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Quick Summary: Doughnut Economics by Oxford academic Kate Raworth deconstructs the character of the rational economic man and challenges the necessity for never-ending economic growth by identifying seven critical ways in which mainstream economics has misled us, while sketching out an alternative plan on how we can satisfy humanity’s needs without overshooting Earth’s ecological ceiling.
Who Should Read “Doughnut Economics”? And Why?
Doughnut Economics is a book by an economist for people who are not interested in economy; also, for people who have had it enough with the discipline, believing (like us) that it’s stopped being a science ever since it proclaimed itself as one.
Finally, it is a book for all those concerned that economic growth has all but destroyed our planet; this is one of the rare books by economists which prefers the latter to the former.
In fact, that’s its main idea.
Doughnut Economics Summary
Unfortunately, economics has failed us – over and over again.
As the financial crisis of 2008 demonstrated – for the thousandth time – economics is not capable of predicting, let alone preventing apocalyptic events which cause the downfall of corporations and cost thousands of people their homes and even lives.
And you know why is that?
Well, as Nassim Nicholas Taleb – who fervently advocates the cancelation of the Nobel Prize for Economics – has made it clear on more than one occasion, it is because economics is not actually as scientific as all those equations and graphs would have you believe.
Simply put, financial crises happen over and over again because our existent economic model (as Marx saw before anyone) has these crises embedded within it.
If you need an analogy to understand, our current economic model works something like the geocentric model before Copernicus: it explains a lot about our world, so we brush away the mistakes by thinking that they are outliers or anomalies.
But how many anomalies should we allow before realizing that the model might be wrong?
“You never change things by fighting the existing reality,” Kare Raworth reminds us of Buckminster Fuller’s well-known quote in the introductory chapter of Doughnut Economics. “To change something, build a new model that makes the existing model obsolete.”
“This book,” she goes on, “takes up his challenge, setting out seven mind-shifting ways in which we can all learn to think like twenty-first-century economists. By revealing the old ideas that have entrapped us and replacing them with new ones to inspire us, it proposes a new economic story that is told in pictures as much as in words.”
So, before we proceed to the words of our summary, here’s its pictorial version, provided by Raworth:
1. Change the Goal: from GDP to the Doughnut
Regardless of where you’re living, there’s a good chance that your government’s main economic (and even political) goal is the country’s GDP growth.
Interestingly enough, it wasn’t always like that.
In fact, for most of history, economics wasn’t interested in continual growth but in ways to properly manage the household (which is what the word economics actually means in Ancient Greek).
Consequently, nobody considered economics a scientific discipline for millennia: it was an art form, more akin to literature than to mathematics. Sure, there are some rules you should follow, but there are many impractical goals to achieve as well.
This changed with Adam Smith, John Stuart Mill, and Milton Friedman who were interested in rationally deducing the laws which govern our economic lives; too bad none of them really cared about (or even knew) the laws which govern our human nature.
And this left a void where there was none: suddenly, nobody knew what was the goal of economics, even though originally the field was founded mainly with its objective in mind.
A somewhat invented goal: GDP growth.
Well to quote Simon Kuznets, “the hallowed creator of national income itself,”: “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term… Objectives should be explicit: goals for ‘more’ growth should specify more growth of what and for what.”
Well, that’s where Doughnut Economics comes in.
Its name comes from Kate Raworth’s visual representation of its objective:
As you can see from the graph, doughnut economics has a pretty discernible goal: to reach the sweet (and safe and just) spot between the social foundation of human well-being and the ecological ceiling of planetary pressure.
For all of humanity.
2. See the Big Picture: from Self-Contained Market to Embedded Economy
If you are an economist – or have seen an economics textbook published in the 20th century – you have probably already seen the image below:
Supposedly, this Circular Flow diagram should explain away macroeconomy; and for many economists out there, it does.
It is utterly and completely wrong.
And there are two reasons why it is wrong.
The first one: the market isn’t self-contained, and it isn’t the only economic sector which creates value. Too neoliberal or libertarian to believe that?
Well, allow Kate Raworth to ask you a question: who cooked Adam Smith’s dinner?
When Adam Smith, extolling the power of the market, noted that, ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,’ he forgot to mention the benevolence of his mother, Margaret Douglas, who had raised her boy alone from birth. Smith never married so had no wife to rely upon (nor children of his own to raise). At the age of 43, as he began to write his opus, The Wealth of Nations, he moved back in with his cherished old mum, from whom he could expect his dinner every day. But her role in it all never got a mention in his economic theory, and it subsequently remained invisible for centuries.
In other words, unpaid household labor creates a lot of value; otherwise, you won’t have Wikipedia.
The second problem is even bigger: the economy isn’t a closed system. It is – as Herman Daly first suggested – “an open subsystem of the closed Earth system.”
And it looks something like this:
In other words, an economy which constantly grows will one day be brought to a halt when it inevitably overshoots Earth’s regenerative capacities.
And that day is, well, today.
3. Nurture Human Nature: From Rational Economic Man to Social Adaptable Humans
According to Kate Raworth, the most influential portrait in the history of civilization isn’t Leonardo da Vinci’s Mona Lisa, but the “equally enigmatic yet utterly different character… the rational economic man.”
Despite being “the smallest unit of analysis in economic theory,” this Homo economicus is such an exaggerated and distorted version of Homo sapiens that it’s basically a caricature, if not a cartoon.
You know him well: he/she is the “solitary, calculating, competing and insatiable” creature, a Swiftian Yahoo who (to paraphrase John Stuart Mill) desires to possess wealth and luxuries, but deeply disdains work.
Now, even Mill was aware that his caricature was a caricature, describing his profile of the Homo economicus as “an arbitrary definition of man,” based on “premises which might be totally without foundation.”
Foundations-shmoundations, said just about every economist after him and proceeded to develop a concept of the economy in general with this being as the atomic foundation.
Of course, everything economics says it’s wrong, because, as we now know full well, humans are predictably irrational, social creatures who often make decisions based on a complex network of premises.
For example, as both the public goods and the ultimatum game prove, most humans value fairness far above selfishness and are willing to lose things if they see injustice in winning them.
The only exception of this group – economists, influenced by the vision of the rational man from their textbooks.
So, let’s influence humanity in a different manner altogether.
What should replace homo economicus?
“Many new names have been proposed,” writes Raworth, “from Homo heuristicus and Homo reciprocans to Homo altruisticus and Homo socialis. But it makes no sense to pin ourselves down to just one of these identities: we inhabit them all simultaneously.”
And that’s a fact.
4. Get Savvy with Systems: From Mechanical Equilibrium to Dynamic Complexity
But if humans are so complex, then how do market balance themselves?
Well, the truth is: they don’t. If they did, things such as Tulipomania or the financial crisis of 2008 shouldn’t have happened in the first place.
Of course, hardcore market-believers would say, well, even though they did, after a while, they balanced themselves out.
However, this is wrong on so many levels that we don’t even feel the need to refute it (for one, some people earn a lot of money in the process, and others die – and, really, is this what economics should be all about?)
Anyway, if you think that the market is all about “supply and demand” and believe in the “equilibrium point,” then you’re thinking too simplistic, and you’ll always have to deal with bubble-boom-bust cycles.
The image you know from your textbooks –
– should be immediately replaced by a more complicated one which really shows the inner workings of a complex system (because that’s what the economic system is):
Confused about those chickens and eggs in the graph?
Well, the image shows how feedback loops work and uses an analogy to describe it.
Imagine chickens living by the road and laying eggs. More eggs mean more chickens and more chickens mean more eggs. This is the left side of the graph which demonstrates how a reinforcing loop works (R), amplifying what is happening.
However, there’s also a balancing loop (B) on the right side. It works like this: more chickens → more road crossings → more deaths → fewer chickens. The balancing loop counters the reinforcing one.
“It is out of these interactions of stocks, flows, feedbacks and delays,” writes Raworth, “that complex adaptive systems arise: complex due to their unpredictable emergent behavior, and adaptive because they keep evolving over time.”
5. Design to Distribute: From ‘Growth Will Even It Up Again’ To Distributive by Design
We quoted him above, we’ll quote him again: Simon Kuznets, a guy who won a Nobel Prize in Economic Sciences for his contribution to the transformation of economics into empirical science.
Also: the guy who gave us this:
Above you can see the Kuznets curve which suggests – if it is not obvious enough already – that as countries get richer, inequality must rise before it will eventually fall.
In other words, if you want economic success then you’d better deal with economic inequality because that’s an inevitable stage of it; as for equality – that should come a bit later.
In other words, “development must be inegalitarian” (W. Arthur Lewis, also a Nobel Prize winner), so “poor countries should concentrate income in the hands of the wealthy since only they would save and invest enough of it to kick-start GDP growth.”
Good news – for the rich.
Bad news for just about everyone else.
Because, you see, even though you can apparently get a Nobel Prize for it and the Kuznets curve is still considered an economic law (so much so that Steven Pinker uses it as an argument), this theory is merely clever, but utterly and dreadfully wrong.
And you know how we know this?
Well, first of all, because Kuznets himself said that. Both in private correspondence – “no evidence whatsoever” – and (well, this is tragic) in the very texts where he introduced the idea, which, in his words, was based on “5 percent empirical information and 95 percent speculation, some of it possibly tainted by wishful thinking.”
And secondly, because when Thomas Piketty tested Kuznets theory empirically, he found out that it bears no relation to reality.
To start thinking about creating a society where development is egalitarian.
Because it is possible.
6. Create to Regenerate: From ‘Growth Will Clean It Up Again’ To Regenerative by Design
Another thing mainstream economists are pretty sure will sort out itself with growth?
And once again, the problems are created by the very people who believe they’ve discovered a law which demonstrates that they’ll be sorted out.
In this case, American economists Gene Grossman and Alan Krueger did a study in the 1990s and supposedly discovered that pollution decreases with growth – after increasing for a while.
You can notice the pattern here, can you?
It’s basically the same idea that Kuznets had as far as inequality is concerned.
In fact, the graphs are so similar that this one we don’t even need to copy/paste here; you’ll just figure it out via its giveaway name: Environmental Kuznets Curve.
The problem with this curve?
Well, apparently – and once again – that even its authors didn’t believe it. Unfortunately, everybody else did – and by everybody, we do mean rich people in power – and soon it was difficult to debate with people that growth might mean serious environmental problems.
“Of course it does,” they’d say. “But they’ll sort out themselves in the end.”
The logic may be sound on paper – technological advancements create environmental problems, but if not regulated they also come up with solutions for these very same problems – but the data doesn’t support it.
On the contrary: it seems we may already be near the last return point. (If we’re past it then thanks, laisses-faire economists and God help us!)
And maybe we should try to do something before it’s too late.
And that something is quite obvious: transform our linear, caterpillar economy into a circular, butterfly one, shifting from a present filled with disposable products to a future of reusable goods.
True, we’ve already started doing this.
But we need to do even more.
7. Be Agnostic about Growth: From Growth Addicted to Growth Agnostic
It all pointed to this, didn’t it?
As strange as it may seem at first glance, it’s even stranger how it hasn’t become part of the mainstream science of today.
Bear with Raworth for a second.
Studies and empirical data have demonstrated – beyond reasonable doubt – that, at least so far, “no country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one.”
In other words, if we want a better quality of life for more people, then it’s only smart to devise ways for our economy to grow; however, if we don’t want to destroy the resources which allow it to grow, then we must hinder its growth.
Well, that doughnut from the start: finding the right balance.
But that all starts with an almost counterintuitive notion: after a certain limit, economic growth is probably not good anymore.
In layman’s terms: there should be such thing as enough money.
The Bushmen know this quite well for about one-hundred thousand years, but we seem to have forgotten it.
So, Raworth proposes rebuilding our system so that we are constantly reminded that hoarding (especially money) is not only selfish but, in the long run, detrimental to everybody including you.
An Argentinian-German businessman by the name of Silvio Gessel – who lived between the 19th and the 20th century – proposed a solution for this: “we must make money worse as a commodity if we wish to make it better as a medium of exchange.’”
Money, in other words, ages well: unlike most commodities (be they potatoes or smartphones), it appreciates with time.
A good way to inspire people not to hoard money?
Introduce money which loses value the longer it is held.
It’s called demurrage, and you should really read all about it.
Key Lessons from “Doughnut Economics”
1. Economics Has Failed Us Big Time
2. Seven Ways in Which Economics Is Wrong About the World – and Seven Ways to Fix This
3. Doughnut Economics Is All About Thriving While Preserving the Planet
Economics Has Failed Us Big Time
“Economics,” to quote Kate Raworth, “is broken.”
Not only it has failed to predict financial crises which have shaken our society to its very foundations, but it has also shown no interest even to devise ways to prevent these in the future.
Economics’ “outdated theories have permitted a world in which extreme poverty persists while the wealth of the super-rich grows year on year. And its blind spots have led to policies that are degrading the living world on a scale that threatens all of our futures.”
Seven Ways in Which Economics Is Wrong About the World – and Seven Ways to Fix This
There are seven ways in which mainstream economics is fundamentally wrong about the world – and seven things to do if we want to get back on track:
#1. Mainstream economists believe that the rise of GDP should be the goal; in fact, it should be the doughnut (wait… what? See lesson number 3 for more).
#2. Self-contained markets don’t exist; embedded economy is the real deal.
#3. The idea of the rational and selfish economic man is utterly wrong; homo sapiens is both the most irrational and “the most cooperative of all species when it comes to living alongside those who are beyond next of kin;”
#4. Mechanical equilibrium is possible only in closed and predictable systems; reorient to understand dynamic complexity if you want to understand the market;
#5. Growth doesn’t bring equality; distribution should be part of the economic systems by design;
#6. Growth doesn’t solve environmental problems as well; economic systems should be regenerative by design; and, finally,
#7. Economic systems should not be about never-ending growth – that is not possible – but about thriving within limits.
Doughnut Economics Is All About Thriving While Preserving the Planet
The essence of Doughnut Economics is this: to create “a social foundation of well-being that no one should fall below, and an ecological ceiling of planetary pressure that we should not go beyond. Between the two lies a safe and just space for all.”
In other words, we are all humans, and we all live on this planet; let’s all live our lives as humans and not destroy our planet.
How’s that for an objective, economics, ha?
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Doughnut Economics QuotesInstead of pursuing ever-increasing GDP, it is time to discover how to thrive in balance. Click To Tweet It is time to draw the economy anew, embedding it within society and within nature, and powered by the sun. Click To Tweet Human nature is far richer than… early sketches of… the rational economic man: we are social, interdependent, approximating, fluid in values, and dependent upon the living world. Click To Tweet It’s time to stop searching for the economy’s elusive control levers and start stewarding it as an ever-evolving complex system. Click To Tweet The radical flip in perspective invites us to become agnostic about growth and to explore how economies that are currently financially, politically and socially addicted to growth could learn to live with or without it. Click To Tweet
In our humble opinion, Doughnut Economics is practically everything an economics book for the 21st century should be: comprehensible, environmentally-friendly, aware of the challenges that lie ahead, interested in solutions which favor humanity as a whole (and not merely a certain group of people).
And unlike most economic books, it is also honest, out-of-the-box enlightening, and prefers images to equations.
Kate Raworth – thank you.
The rest of you – please read the book.
Learn more and more, in the speed that the world demands.