Book Review: “doughnut Economics”

“I took my money/ And bought a donut/ Hole nan size of this full world” — Sleater-Kinney

Here’s a very short, oversimplified history of modern economics. In nan 1960s and 1970s, a peculiar measurement of reasoning astir economics crystallized successful world departments, and fundamentally took complete nan apical journals. It was very math-heavy, and it modeled nan system arsenic nan sum of a bunch of logical quality agents buying and trading things successful a market.

The group who invented these methods (Paul Samuelson, Ken Arrow, etc.) were not very libertarian astatine all. But successful nan 70s and 80s a bunch of conservative-leaning economists utilized nan models to declare that free markets were great. The models turned retired to beryllium beautiful useful for saying “free markets are great”, simply because math is hard — it’s a batch easier to mathematically exemplary a simple, well-functioning marketplace than it is to exemplary a analyzable world wherever markets are only portion of nan story, and wherever markets themselves person tons of pieces that break down and don’t work.1 So nan intelligence hegemony of this type of mathematical exemplary benignant of dovetailed pinch nan emergence of libertarian ideology, neoliberal policy, and truthful on.

A batch of group sensed that thing was amiss, and group retired to find problems pinch nan communicative that nan libertarian economists were telling. These mostly fell into 2 camps. First, location were group who worked within nan 1970s-style mathematical econ framework, stayed successful academia, and tried to alteration nan ascendant ideas from wrong nan system. They came up pinch things for illustration nationalist equipment models, behavioral economics, incomplete marketplace macroeconomics, and various game-theory models successful which markets fail. When nan machine gyration made it a batch easier to do statistical analysis, they started to do a batch much empirical work, and a batch little theory:

These changes besides moved nan section more to nan left politically. To return conscionable 1 mini example, you tin spot a batch much economists writing astir inequality successful caller years:

But location was besides a 2nd group of group who fought against nan intelligence hegemony of nan libertarian economists. They rejected nan 1970s-style mathematics models that nan occupation insisted connected utilizing — either because they didn’t deliberation it made consciousness to exemplary an system utilizing that benignant of math, aliases because they couldn’t personally grip nan mathematics — and alternatively sought penetration successful replacement disciplines for illustration ecology, sociology, history, etc. These folks — who often called themselves “heterodox” — tended to thin moreover much powerfully to nan left, and often unabashedly mixed their methodological critiques pinch socialist aliases different leftist politics.

The heterodox folks had a problem. They had a immense grab-bag of critiques, but thing really tied those critiques together. There was nary caller paradigm — nary elemental caller measurement of reasoning astir economics. Marxism had provided that thought for overmuch of nan 20th century, but Marxism was defunct. That deficiency of a unifying model weakened nan heterodox cause, because it still seemed to time off 1970s-style free-market economics arsenic nan “base case” — nan elemental halfway thought that group kept returning to. It’s comparatively easy to explicate to a agleam 21-year-old really proviso and request activity successful a elemental competitory “Econ 101” model; it’s a batch harder to explicate 2 twelve ways successful which that exemplary fails.

So for years, nan heterodox group person been writing versions of nan aforesaid aged database of critiques, while searching for personification who could synthesize this database into a elemental caller paradigm. This telephone was answered by Kate Raworth, a British interrogator who has worked for world improvement agencies and for Oxfam earlier getting various posts astatine European universities. In 2017, Raworth wrote a book called Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, which promised to switch nan aged neoclassical economical paradigm pinch thing newer and better.

Although this book is now 8 years old, a number of friends person precocious asked maine to publication and reappraisal it. So present is that review.

Doughnut Economics is based astir an important insight: Diagrams are powerful trading tools. Raworth, seeing really nan basal supply-and-demand chart and nan circular travel diagram had helped popularize neoclassical economics, group retired to create a sketch that was arsenic elemental and arsenic powerful arsenic those. She writes:

[T]his book intends to uncover nan powerfulness of visual framing and usage it to toggle shape twenty-first period economical thinking…Visual frames, it gradually dawned connected me, matter conscionable arsenic overmuch arsenic verbal ones…[N]ow is nan clip to uncover nan economical graffiti that lingers successful each of our minds and, if you don’t for illustration what you find, scrub it out; aliases amended still, overgarment it complete pinch caller images that acold amended service our needs and times…The diagrams successful this book purpose to summarise that leap from aged to caller economical thinking.

Most importantly, Raworth came up pinch thing she calls nan Doughnut — a group of concentric circles that illustrates nan tradeoff betwixt nan situation and quality prosperity:

Going towards nan halfway of this sketch represents much quality poverty; erstwhile you spell inward beyond nan acheronian greenish band, you deprive and impoverish humans. Going outward represents much quality prosperity; erstwhile you spell retired beyond nan acheronian greenish band, you despoil nan environment.

In fact, this tradeoff is very real. Natural resources are plentiful, but not infinite; nutrient excessively overmuch successful nan present, and you’ll time off small for early humans (and different animals) to enjoy. Furthermore, plentifulness of business activity creates antagonistic externalities, for illustration erstwhile burning fossil fuels emits c and disrupts nan climate. So nan Doughnut depicts thing that we really do request to deliberation about.

In fact, mainstream economics already has a elemental measurement of depicting this successful a memorable image — a production possibilities frontier. A PPF illustrates society’s tradeoff betwixt 2 things. You tin tie a PPF that illustrates nan tradeoff betwixt accumulation and nan environment; successful fact, introductory econ courses do this each nan time:

You could explanation this sketch pinch each azygous 1 of nan items that Raworth puts successful her Doughnut — food, housing, biodiversity, ambiance change, and each nan rest. You could explanation 1 portion of nan curve “the safe and conscionable abstraction for humanity”. It would beryllium easier to read. Or, alternatively, you could tie a PPF for each type of business activity, aliases each type of biology degradation. But Raworth is willing successful intelligence revolution, not evolution; nan humble PPF is disqualified because of its relation pinch nan existing mainstream, and truthful she ne'er moreover mentions it successful her book.

Raworth presents nan Doughnut arsenic an replacement to nan thought of infinite exponential economical growth, which she sees mainstream economics arsenic supporting. I fishy that this explains nan book’s popularity. In caller years, the thought of degrowth has gained popularity, particularly successful nan UK and North Europe. But connected immoderate level, group recognize that degrowth is very bad for processing countries, since economical maturation — not overseas assistance aliases remittances — is nan only point that has ever been capable to durably raise group retired of hopeless poverty. So moreover lefty intellectuals successful nan UK aliases Sweden recognize that nan thought of degrowth, applied crossed nan world, would beryllium a monstrous crime against humanity.

Raworth is sympathetic to nan degrowthers, but she is not 1 of them. She spends a batch of clip discussing nan limits of GDP arsenic an economical goal, talking astir nan tradeoff betwixt maturation and nan environment, and arguing that exponential maturation has to extremity eventually. But she besides recognizes nan value of worldly prosperity for group successful mediocre countries:

In galore low-income but high-growth countries…when that maturation leads to investments successful nationalist services and infrastructure, its benefits to nine are highly clear. Across low- and middle-income countries…a higher GDP tends to spell hand-in-hand pinch greatly accrued life expectancy…far less children dying earlier nan property of five, and galore much children going to school. Given that 80 percent of nan world’s organization unrecorded successful specified countries…significant GDP maturation is very overmuch needed, and it is very apt coming. With capable world support, these countries tin prehend nan opportunity to leapfrog nan wasteful and polluting technologies of nan past.

This is my position arsenic well, and it’s nan only reasonable conclusion for anyone who has worked successful world improvement (as Raworth has). A batch of group who are dissatisfied pinch GDP arsenic a measurement of quality flourishing person spent a batch of clip creating replacement measures, for illustration nan Human Development Index. These ever extremity up being very powerfully correlated pinch GDP. For example, here’s HDI:

It looks for illustration nan relationship flattens retired a spot astatine nan top, but that could conscionable beryllium because nan scale can’t spell higher than 100; if you fto it spell higher, nan relationship mightiness persist moreover astatine precocious levels of income.

They’re each for illustration this. Googling around, I recovered thing called nan Social Progress Imperative, which makes immoderate scale of “social progress”. I’ve ne'er seen this scale before, and I didn’t moreover request to look to cognize astatine nan state level it’s going to beryllium powerfully correlated pinch GDP:

As pinch HDI, nan evident flattening astatine nan apical of nan curve mightiness conscionable beryllium owed to nan truth that nan scale is capped astatine 100, and rich | countries thin to beryllium placed adjacent 100.

Now, these are conscionable correlations. There’s nary guarantee that making a state richer will lick each its societal problems. Americans are way richer than Europeans, but this hasn’t yet solved our crime problem, our intelligence wellness problems, our supplier problems, and truthful on. We request much than GDP maturation to make a bully society. Yet astatine nan aforesaid time, GDP continues to beryllium a awesome rough-and-ready benchmark for really good a nine is doing. And arsenic Raworth wisely points out, for mediocre countries, worldly deprivation is nan main problem, and that does get solved by economical growth.

So Raworth strikes a equilibrium betwixt nan trendy lefty thought of degrowth and nan evident request for poor-country development. She recognizes that maturation is important for mediocre countries, but that it isn’t nan be-all and end-all of a bully society. And she recognizes that there’s a basal tradeoff betwixt economical maturation and nan environment. So she recommends that rich | societies attraction little connected maturation and much connected fixing their different problems.

So far, truthful good. That is simply a reasonable point to argue. There are reasons to reason against it, including:

1. Rich-country maturation drives technological advancement much than poor-country maturation does, and technological advancement is often basal some to prevention nan situation and to improve society.

2. Rich-country maturation creates request for poor-country exports, and leads to finance successful mediocre countries, frankincense helping them grow.

3. If rich | democracies don’t turn economically, they whitethorn beryllium conquered by countries for illustration Russia that don’t attraction astir nan situation or astir societal progress.

Raworth doesn’t see these benefits of rich-country growth. But if she had stuck to nan halfway connection of biology tradeoffs and nan inadequacy of GDP growth, it would person made for a very good, tight, focused book.

But Doughnut Economics is not a tight, focused book. Instead of delivering a simple, powerful message, Raworth tries to intellectually overthrow nan full edifice of modern economics. And successful this task, she fails.

First of all, Raworth doesn’t look to afloat understand nan worth of nan things she criticizes. Of people she’s correct that elemental pictures for illustration supply-and-demand graphs make awesome trading devices, but they’re besides overmuch more than that.

For example, you tin besides usage those pictures to do thought experiments. If you exemplary nan marketplace for oranges pinch a supply-and-demand graph, you tin think astir nan effects of a hurricane successful Florida arsenic a negative proviso shock — you tin displacement nan proviso curve to nan left, and nan chart will show you that A) less oranges get sold, and B) nan value of oranges goes up.

In principle, you could do that pinch Raworth’s Doughnut this way, too. For example, see an beforehand successful greenish exertion — suppose personification invents a measurement to make inexpensive zero-carbon cement. You could exemplary this pinch nan biology PPF that I illustrated above. This exertion loosens nan tradeoff betwixt maturation and nan situation — it shifts nan PPF outward, allowing america to person much quality wealthiness for nan aforesaid magnitude of biology degradation:

You could conscionable arsenic easy tie this arsenic an description of Raworth’s donut. The outward ringing of nan donut would expand, and nan “safe and conscionable space” for humanity would go much capacious, illustrating nan benefits of greenish technology.

But though she could, Raworth ne'er really uses her Doughnut for illustration this. Instead of a predictive analytical tool, she simply uses it arsenic a laundry database of each imaginable bully point that she would for illustration humanity to have. It’s little of a doughnut than an Everything Bagel.

Indeed, Raworth mostly rejects nan conception of economics arsenic a predictive, analytical instrumentality astatine all. Like galore heterodox types, she argues that economics should beryllium not a affirmative but a normative subject — a branch of governmental accuracy focused connected telling america what goals we ought to person for our society, alternatively than an analytical instrumentality for predicting really economies work. She writes:

In nan twentieth century, economics mislaid nan desire to articulate its goals…[John Stuart] Mill began a inclination that others would further: turning attraction distant from naming nan economy’s goals and towards discovering its evident laws…[T]he chat of nan economy’s goals simply vanished from view. Some influential economists, led by Milton Friedman and nan Chicago School, claimed this was an important measurement forwards, a objection that economics had go a value-free zone, shaking disconnected immoderate normative claims of what ought to beryllium and emerging astatine past arsenic a ‘positive’ subject focused connected describing simply what is. But this has created a vacuum of goals and values[.]

But successful her desire to move economics backmost into a accuracy of values, Raworth fundamentally abandons its usage arsenic a instrumentality of prediction and analysis. For prediction and analysis, she turns to different disciplines — ambiance science, ecology, and “complexity science”. But location are galore questions that these disciplines are not group up to reply — and which modern economics can answer.

For example, Raworth would astir apt work together that well-functioning nationalist transit is an important usability of authorities and society. If nan authorities is considering building a caller train extension, it’s important to beryllium capable to foretell really galore group will usage it; otherwise, you whitethorn extremity up wasting Earth’s scarce resources. Ecology whitethorn springiness you metaphors to deliberation astir humans riding trains, and complexity subject whitethorn simply show you that a strategy of transit is complex. That’s not very helpful.

But pinch economics, you tin really estimate a request curve for transit ridership, and usage that estimate to make meticulous predictions astir how galore group will thrust nan train, arsenic Dan McFadden won a Nobel prize for successfully doing successful nan 1970s. You can’t do that pinch a Doughnut!

In fact, location are plentifulness of different “positive” questions that modern economics is group up to answer. The electromagnetic wave spectrum is simply a commons that must beryllium allocated successful bid for group to perceive each different complete a compartment telephone network; economics tin predict nan results of various spectrum auction mechanisms. Allocating kidney transplants is important successful bid to prevention lives; economical mentation tin successfully show you how to get nan astir kidneys to nan astir recipients, frankincense redeeming nan astir lives. There are galore different examples.

Raworth doesn’t look very alert of these predictive successes of modern economical theory. Nor does she look to person a patient thought of what would switch them if nan theories of proviso and demand, equilibrium, etc. were thrown retired nan window.

Part of nan problem is that Raworth’s knowing of nan mainstream economical paradigm she wants to overthrow seems limited. For example, successful Chapter 5, she argues for keeping liking rates debased by making loans pinch state-owned banks:

State-owned banks could…use money from nan cardinal slope to transmission important low- aliases zero-interest loans into investments for semipermanent transformation, specified arsenic affordable and carbon-neutral lodging and nationalist transport. It…would displacement powerfulness distant from what Keynes called ‘the rentier…the functionless investor.’

But successful nan very adjacent paragraph, she denounces quantitative easing, which was a cardinal slope programme to support liking rates debased during nan Great Recession:

[C]ommercial banks utilized that money [from QE] to rebuild their equilibrium sheets instead, buying speculative financial assets specified arsenic commodities and shares. As a result, nan value of commodities specified arsenic atom and metals rose, on pinch nan value of fixed assets specified arsenic onshore and housing, but caller finance successful productive businesses didn’t.

First of all, this misunderstands what it intends for a slope to rebuild its equilibrium sheet. It doesn’t mean for a slope to bargain stocks and houses and commodities. It intends for a slope to clasp cash. Banks took nan money from QE and fundamentally stuck it successful a vault, holding what’s known arsenic “excess reserves”:

Raworth besides seems to misunderstand really plus prices work. When liking rates spell down, nan clip worth of money goes down, which raises nan value of assets for illustration stocks and houses. When Keynes talked astir nan “euthanasia of nan rentier”, he meant that investors wouldn’t beryllium capable to gain a bunch of free money from keeping their money successful slope accounts aliases authorities bonds; he didn’t mean that nan complaint of return connected risky assets for illustration stocks and houses would fall. In fact, complaint cuts springiness a imperishable boost to nan value of those assets, creating a windfall for nan rich | group who ain them.

Raworth doesn’t look to understand this astatine all. She besides advocates for cardinal banks to people money and springiness it straight to group — a connection she calls “People’s QE”, though nan much communal word is “helicopter money”. But beyond immoderate ostentation issues this would cause, it would besides raise plus prices, because group would usage immoderate of that money to bargain houses and stocks. That would springiness a windfall to plus owners, conscionable for illustration regular QE did.

Later, successful Chapter 7, Raworth argues that nan situation would use if rate mislaid worth complete clip — successful different words, if nan system had antagonistic nominal liking rates. She writes:

What benignant of currency, then, could beryllium aligned pinch nan surviving world truthful that it promoted regenerative investments alternatively than pursuing endless accumulation? One anticipation is a…small interest for holding money, truthful that it tends to suffer worth nan longer it is held…Today the…effect could beryllium achieved…by physics rate that incurred a complaint for being held complete time, truthful curtailing usage of money arsenic a shop of ever-accumulating value…It would toggle shape nan scenery of financial expectations: successful essence, nan hunt for gain would beryllium replaced by nan hunt to maintain value.

This gets nan effect of depreciating rate exactly wrong. If your rate is losing value, what do you do? You spell retired and walk it arsenic quickly arsenic you can! In fact, my PhD advisor, Miles Kimball, has long advocated for depreciating physics money arsenic a measurement to stimulate consumers to walk more! Raworth is proposing thing that she thinks would limit consumption, but which would really supercharge it.

The full book is littered pinch these misconceptions. This is sadly emblematic of heterodox econ critics, who are truthful judge that they want to propulsion retired each of modern economics that they often can’t beryllium bothered to understand what they’re trying to overthrow. If you’ve decided that a container contains thing but trash, why look wrong it earlier you flip it successful nan dumpster? And yet for each its flaws and limitations, modern economics has succeeded successful uncovering immoderate existent insights astir really nan system works, and a heterodox takeover would propulsion these out.

Another large problem pinch Doughnut Economics is its epistemology. When facts look to support Raworth’s desired conclusions, she doesn’t mobility them; erstwhile they look to tally antagonistic to her ideas, she often dismisses them. For example, successful Chapter 6, Raworth discusses nan thought that past a definite point, arsenic countries get richer, they pollute less. She cautions america not to judge that this relationship represents existent causation:

Grossman and Kruger…pointed retired that an observed relationship betwixt economical maturation and falling contamination didn’t demonstrated that maturation itself caused nan clean-up.

But past connected nan very adjacent page, she discusses nan relationship betwixt economical equality and biology quality, and interprets it arsenic causation:

Mariano Torras…and James K. Boyce…found that biology value is higher wherever income is much equitably distributed, wherever much group are literate, and wherever civilian and governmental authorities are amended respected. It’s group power, not economical maturation per se, that protects section aerial and h2o quality.

And yet though Torras and Boyce (1998) propose a causal system from governmental powerfulness to biology quality, they don’t person a measurement of testing that linkage; it remains a hypothesis.

And earlier, successful Chapter 5, Raworth writes:

Richard Wilkinson and Kate Pickett…discovered that it is nationalist inequality, not nationalist wealth, that astir influences nations’ societal welfare. More unequal countries, they found, thin to person much teenage pregnancy, intelligence illness, supplier use, obesity, prisoners, schoolhouse dropouts and organization breakdown, on pinch little life expectancy, little position for women and little levels of trust…More adjacent societies, beryllium they rich | aliases poor, move retired to beryllium healthier and happier.

These are each conscionable observed correlations, but Raworth interprets them each arsenic causation without questioning whether different factors mightiness beryllium astatine work.

The rumor intelligibly isn’t that Raworth fails to understand nan quality betwixt relationship and causation; she evidently does, because she uses it to mobility results she doesn’t like, for illustration nan uncovering that higher incomes are correlated pinch little contamination of definite types. But she fails to use this stringent, captious intelligence modular to correlations betwixt economical equality and various affirmative outcomes. Causation for me, specified relationship for thee.

Other times, Raworth simply seems uninformed. For example, successful Chapter 7 she says that Canada has “failed to execute immoderate absolute decoupling” betwixt emissions and growth. That’s conscionable wrong; successful 2017, erstwhile Doughnut Economics went to press, Canada’s emissions were down from their 2007 peak, while GDP was up by 17%. The absolute decoupling was even stronger if measured successful consumption-based position (i.e., adjusting for offshoring of emissions), and successful per capita terms.

Later successful nan chapter, Raworth cites the Easterlin Paradox arsenic grounds that higher incomes don’t make countries happier. But while income surely has diminishing returns successful position of happiness, nan Easterlin Paradox itself was debunked pinch amended data agelong earlier Doughnut Economics was published; arsenic acold arsenic we tin tell, nan relationship betwixt income and happiness ne'er breaks down arsenic countries get richer.

Raworth is mostly truthful eager to overthrow modern economics that she will move to immoderate and each state that seems to connection an replacement measurement of doing things. She gushes complete blockchain technology, envisioning that Ethereum will thief communities spell green. She cites Steve Keen’s “Minsky” project arsenic an replacement measurement to do macroeconomics, contempt nan truth that this task has produced nary useful results whatsoever, and Keen is generally not seen arsenic a reliable figure among heterodox economists.

And astatine times, Raworth seems to mention nary grounds beyond her ain authority. In Chapter 6 she writes that artificial intelligence “is displacing group pinch adjacent zero-humans-required production”. Even Daron Acemoglu wouldn’t make truthful bold a claim. Raworth provides nary citation.

This is not to opportunity that everything successful Raworth’s book is wrong; acold from it. In fact, galore of nan critiques she levels astatine mainstream economics are perfectly valid and reasonable — moreover immoderate of nan ones wherever her supporting grounds is weak. But nan book is truthful eager to motorboat each imaginable rocket astatine nan subject of economics that it comes disconnected much arsenic a polemic than a scholarly analysis.

And successful doing so, Doughnut Economics fails astatine nan cardinal task it sets retired to complete. It does not connection a coherent caller paradigm for doing economics. Instead, it offers a hurricane of unrelated critiques and a laundry database of argumentation goals. It vividly demonstrates that nan “heterodox” economics task has not escaped its basal dilemma — its relevance is still wholly limited connected nan continued intelligence hegemony of nan paradigm it was created to challenge.

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