Doughnut Economics

SEVEN WAYS TO THINK LIKE A 21st CENTURY ECONOMIST

Raworth makes a harsh observation on the academic field of economics and its recent evolution : it didn’t open up to other fields, remained based on convenient, beautiful but unproved assumptions (such as the infinite growth or decoupling) instead of realistic and reproducible experiments (such as the central role of energy, the finiteness of resources or the capability of humanity to deeply disrupt/devastate its environment). This divergence took the economic field away from the physical reality and prevents us nowadays to put in motion the actions to solve the issues that, we humans, will face in the close future. Briefly resumed, the cognitive model of our societies doesn’t work properly and isn’t adapted to our environment anymore.

To change this “mental software”, she proposes a list of seven principles that must be modified within the economic field in order to evolve from an archaic and outdated vision, with fragile fundamentals, to a modern, rigorous and more coherent one.

1st principle : Change the goal

20th century economics is focused on a macro-economic indicator called the Growth Domestic Product (GDP) that possesses numerous defaults and biases. We must go beyond this obsolete vision from the past in order to build a new goal for humanity, as proposed by the doughnut.

2nd principle : See the big picture

Mainstream economics depicts the whole economy with a limited image, the Circular Flow Diagram. These limitations have fed the neoliberal narrative on market efficiency, the incompetence of the state or the tragedy of the commons. We need to draw a new economic pathway which would be better integrated within society and environment.

3rd principle : Nurture human nature

20th century economics revolves around the notion of Homo ?conomicus : a cold, rational and calculating individual whose decisions are only directed toward a maximized profit, granting him a dominating position over a chaotic and wild Nature. This vision forgets that humans are a part of Nature, one of its many links, that they are social animals subject to a plethora of cognitive biases which will affect their every decisions.

4th principle : Get savvy with systems

The economic field didn’t venture and try to investigate far from its fundamentals, described in the 19th and 20th centuries, when it stole and copied from the mechanical physics, in order to claim the same authority of natural sciences. A more intelligent and comprehensive approach would integrate modern discoveries such as thermodynamics or complex interactions which are the core basics of systems theory, notably with the notion of feedback.

5th principle : Design to distribute

During the 20th century, a simple representation delivered a strong message about inequalities with the Kuznets curve : we will go through a tough time before reaching a clear improvement with a reduction of inequalities, due to economic growth. In fact, it appears that inequalities are not a necessity/feature, but a failure in the conception of the economic model. This means we need to invent new models to better redistribute wealth, and a new method for money creation.

6th principle : Create to regenerate

The economic theory has explained, for a long time, that a clean and proper environment was a luxury only reserved to the richest. This view is reinforced by the Kuznets curve which, this time again, displays the trajectory to reach a better future : we’ll have to go through the worse before it gets better, and when the economic growth will (maybe) clean the world out of its pollution. Such a law doesn’t exist in the physical reality : ecological degradations are the consequences of industrial conceptions. 21st century economists will have to build a circular (and not linear), regenerative model in order to bring humanity back in the natural cycles of the Earth.

7th principle : Be agnostic about growth

There exists a simple but frightening picture that is never drawn in the general economic theory : the long term trajectory of GDP growth. Mainstream economics see growth as a vital goal, when in reality, nothing grows forever in Nature. Discarding the GDP indicator could be easily achieved, but the addiction to growth remains hard to overcome. We need societies in which humanity can thrive and blossom, not one that will grow forever by putting a never ending stress on its individuals. This radical change leads us to become agnostic about growth, and to build a society that can function financially, politically and socially in a world where we learn to evolve without growth.