Kate Raworth’s “Doughnut Economics” is a great starting point for new thinkers

Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)

This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling. 

To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams. 

However naturally there are omissions and blind spots. 

Naturally when reading a new book on new economics (I have written two) I go straight to their bibilography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michel Bauwens on the commons and Janine Benys on biomimicry.

So here is what I think a list of what the next generation of thinkers could productively focus on:- 

First Omission – asking what is the root cause of the growth imperative?

One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work,  and in the process he had to spend time relearning and unlearning economics. 

Second Omission – the role of power

When I was a  full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.

Third Omission – the importance of currency design 

Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns. If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design. 

She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.

Fourth Omission – Energy Decline

I am not sure I do it justice either, but those who understand that because of peak oil the net energy in the industrial system must decline, also know that we have to live with progressively less net energy. That is a big concept because economic growth has for decades been closely correlated with energy growth. 

When it comes to discussing the regenerative circular economy,  where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It  also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.

I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”

Fifth Omission – Land Tax reform

She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.

This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline. 

 

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Economic reality strikes – growth is ending

Of late the Opposition has been pointing out that business confidence is declining. NZIER had released a survey saying business confidence is at a seven year low. The Government has been quick to dismiss it as a political bias by business – as something they always opine when a Labour Government comes in. And the Asian stockmarkets are currently looking wobbly. RNZ’s long term economic commentator Patrick O’Meara talked of softer demands, slower growth, lower investment intentions. He talked of the looming US-China trade war has attributed that to the fact that on Saturday Trump’s tariffs on Chinese goods begin. It may also affect markets in Europe, Canada and Mexico.

The trend started well before Trump appeared.
But because of declining net energy, worrying trends happened decades before Trump’s tariffs kicked in. Let me explain declining net energy. Whereas in the mid 20th century if you spent one unit of energy to extract oil, you would get 100 units of energy back, nowadays because it takes more energy to extract fossil fuels from deep sea wells and from fracking, the energy left for the economy is progressively declining. Since net energy available is closely correlated with economic growth we would expect economic growth to decline. Moreover productivity will decline. Productivity is an economic measure of output per unit of input and input includes energy.

Is it time for Nafeez Ahmed to be taken seriously?

British investigative journalist Nafeez Ahmed has written a great article explaining the gradual decline of both economic growth and productivity in the UK economy. He concludes, “In other words, trying to keep the growth machine growing when the machine itself is running out of steam is precisely the problem — the challenge is to move into a new economic model entirely.”

He quotes from a piece of research for the government by Professor Tim Jackson giving graphs of declining economic growth and productivity. Jackson says, “In 1996, the trend rate of growth in the global GDP was 5.5%. By 2016 it was little more than 2.5%”. From 1971-2016 productivity growth dropped from over 3% to just 1%.  We must have similar graphs in New Zealand.

Economist Michael Reddell says on his website “Over the last five years there has been only about 1.5 per cent productivity growth in total.”

Ahmed himself is well ahead of others in the way he puts together and explains the connection between many serious global issues –fossil fuel depletion, climate change, finance, geopolitics, terrorism, food security, political instability.

Trump is just a symptom

Trump’ regime is picked to promote business as usual
Ahmed wrote on Inauguration Day 2017  that “Trump is not the problem. Trump is merely one symptom of a deeper systemic crisis. His emergence signals a fundamental and accelerating shift within a global geopolitical and domestic American political order which is breaking down.” He talked of the elephant in the room being the global net energy decline that drives all this.

Less than a month later he penned  a chilling analysis of Trump’s regime.   Half of them are now gone, having resigned or been fired by Trump.  He grouped them under five headings – money monsters, fossil fuel freaks, black ops brigade, Ku Klux Klan and the guru gang  – saying that was the perfect combination required to keep the old model working. Business as Usual must proceed. Drill baby drill.  Increase funding for the military. If things look bad financially try riskier and riskier financial instruments.

Never before has there been such an environmental crisis where our emissions are making our habitat more and more inhospitable with floods, fires, droughts and the accompanying food insecurity. Never before have we seen governments like ours desperate to solve child poverty throwing money at them. We have even got a superannuitants winter energy payment. Yet homelessness and poverty continue.

The tragedy is that while the current government has its heart in the right place – to end poverty and preserve our environment – it is hamstrung. It is damned if it does and damned if it doesn’t. Political instability is becoming inevitable. Will New Zealanders after the hope of Jacinda Ardern be doomed to see in a Trump like government within five years? Nigel Farage is coming to our country soon. If we don’t find a new economic model that is not dependent on growth, we will come nowhere near a just, sustainable economy. That is the tragedy.

 

 

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Which do you fancy – Economic Growth or Financial Collapse?

I have now watched a TED talk on this topic twice and can’t help but respond. Ecological economist Marjan Van Den Belt is right when she says “we are mindlessly addicted to economic growth, we are growth junkies.” She advocates reciprocity in economies and says that is the key to a circular, sharing, regenerative economy. So far so good.

She urges listeners to take “a small step in the right direction”.  She points out that goal 8 of the UN Sustainable Development Goals is “meaningful jobs and economic growth”. What a shame they the UN doesn’t appear to understand that growth measures both good and the bad and doesn’t distinguish between them. So every time someone gets lung cancer that is good for growth, and when there is an accident the same. But when a mother cares for her preschoolers well or a family member cares for a frail older relative, the GDP doesn’t budge. Family work, voluntary work are not counted.

She also says neoclassical economic theory describes people as homo economicus – rational, self-centred and suggests trying to put that on your profile for a singles site. Yes.

So why do I want to respond? Because we are trapped. We have designed the money system and the land tenure system and together they are leading us by the nose to the growth imperative. And what happens if the economy doesn’t grow? Why it collapses of course. So is this economics professor really suggesting we crash the money system by allowing economic growth to grind to a halt? Does she really want us to have no money in the system, to have ATM machines that don’t work, to have plummeting house prices with negative equity and all the ensuing misery of foreclosures and bankruptcies? I doubt it.

Yes she wants a new paradigm and quotes Buckminster Fuller’s exhortation to build a new model. Good.

That is exactly what I have done in my new book The Big Shift. Although there may be other possible ways to get there, together in our little new economics think tank we designed this new model and believe once it is built and once it flourishes it will provide not only appropriate jobs, but where jobs are not possible, it will give a basic income so that parenting, inventing, producing needed sustainable energy and products will also flourish.

You see we need to get back to community owned land and community created and designed money systems. I know it is a huge leap for our thinking to get to community owned land and we can only do this fairly by adequately compensating landowners for their land. We can only do this by creating new money because there isn’t enough in the system of the conventional debt-based money created by banks.

Today I had a lovely email from a Green Party activist who said, “I have spent the weekend reading your book, couldn’t put it down. All amazing and well outlined ways to change our world small sections at a time. However, are there enough of us who are willing to take that last step?” And she wanted to buy a second copy to lend out to friends. Nice.

And she wanted to buy a second copy to lend out to friends. Nice.

For those wanting to read more about how neoclassical economics started and why, I suggest reading The Corruption of Economics by Mason Gaffney and Fred Harrison. It outlines how neoclassical economics started as a reaction to the influence of Henry George. Land barons, industrialists and bankers paid scholars to corrupt the discipline. After two decades they had succeeded in getting any mention of land, banks, money or credit in the mainstream texts. They had subsumed land under capital so successfully that even forward thinking economists like Gareth Morgan fail to mention land as a separate factor of production. Moreoever he also fails to mention money creation.

This emphasis on pointing out the fallacies of measuring the economy as the growth in GDP has gone on since the 1970s so it is great that more know about it But they don’t know what causes the growth imperative, which, as Steve Keen has pointed out, is the combination of the tax system that fails to address rises in land value (and other assets) and the faulty money system.

 

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