Home > Uncategorized > We need doughnut economics. But we also need GDP growth. Lots of it.

We need doughnut economics. But we also need GDP growth. Lots of it.

Recently, some ‘alternative economics’ have been published: we are moving from criticism to alternatives. Which is a good thing: Kate Raworth broke ground with Doughnut economics. Jamie Morgan et all recently published ‘Quest for a new paradigm in economics. A synthesis of views of the New Economics working group’. We can also mention the people publishing in the Journal of Industrial Ecology, who do not look at the circular monetary economy but at the circularity (or not) of flows of materials and energy. And we can look at the seventeen sustainable development goals of the UN.

Will it make a difference? I do not know. Things like this have been around for at least forty years, though especially measurements have become much better. And I do think that the reaction against monetary measures of the economy is somewhat myopic. We do not have to move beyond the monetary economy. Neoclassical economics tried that and utterly failed. Hey, the very definition of poverty is: ‘not having enough money’. And we really have to look into that. But we have to look at other economies and circularities, too.  What we need for a new economy is a number of statistics is:

  • Monetary measures like the Flow of funds which track flows and stocks of debts and credits and changes in the amount of income and the like. Money is important.
  • This includes ‘real’ estimates of flows of production and spending, like  real GDP. Mind that ‘real’ GDP is not measured but estimated. Nominal GDP is measured, statisticians use scores of methods to take prices out of the nominal measures and to recalculate these nominal measures into ‘real’ estimates, like the purchasing power of wages or the volume of retail spending. Aside from problems like changes in quality (surely not always improvements in quality – take anti-biotics!) this is problematic as relative prices change. We should, however, not only see this as problems but also as exciting events which require economic explanation.
  • And we need a set of statistics which maps labor, paid as well as unpaid and idle as well as occupied
  • And  set of statistics which map flows of materials and energy (inputs as well as outputs like CO2)
  • And statistics about (risk of ) poverty, health and well-being
  • And environmental statistics

All these data are available. Economists use them. But not the economists at the IMF, the OECD, central banks etcetera. At least: not too much. Even the treasure trove of the national accounts is severely under-used as well as mis-used and misunderstood. And while MIlton Friedman got a Nobel prize for, amonth other things, his non-sectoral analysis of the crude and clumsy aggregate of M-3 money (which only gets meaning when it is connected, as the ECB does, to credit creation by sector) no prize was given to Morris Copeland, who developed the subtle Flow of Funds, used by central bank statisticians all over the world. The alternative is already developed, at least when it comes to the data. But how to make sense of this wealth?

Reworth does the best job to integrate all this, though she pays too little attention to poverty and flows of materials statistics and underestimate the value of monetary statistics like the Flow of Funds and the National Accounts. Morgan et all should halve or double their pamphlet and rewrite it. At this time the lingo is not even fit for graduate economic students. Update: keep phrases like Axiological, Ontological or Epistemological out of manifests. They also do not seem to master all the kinds of already available statistics. Outside mainstream economics, there already are scores of alternatives. I love the articles in the Journal of Industrial Ecology but these very much take the social side of the economy out of the equations. And I’m enthousiastic about the development goals and sub-goals of the UN. This surely is the broadest approach though less integrated than the Reworth book and wanting when it comes to procreation.

The alternatives of Reworth and Morgan et all are characterized by a neo-Malthusian ‘limits to growth’ nature in combination with a somewhat smug emphasis on wellness, local communities as well as personal choice, development and growth. This does give it a suburbian, consumerist tinge. Also, more attention should have been given to population growth. World population will grow to at least 12 billion people. These humans need shelter, clothing, education, food, health care, transportation – items typically included in GDP. We will need quite a bit of GDP growth.

The models move beyond the neoclassical market transaction model in the sense that they pay attention to different kinds of resources and coordination mechanisms in a technological, stock based way instead of just looking at the flow of economic transactions. Unlike neoclassical economics, they do assume that non-monetary world of families, friends and voluntary associations is based upon fundamentally other coordination mechanisms than the money based world of markets and the government. An example: private cars are not used for about 95% of the time, a percentage which no government or company could accept for its cars. But the one thing poor people need most is: money. We do need jobs. Paid jobs. Billions of them. This has to be at the core of any kind of economics.

There is quite some talking about ‘wealth’ by Reworth and Morgan et all, which is taken to be some kind of non-monetary fixed capital (natural, human, social, whatever). My problem: in our world, ownership of capital is very much the right to a flow of income related to ownership of financial or fixed capital. Capital, as economists define it, is inherently monetary by nature and as such a social relation. This of course sounds very abstract. But remember the time when the Cameron government tried to sell the ‘public woods’ of Britain to the logging companies at the same moment “the Secretary of State for Communities and Local Government … announced he is “removing the structures of control” and making it “much easier” to get planning [i.e.: cutting and cottage building] permission across the country. Planning is being massively deregulated, just as the forests are sold”. Property rights are political and social by nature – these rights were crafted in wars and revolutions like the USA civil war, the European protestant revolutions and the Glorious Revolution. It’s not just about the existence of wealth – but also about the ownership of wealth. We do need a re-distribution of property rights, like the seigniorage rights connected to the creation of deposit money which are at this moment owned by banks. Will this re-distribution happen?

It is a start. And the data necessary to change economics are available and have been available for a long time. We need to integrate them in a coherent system. Especially Reworth and the United Nationas do an excellent job. But it is not yet enough. And we need growth, which will show up as an increase of GDP. And jobs. Billions of jobs.

  1. August 3, 2017 at 11:42 am

    I’m with you on this. We need a broad set of economic statistics that acknowledge that capital (object) and capital (ownership rights) are completely different concepts. I’ve had a bit of a crack at a map this broader economic terrain here http://www.fresheconomicthinking.com/2016/03/structuring-unstructured-pluralist.html

  2. August 3, 2017 at 2:06 pm

    Nice to see economists catching up! Non-economists like me made all these same criticisms and alternative proposals over 40 years ago as in my CREATING ALTERNATIVE FUTURES: The End of Economics ( 1978) just re-published by the University of Florida Digital Library . This was hailed an ” underground best-seller ” and sold 40,000 copies . We at Ethical Markets are offering this book as a free download at http://www.ethicalmarkets.com and on our MOOC http://www.ethicalmarketsexploratorium.com free for lifelong learners and aspiring global citizens.

    • August 3, 2017 at 10:11 pm

      Dear Hazel

      Thank you for your free downloads, which have already delighted me. From my own work with a four-level computing language I had reinvented the four-level cake model opening Creating Alternative Futures, the point being that even in a pie-chart understanding of the world or functional economies the slices all have the same four layers, which leads to a much simpler vision of macro-economic systems than the tangle of interactions in your 2014 book. (Plates 1-5 and 3/21 in your 1991 Paradigms in Progress)?

      Merijn, thanks for your links too, but much as I appreciate your statistical work, how does that tie in with the Flow of Funds concept? Which way do the statistics flow?

      • August 4, 2017 at 4:44 pm

        So the doughnut model is a topological version of your cake:


        I started from something similar, transposed it into a crossed diamond representing flows between as well as the four layers, and in my latest model come back to it, emphasising where we want to go rather than what’s going wrong. Congratulations to Kate Raworth for her diagram: such a picture is worth a million words. One to pass on to our local MP (an economist)!

  3. August 3, 2017 at 6:46 pm

    You must be joking. ‘We’ are already way over any measure of sustainability and nearing Climate tipping points that could be irreversable. . We need serious DEGROWTH of at least 5% a year. As an economist you must know that degrowth doesn’t have to mean poverty, just as GDP has little to do with wealth.

    • August 3, 2017 at 10:09 pm

      I agree with this comment. I have much respect for the original post’s experience and intelligence. But I think we must be careful about making statements such as “World population will grow to at least 12 billion people.”

      About 20 years ago I was curious about what the consensus was among serious researchers addressing the question: what is the human population carrying capacity of the earth? I found a book by Joel E. Cohen entitled, How Many People Can The Earth Support? (1995). In the book the author presents the findings of the many researchers across the world addressing the question. The findings were expressed in population ranges. I threw out the few extremes to examine the remaining 80% of the studies. I added up all the maximums and divided by the number of studies to reach a faux-average “maximum”. I did the same with the minimums. The resulting faux-average range was 500,000 to 2 million. At the time the earth’s population was on its way to 1999’s 6 billion. I do not recall consensus assumptions about technology, cultural consumption levels or cultural aspirations for improved quality of life (i.e. tract homes in China with 2-car garages and keeping up with the Wangs).

      So some of the statements made by Worldwatch and others that we will need X planets seem credible in light of the 2 billion upper limit.

      Cohen published a second edition about a decade ago. In this he claimed that on 3500 kilocalories per day from wheat energy, with 9000 cubic kilometers of annual fresh water supply, we can support 5 billion people. I have not read the new edition and have no idea what his assumptions are. But, our favorite wild creatures aside, can we scale up those 3500 kcals and 9000 cubic km for 12 billion people? Really? As serious professionals, really???

      I’d also remind us that, whatever technological or cultural assumptions are made, the 1st and 2nd Laws of Thermodynamics determine those “limits to growth”, so the latter is not some extremist or “neoMalthusian” ideology. We ignore the environment at our peril. Likely we’re already passing multiple tipping points as we labor for answers.

      And we will expend intellectual and other energy on trying to plan for and accomodate 12 billion people only at the expense of massive species extinction and crisping the planet. 12 billion is just another abstract statistic derived from trend projections from past data. Haven’t we had enough of this sterile methodology? Aren’t there real people behind such bloodless data, and shouldn’t we focus on them?

      Otherwise, we are just facing multivariate collapse and “more jobs” won’t cut it. And now I’m off seeking my Gross Personal Happiness.

    • August 4, 2017 at 10:25 am

      Thefreeorg, is an economist likely to know what ‘growth’ means? They don’t seem to have figured out even that it is not a THING one can have more or fewer of, but an ATTRIBUTE: always growth or degrowth OF something. Which in my admittedly limited experience it seems even the better of them don’t specify. I’d like to see growth OF corrective feedback.

      Econoclast, it seems even Pope Paul VI, notorious for continuing to oppose contraception, agreed that the world’s population needed to be controlled. The big question is how? Are we to live like animals, as in the Townsend model, presented in Polanyi’s ‘The Great Transformation’, which was taken up by Malthus? or are we to think ourselves clever and make money selling other people contraceptives? or are we to pursue the human ideal of self-control? Catholics pursued the scientific understanding of fertility necessary to make the latter effective, and that can work (at least as an educative experience) within a family environment, but it doesn’t enable, say, a town, to decide when enough is enough for now. In order for a family to know whether this is a good year to have the additional child they would like, they need ready access to information about local target range and the effects on it of deaths (past), births (now) and pregnancies (i.e. as far as one can see into the future). Given all the pain and misery being caused by the austerity of the Malthusian hard-liners, and the problems we are having matching schools and hospitals to needs, it is about time more liberal-minded and humane economists started studying PID control theory and the maritime model of navigation. It is not enough to have vague aspirations: we need to know what we need and to do what is necessary to make it happen. Which is of course what you are saying, but these issues of information, education and understanding the dynamics of control theory are central to being able to control the growth of population without recourse to periodic famine and war.

  4. August 3, 2017 at 8:04 pm

    Hazel, many thanks for your reflections on Doughnut Economics – I’m sincerely honoured because the day I first saw your layer cake (back in the 90s) was undoubtedly the day my economic thinking started to change – your cake is the mother of the doughnut!

    I just want to clarify one thing in response to your comments: in the book I’m in clear agreement that GDP growth is very much needed to tackle poverty and create jobs in low-income countries with fast growing populations. As I write in Chapter 7:

    “In many low-income but high-growth countries, the domestic economy is clearly in what Rostow called the take-off stage – low down on the S curve – and, when that growth leads to investments in public services and infrastructure, its benefits to society are extremely clear.
    Across low-and middle-income countries (where national income is less than $12,500 per person per year) a higher GDP tends to go hand‑in‑hand with greatly increased life expectancy at birth, far fewer children dying before the age of five, and many more children
    going to school. Given that 80% of the world’s population live in such countries, and the vast majority of their inhabitants are under 25 years old, significant GDP growth is very much needed and it is very likely coming. With sufficient international support these countries
    can seize the opportunity to leapfrog the wasteful and polluting technologies of the past. And if they channel GDP growth into creating economies that are distributive and regenerative by design, they will start bringing all of their inhabitants above the Doughnut’s social foundation without overshooting its ecological ceiling.”

    The challenge to GDP that I set out in the book arises foremost in today’s high-income economies which have been structured to expect, demand and depend upon endless GDP growth, even though its current effects are socially divisive and environmentally degenerative. I believe this is the century in which such economies and their financial, political and social institutions need to evolve to be agnostic about GDP: neither addicted to it, nor resolutely against it. But focused instead of creating distributive and regenerative economies that meet the needs of all within the means of the planet – and the long-term path of GDP shifts from being a policy target and becomes a variable that adapts in response to pursuing that goal. Far easier to say than to make it happen, I know – but this is just what big-picture thinking is for – as I gratefully learned from you! All best, Kate

  5. Craig
    August 3, 2017 at 8:13 pm

    Economics/economic theory needs three things:

    A. Agreement upon the utterly obvious dominance of the business model of finance, that it has been the keystone problematic aspect of the economy for at least the last 5000 years and that its dominance MUST end. That’s its dominance, not the business model itself of course.

    B. A new integrative economic philosophy that aligns with and expresses a new monetary and financial paradigm

    C. Greater conscious awareness of the concept behind even the new economic philosophy and new monetary and financial paradigm.

    D. Policies that align with B and C and that intelligently and effectively implement the primacy of the new philosophy and paradigm.

  6. Craig
    August 3, 2017 at 8:14 pm

    Make that four things. :)

  7. August 4, 2017 at 7:31 am

    Merijn, Hazel, Kate –

    A basic problem with many (most?) discussions of growth is they are about GDP growth, implicitly or explicitly.

    I’ll try to be as polite as I can: as a measure of quality of life or quality of society, GDP is braindead. :-) It is not accounting, it is a tally, it leaves many good things out, and it lumps all sorts of bad things in with good.

    The resolution of a lot of confusion about “growth” is to distinguish between QUALITY and QUANTITY (sorry to shout, but I can’t do italics here). I have just put a brief post about this on my blog:

    Kate I love Doughnut Economics, very concise, instructive and pointed. But I think your growth thinking still needs clarification. Hazel I haven’t seen that early book of yours, I’ll have a look. A short account (deliberately rather punchy) of my thinking is here: https://betternature.wordpress.com/my-books/sack-the-economists/

    Merijn, we do need still to bring the poor up to a decent level of material life, and we also desperately need the consumer capitalist societies to stop squandering the planet. We need good measurements of appropriate things, I agree, and GDP is not one of them. And we need to properly understand the circulation of money AND the circulation (as in recycling) of materials.

    • August 4, 2017 at 2:50 pm

      So Geoff also is a scientist, not an economist, and GDP is a fudge, not a measurement. I do wish he could get his head round Quality being about building subtle and thus precise information rather than materials into things, and the origins of the focus on Quantity being David Hume’s ‘A Treatise on Human Nature’, which redefines humanity as brain dead (at best feeling sympathetic), with scientific and moral authority based on counting representative votes (related by statistical correlation and/or money). Difficult to believe without studying that book and understanding its historical context, but an information-age understanding of Human Nature and how it understands is a prerequisite for advancing the argument here.

      Ken, if ‘evil’ is defined as persuading others to do what will harm everyone, then being persuaded that money is good and more money is better and “we-need-gdp-growth-lots-of-it”: this is indeed the root of all evil, if money is actually created by indebting those so persuaded.

      So Bob, good luck to you and your German BWL tradition, for “the intellectual straight-jacket [created by Hume] is [all too snugly concealed] in [the] English language bundle”. Information of high Quality can unfortunately be of negative value, i.e. of positive value only if it is used to correct errors. But of course politicians, economists and bloggers don’t make errors, do they?

      • August 5, 2017 at 11:29 am

        davetaylor1, the belief that more money and growth is the solution to all problems is merely one evil. It is not all evils. You give the love of money and growth too much importance. Another solution frequently offered today – one more war will solve our aggression problems – is another evil that harms many more than it helps. Persuasion to this solution adds death and mutilation, along with debt.

      • August 5, 2017 at 11:45 am

        Dave, are you commenting just on my comment or on the post I link to, which is more explicit? It’s true I don’t use a technical definition of quality, as I gather you do, but my aim is to speak to the political conversation, so I use a non-technical concept. I think people generally know what improves their life experience, things like loving family etc. Certainly not just about making stuff, precisely the opposite. Also true that I don’t know Hume’s treatise, but it doesn’t take a lot of nouse to figure out we over-quantify.

  8. August 4, 2017 at 8:01 am

    The arguments pro and con, but for mainstream economists mostly pro about the monetary economy are interesting. It’s interesting because neo-classical, neoliberal economists long ago made any other type of economics impossible. Succinctly, these economists built a world without society (culture, the collective life) and filled the hole that left with money and markets. Of course, it never worked as advertised. Economists claim money is the common measure of value uniting all the independent acts of exchange, stabilizing the volatile world of commodity exchange; performing the role that sociologists and anthropologists gave to society/culture. Thus, providing stability to the fluctuations of everyday life. Money, of course, is itself relative; but economists said it represents an element of coherence in a world of constantly shifting prices. However, money and markets are inventions of cultures, not the reverse. Money and markets substituted for culture is not so much an evil plot, as it is merely one more error of humans searching for dependable stability in an unsettled world. Facing the complexity and thus relativity of their cultures is difficult and scary for most humans. Perhaps humans will never find the courage to accept what they themselves have created as not permanent. not stable, and not universal. Most people prefer to believe that there is something out there we can rely on. If God is dead and society/culture has been killed off by the economists, then let money and markets be something real and enduring. While this does not make money the root of all evil, is does make money and markets primary paths to alienation. As “objective,” impersonal, impartial, and detached, the origins of money and markets lay beyond our control. They are, to use the vernacular, “natural.” Without control, we cannot change or stop them. They have no connection to homo sapiens. They are non-human. They are not us and we cannot be them. This forces humans to divide their lives between the alienated life of markets and money transactions, on one hand. And, on the other relations marked by the absence of money that revolve around personal integration and free association, of what we take to be familiar, the inside, the personal. Navigating this division is impossible for humans. It drives them crazy, literally. Can it be ended? Don’t know.

    • robert locke
      August 4, 2017 at 9:15 am

      “They are, to use the vernacular, “natural.” Without control, we cannot change or stop them. They have no connection to homo sapiens. They are non-human.”

      You are making the choice too stark. When I investigated the “science” of business economics in Germany (Betriebswirtschaftslehre), I noticed that this new science (BWL) was modulated by two factors that are missing in US management and economics: 1. the firm is an organic entity, composed of many “legitimate” interests, i.e., stockholders, employees, and customers, which being ‘legitimate’ are given in law voice in firm governance, 2. the science of BWL was not exact, meaning that the various interests had to be involved in BWL guided investigations to make their work acceptable to the firm. These two factors humanize the economic sciences.

      The problem I faced, when I was at the European Institute for Advanced Studies in Management, 1982-84, is that this German BWL tradition was unknown there, since this institute was sponsored by the Ford Foundation to bring US economic and management thought to Europe. I was astonished, since I had just published a book on German BWL to discover that very few people who studied BWL were in this “European” institute. I asked, how could this academic research institute be “European” without German traditions being represented there. Got no answer, only blank-eyed stares. The intellectual straight-jacket of Anglo-Saxonia is snugly tied in an English language bundle.

      • August 5, 2017 at 11:08 am

        Robert, as I say, “Succinctly, these economists built a world without society (culture, the collective life) and filled the hole that left with money and markets.” This is a solution to the usual human problem of providing stability and a sense of durability in the face of the fluctuations of everyday life. It’s not even unusual in history for humans to create solutions for these problems that deny the solutions are human inventions. Religion did this, along with science. Here’s I’m describing the solutions neoclassical and neoliberal economists put forward. The solutions are not from outside human life. Those who create them make this claim to strengthen their case that the solutions they offer cannot be resisted or changed. Again, not unusual in history. These solutions are stark, as you suggest. But those who create them have generally been able to convince people to accept them just as they are offered. That’s what got us into our current mess in the Anglo west. I also agree that these solutions are not accepted as widely or strongly in some parts of the non-Anglo world, as you note.

      • robert locke
        August 5, 2017 at 1:31 pm

        When I studied the debate in Germany postWWII about the adoption of co-determination in firm governance, I quickly concluded that US management circles scored an important victory over employees when they did not follow, but firmly opposed, German ideas about co-determination. When I looked at the Japanese corporation in the 1990s, I noticed, if not formally established by law, as in Germany, the Japanese corporation gave employees a great deal to say in the running of the firm.

        The workers at Nissan in Mississippi, just voted down UAW’s attempt to organize them. Does this mean that Nissan has an organizational structure that sufficiently includes workers in decisions about running the workplace, as exists in co-determination regime in Germany or Japan, or that US workers in Mississippi’s Nissan operations by avoiding IAW outside interference, simply find themselves at the mercy of director-primacy managerialism when it comes to running the firm and distribution of emoluments in this US firm? The Toyota kata in the running of it’s Georgetown Kentucky firm seems to be quite different from the traditional US managerialism.

      • August 5, 2017 at 8:03 pm

        I agree with you on the differences. We worked with GM and Ford in the 1980’s on the question of why the Japanese auto firms were beating them? We came to conclusions like yours and recommended changes in the running of GM and Ford to help them do better against Toyota, Honda, etc. Our recommendations included eliminating all middle-manger jobs and setting up floor shop boards to bring workers directly into management and production decisions. None of our recommendations were implemented. In our final meetings with the companies it became clear they thought the Japanese firms were somehow cheating to win. And that, despite the sales losses American autos remained superior to Japanese. Lots of denialism. At present our same firm is working with GM and Ford on the current situation vis-à-vis competition from German auto makers. Will the results be different?

      • robert locke
        August 6, 2017 at 10:47 am

        Americans have become convinced that “eliminating all middle-manager jobs and setting up floor shop boards to bring workers directly into management and production decision,” would make firms inefficient. Because the evidence your firm uncovered and others as well runs counter to this believe that worker involvement in firm governance brings bad management, the ideologues of managerialism reject such co-determination, despite the fact that efficient management requires it.

        Alexander Pope, in the 18th century said: “Tis with our judgments as our watches, none Go just alike, yet each believes his own.”

        Machiavelli’s observation in the Prince, written five hundred years ago, put it this way:

        “There is nothing more difficult to carry out, nor more doubtful of success nor more dangerous to handle than to initiate a new order of things. For the reformer has enemies in all who profit by the old order, and only lukewarm defenders in all those who would profit by the new order. This lukewarmness arises partially from fear of their adversaries, who have the laws in their favor, and partly from the incredulity of mankind, who truly do not believe in anything new until they have actual experience of it.”

      • August 6, 2017 at 12:52 pm

        Robert, Pope’s and Machiavelli’s observations are certainly borne out by the results of the recent union election at Nissan’s plant in Mississippi. Many workers were concerned that the unionization of the plant would disrupt the plant’s work and perhaps even their employment status and pay level. Nissan added pressure to all these concerns. Warning workers that those who strike may lose their jobs (a direct violation of US labor relations law) and that unionization could lead to the plant’s closing. The UAW and other unions have mostly failed in efforts to unionize auto plants in the southern USA. Many workers don’t know and have never worked with unions directly. Their only knowledge is what they hear/see on TV or see in newspapers. And some of this is negative. Hoyt N. Wheeler, a retired business professor who taught labor relations at the University of South Carolina had this to say, “in a region like the South, few workers can speak from personal experience on the union’s behalf when the company or local politicians attack. It makes it tough; you don’t have contrary voices.” Publicly, Nissan emphasized how the plant was an economic lifeline for workers in the area, including one commercial in which a Mississippi pastor described how people were “fluctuating back and forth looking for jobs” before the plant arrived, but could now “come through the door knowing the lights are on, the water is running.” It’s also clear that some of the no votes for unionization reflect racism. Some workers simply opposed an integrated union. Finally, one issue I’ve observed directly in some manufacturing plants in the South and Midwest. Many workers are addicted or long-term users and abusers of alcohol and other drugs (particularly opiates). This hampers greatly any effort to hold a job long-term and certainly to participate in planning for the union or management boards for the company. Drug use my many younger workers is now an epidemic. One being ignored by almost all branches of government.

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