Whether you love or hate economics, this is a must-read
Review of Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth
I first studied economics in a highly mathematical version that was completely useless for understanding anything about the real world. Rather than explain inflation or international trade, I got utility functions, aggregate supply and demand curves that were supposed to wind up in some incomprehensible equilibrium. It was so awful that I didn't try to understand it again until I was in graduate school for international relations; the approach there was called "political economy" and it made perfect sense to me, but was looked down upon as "unscientific" due to the light maths. I went on to use economics extensively in my professional life, but for the most part felt that the academic side was obscure and bound up in such highly abstract assumptions that only a mathematician could understand it all and that utterly lacked any real-world relevance.
For all of these reasons, I found Doughnut Economics both fascinating and useful. Raworth challenges academic "economic science" and offers a number of new notions that I hope will fundamentally re-shape the field. In addition, the book is lucidly written, which stands in stark contrast to the abstruse junk that so many economists churn out, where they twist logic into bizarre models and formulas that are better for blackboard proofs than real-world evidence. Doughnut economics is practical, based on common sense notions, and relatively easy to understand. Raworth offers 7 new "ways to think".
First, we need to change the goal from one of unending "growth" of GDP to an equilibrium state inside the doughnut shape: in the hole, social needs are neglected; outside the edge, ecological concerns are violated. The doughnut encompasses a number of factors in dynamic balance, including social equity, work and income, global warming, resource depletion, etc.
Second, instead of a hermetically sealed engine that flows between business and households in an unending cycle, which neglects the bigger picture, we need to view the economy as embedded in both an evolving society and the larger ecosystem.
Third, we must concentrate not on a single, abstract, selfish individual maximizing his/her well being in consumption of goods, but on socially adaptive communities of individuals who must work together for many other intangible values.
Fourth, we need to integrate a systems approach, replacing the artificial calculation of an abstract equilibrium state, i.e. feedback loops of factors offer a more realistic image and concept of the economy than the simple assignment of an optimal overall price. Needs change and act upon each other dynamically, there is no state of "Pareto optimality".
Fifth, the economic system should be designed to distribute resources fairly; inequality, in her view, is a failure of the system, not its inevitable outcome. This introduces a strong, legitimate role for public policy and activist government rather than some assumption that the "market" will achieve fairness or efficiency.
Sixth, taking sustainability into account, the system can be set up to regenerate itself rather than simply use natural resources as inputs.
Seventh, we have to give up the notion that GDP growth is the most important measure of how well the economy functions. Not only is perpetual growth a physical impossibility – indeed we are reaching the limits of capitalist growth rates at the levels we knew from 1870 to 1970, the golden age – but it diverts attention from more pressing tasks.
Raworth gets into lots of technical detail. I could not do justice to her model in this description, indeed I will have to go back and re-read the book a few more times before I fully grasp it myself. It is a marvelously stimulating intellectual journey that is also of vital importance.
I do have a criticism of the tone of the book. Some of it reads like a TED talk, a formula that bores me to tears. The examples given are also too brief for my taste and need to be expanded upon in much great detail. Finally, there is a bit of zaniness in it that bothered me on occasion. For example, I would rather call it a torus than a doughnut, as I believe the associations with that are more serious. Perhaps I’m nitpicking.
Related reviews:
"Fifth, the economic system should be designed to distribute resources fairly; inequality, in her view, is a failure of the system, not its inevitable outcome."
Though defining "fairness" is problematic (it's hard to find someone who won't claim they "earned every penny they ever made") this should still be a required sticker on every book about economics. As Marshall McLuhan tried to tell us, the means we use to try to understand and interpret the world are never neutral.