from trying to obtain a simple and predictable model of a person. It was not how the original economic individual was fashioned who held self-interest and other motivations, morals, and diverse talents which were readily claimed to lack predictability. Moving forward, the rational agent was able to do incredible calculations to better meet wants. To enable the economic agent entry into mathematical models, the agent was given perfect knowledge and perfect foresight. The problem is that as more studies of how humans actually behave show that humans are social, reciprocate, have fluid values, interdepended, and approximate. Having many cognitive biases may not be ideal for a fast-moving and uncertain reality, but they have enabled humans to survive historically. In a complex reality, learning heuristics can facilitate better decision making. One of the features of the rational model is that price is supposed to be used as a signal for appropriate decision making. The problem is that putting a price on some things in life puts them in jeopardy as social norms are transformed into market norms.

To try to mimic physics and engineering, the economy was described as being a stable, mechanical system. The mechanism of competition working within small-scale and fully-informed sellers and buyers would create the condition of equilibrium which maximized utility. The new models should express that humans live in an interdependent dynamic world. Behaviors can create emergent properties which are very unpredictable. Positive and negative feedback create an interlocking system. The economy should design a system with those in power to serve the greater whole, have a capacity to create structures more complex, and facilitate resilience to stress.

There is some evidence that increasing wealth generates the want and ability to clean up the ecology, but the evidence is inconsistent. There is also no need for a society to be wealthy to protect the ecology as the ecology can be protected while the society becomes wealthy. It is political pressure that demands government and companies to take action for protection of ecology such as transitioning to cleaner technologies. The industrial model takes more resources than can be sustainably used while at the same time putting to much pressure on the waste sinks. The linear economy needs to transition to a cyclical economy in which resources are reused. Although not all resources can be reused, creating a system that limits extraction to regeneration cycles and reuses resources allows for greater efficiency. Enterprises which are regenerative should be given preferential support such as lower taxes.

Although this book is right to point out the many problems with mainstream economics, it does so in a manner that reduces the value of the very ideas Raworth supports. It is written in a manner that is meant to divide rather than attempt to move forward together. The biggest inconsistency is where Raworth buts blame and credit to, as many wrong ideas are blamed on the prior oppositional economists while the ideas which Raworth supports which come from the opponents, the opponents are not given credit to those ideas. Much like the caricature of the rational agent, Raworth creates a caricature of the opposition. This inconsistency also creates many contradictions with different ideas presented do not come together historically, as they are in contrast. A web of simplifications and caricatures reduces the impact and credibility of the ideas Raworth supports.

Many economic ideas are set in particular situation and time. These ideas and the models they inhibit need to adept to new circumstances. Never ending growth did give well-being to many, but now it is costing the very prosperity that provides well-being to many. Ideas need to adept to the limitations of ecology. It is within the Doughnut that well-being can be sustained. The book was generally well written, but became increasingly inconsistent.

Book Details

Edition ISBN:  9781603586757
Pages to read:   239
Publication:     2017
1st Edition:      2017
Format:            eBook

Ratings out of 5:
Readability     4
Content          4
Overall           4