Economics for the 21st century

7 Jun, 2018 at 14:09 | Posted in Economics | 5 Comments

1. Change the goal: from GDP growth to the Doughnut.

For over half a century, economists have fixated on GDP as the first measure of economic progress, but GDP is a false goal waiting to be ousted. The 21st century calls for a far more ambitious and global economic goal: meeting the needs of all within the means of the planet. Draw that goal on the page and – odd though it sounds – it comes out looking like a doughnut …

raworth2. See the big picture: from self-contained market to embedded economy.

Exactly 70 years ago in April 1947, an ambitious band of economists crafted a neoliberal story of the economy and, since Thatcher and Reagan came to power in the 1980s, it has dominated the international stage. Its narrative about the efficiency of the market, the incompetence of the state, the domesticity of the household and the tragedy of the commons, has helped to push many societies towards social and ecological collapse. It’s time to write a new economic story fit for this century – one that sees the economy’s dependence upon society and the living world …

3. Nurture human nature: from rational economic man to social adaptable humans.

The character at the heart of 20th century economics—‘rational economic man’—presents a pitiful portrait of humanity: he stands alone, with money in his hand, a calculator in his head, ego in his heart, and nature at his feet. Worse, when we are told that he is like us, we actually start to become more like him, to the detriment of our communities and the planet. But human nature is far richer than this, as emerging sketches of our new self-portrait reveal: we are reciprocating, interdependent, approximating people deeply embedded within the living world …

4. Get savvy with systems: from mechanical equilibrium to dynamic complexity.

Economics has long suffered from physics envy: awed by the genius of Isaac Newton and his insights into the physical laws of motion, 19th century economists became fixated on discovering economic laws of motion. But these simply don’t exist: they are mere models, just like the theory of market equilibrium which blinded economists to the looming financial crash of 2008. That’s why 21st-century economists embrace complexity and evolutionary thinking instead …

5. Design to distribute: from ‘growth will even it up again’ to distributive by design.

In the 20th century economic theory whispered a powerful message when it comes to inequality: it has to get worse before it can get better, and growth will eventually even things up. But extreme inequality, as it turns out, is not an economic law or necessity: it is a design failure. Twenty-first century economists recognize that there are many ways to design economies to be far more distributive of value among those who help to generate it …

6. Create to regenerate: from ‘growth will clean it up again’ to regenerative by design.

Economic theory has long portrayed a clean environment as a luxury good, affordable only for the well-off—a view that says that pollution has to increase before it can decline, and (guess what), growth will eventually clean it up. But as with inequality there is no such economic law: environmental degradation is the result of degenerative industrial design …

7. Be Agnostic about Growth: from growth-addicted to growth-agnostic.

To the alarm of governments and financiers, forecasts for GDP growth in many high-income countries are flat-lining, opening up a crisis in growth-based economics. Mainstream economics views endless GDP growth as a must, but nothing in nature grows forever, and the economic attempt to buck that trend is raising tough questions in high-income but low-growth countries. That’s because today we have economies that need to grow, whether or not they make us thrive. What we need are economies that make us thrive, whether or not they grow.

5 Comments

  1. It is a good homily, but is Raworth’s preaching a workable political economics?
    .
    Political revolutions do seem to arrive as if on a schedule, so maybe the Mont Pelerin Society’s vision has reached its expiration date and it is time now for something completely different!
    .
    My skepticism is based on 72 years in which critical thinking has never gained center stage in mainstream economics and instead right-wing ideologues have dominated simply by talking loudly and at great length. Are we to do better, simply by being nicer and talking mysteriously about complexity?
    .
    We need to understand how it works, not simply introduce a new bundle of adjectives.

    • “right-wing ideologues have dominated simply by talking loudly and at great length. Are we to do better, simply by being nicer and talking mysteriously about complexity?”
      .
      Talk as loudly about how public policies need not and should not seek to maximize output and employment. Talk confidently about how prices are administered more than determined by supply and demand, and therefore inflation represents a psychological choice not a mathematical necessity …

  2. “just like the theory of market equilibrium which blinded economists to the looming financial crash of 2008.”
    .
    Markets have solved the broken insurance piece since 2008, but economists are still mostly clueless because most economists do not understand how finance relaxes budget constraints and allows for the creation of vast volumes of dollar-denominated net financial assets for the private sector. Economists preach about fiscal neutrality while the financial sector creates net assets as they wish, disobeying the constraints economists say public policy must follow.

  3. The more pro-growth we are, the more we get to deploy egalitarian but growth reducing policy.


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