Key Messages
Doughnut Economics: Out With The Old, In With The New Thinking For The 21St Century
The Doughnut Economics book by Kate Raworth offers a refreshing new approach to economics.
As an environmental envoy, she argues that unending economic growth just isn’t the answer and will end up ruining our planet in the long run.
Raworth challenges traditional economic theories in favor of a contemporary one based on fairness.
She has developed the idea of a doughnut economy which gives us an alternative way to think about economics and what’s best for both humans and the environment as it provides ample welfare while still ensuring sustainability.
Her book talks about how our current views on economics are outdated and rooted in ideas from centuries ago, and that it’s time to move on from them.
Furthermore, she puts forth the idea of using a more balanced approach when developing economic theories, taking into account not only economic but social outcomes as well.
We can learn a lot from Kate Raworth’s perspective on modern day economics and her bold challenge to rethink decades-old economic paradigms is invaluable for understanding how we could shape our future for the better.
The Doughnut Model: A Solution To The Problems Of Our Time
The Doughnut is a revolutionary concept in sustainable economics for the 21st century.
It’s an eye-opening new way of thinking about how we manage a sustainable economy, as it combines both social and ecological considerations into one dynamic balance.
The inner ring or social foundation of the Doughnut represents what humans need to not just survive but thrive, such as access to clean water and food, but also far more abstract social goods like educational opportunities, healthcare, political representation and gender equality.
Meanwhile, the outer ring or ecological ceiling serves as a kind of guardrail that stops us from overburdening our planet too much – any issues that lie outside of this boundary are seen as damaging enough to push us into irreversible climate change.
We’re already dangerously close to crossing this boundary with climate changes, nitrogen and phosphorus loading, land conversion and biodiversity loss – which means we have to act now if want any chance of getting humanity within the safety of the Doughnut model.
This may mean changing some of our basic assumptions about economics to reflect these new ways of thinking – so why not start with the Doughnut?
Economics Redefined: From Managing Households To Obsessing Over Growth
Economics is obsessed with growth, but it is a limited measure that doesn’t capture the full picture of a nation’s wealth and prosperity.
This obsession dates back to when economists began to redefine the discipline as a science in the mid-eighteenth century and increased throughout the nineteenth century with figures like John Stuart Mill shifting away from managing resources towards studying how economic life works.
Most recently, modern economists such as Milton Friedman have embraced this new view and made it their sole focus: trying to better understand and describe reality as it is.
This has led to an increasing fixation with money-making, which cannot explain all of the factors involved in a nation’s economic performance.
GDP (Gross Domestic Product), one of the most common ways of trying to measure economic performance, fails to capture other actors such as households, society or state that may be contributing value.
This can leave us blindsided when it comes to interpreting economic data accurately – something economist Simon Kuznets knew all too well when he proposed Gross National Product back in 1930s America – though his more nuanced approach was unfortunately brushed aside by those seeking simple numbers upon which they could base their decisions.
He warned that if we want continuous growth, then we should be specific in our goals and objectives before making sweeping generalizations about what “growth” should entail.
Unfortunately for us all now, few heeded his counsel of caution and advice then so we are now left with incomplete metrics and incomplete stories about people’s lives.
The Circular Flow Model Is All Wrong: We Need To Rethink Our Economic Thinking For Today’S Full World
Mainstream economics imposes a linear mindset, understanding the economy as consisting of only businesses and households that exchange money.
The classic economic model of the circular flow diagram reflects this, painting an image of an economy as a closed system in which income flows between these two entities – with banks, governments, and trade playing intermediary roles.
While it’s evident that markets create value, they are not the only sector within the economy.
In reality, there are additional players contributing to society’s economic life cycle: states providing roads and education; shared resources such as public land or Wikipedia; and households engaging in unpaid labor – like Adam Smith who wrote his famous work The Wealth of Nations while living with his mother.
Such unpaid labor allowed Smith to concentrate on his task without taking into account its monetary worth.
Sadly, mainstream economics still doesn’t take into consideration personal or household contributions in their teachings.
The reality is that the economy is dependent on our planet’s resources – from energy and raw materials provided by the sun to vital materials like soil found here on earth – so it can never truly be self-contained.
Herman Daly coined a term for this: An open subsystem of a earth’s closed system.
Unfortunately, many people take more than what our earth can replenish quickly and expect it to absorb more waste than it can handle – essentially leading us closer to a “full world”.
Moreover, Daly insists we’ve already moved beyond the tipping point where we have enough natural resources left to recover from this path of destruction caused by humans.
This harmonizes well with Doughnut Economics renowned author Kate Raworth contention: That we have enough prosperity now to end poverty but also enough awareness that we acknowledge ecological limitations if everyone was granted access to similar lifestyle enjoyed by wealthy nations.
The Flawed Model Of Rational Economic Man: A Theory That Changed The Way We Look At The World
Economics is based on many assumptions about human behavior.
Unfortunately, these assumptions are often flawed and mistaken.
For example, the Rational Economic Man model that was developed in the 18th century was changed by the 1970s into a caricature of how humans behave.
Rather than painting an accurate picture of real-life human behavior, Rational Economic Man instead reflected narrow assumptions like selfishness, isolation, and greed.
This flawed character has somehow shaped our world beliefs and behaviors.
In one study conducted in Germany, Israel, and the US it was seen that students who studied economics were more likely to approve of selfishness compared to other students.
It also easily found its way into everyday language as well; for example, the word “consumer” replaced “citizen,” which shows how this model has been embraced on a greater level.
Perhaps one of the major problems with this Rational Economic Man model is how unrealistic it is.
Take for instance the Ultimatum Game where two strangers are given a certain amount of money to share.
According to the model, they should always accept any offer they receive since free money wouldn’t be refused no matter how small It may be.
But in reality even when it costs them they still refuse offers they perceive as unfair – showing that fairness often trumps self-interest.
It can also be seen in other areas such as natural resource allocation or energy markets -where people do not always behave according to standard economic logic when making decisions about limited resources or scarce goods.
It is clear then that modern economics needs to take into account how people actually act in their day-to-day lives rather than relying on this outdated framework; in order to learn from what people actually do we need to drop our reliance on an over simplified version of human nature which stretches credulity too far for us all to believe comfortably
A New Approach To Economics: Why Thinking In Systems Is Better Than Searching For Equilibrium
The world economy is complex and ever-changing, and to understand it we must move beyond simplistic economic models that focus on equilibrium.
Such models often overlook the boom and bust cycles of the market, as was demonstrated by the 2008 financial crisis which caught economists off guard who had previously relied heavily on theoretical approximations.
In order for economics in the twenty-first century to truly improve, there needs to be a shift away from using mechanical metaphors to looking at economies as huge networks of interconnected systems.
This means assessing individual components as part of a larger system and considering their feedback loops, whether they are in positive or balancing loops.
For example, a flock of chickens crossing roads may initially represent a positive loop – since more egg laying will lead to more chickens and thus more crossings – but if it is a busy road then the increased chances for harm (through cars running over them) can be seen as same type of balancing loop, negating any prospects of growth in the population quickly.
By understanding these interactions, scholars and economists can start to properly monitor economic systems instead of relying on oversimplified assumptions about consumer behavior and markets naturally stabilizing themselves.
With this kind of approach, we stand a much better chance at avoiding another catastrophe like the 2008 crash!
Better Design, Not Trickle-Down Economics, Decreases Inequality
Mainstream economists often preach “no pain, no gain,” claiming that economic growth can only be achieved by accepting inequality.
To bolster this argument, they point to the Kuznets curve, which shows a link between income inequality and per capita earnings over time.
However, when tested through historical data sources it’s become clear that rising incomes cannot increase social equality.
Take the United States as an example; despite its high economic output, the country is still experiencing increases in poverty and a sharp rise in wealth disparity.
From this we can conclude that higher incomes do not necessarily lead to greater social equality and instead require better design approaches to reduce inequality.
One of these successful models is Bangla-Pesa from Mombasa Kenya.
Bangla-Pesa was developed in 2013 as a way for local communities to mitigate against unpredictable financial strain.
The currency was used for simple transactions such as purchasing food and essential items within Mombasa’s trader network of 200 businesses, but provided more than just financial access during hard times; it gave traders some degree of stability which allowed them to weather any issues stemming from utility bills or unexpected power cuts.
Ultimately, this initiative acted as an example of what effective community design paired with innovative economic practices can provide: fantastic stimulus measures, community resilience and most importantly decreased rates of inequality – all without needing to accept economic pain first.
This proves that increased economic activity does not have to come with an inequitable cost; if carefully thought out, economies can grow and societies can stay equitable at the same rate.
How To Achieve An Ecologically Sustainable Circular Economy Through Reuse, Repurposing And Smart Design
In the twentieth century, economics often depict an unpolluted natural environment as a luxury.
But this is a mistake; GDP growth does not always lead to lower pollution levels as global pollution levels indicate.
For the twenty-first century, economic models need to be more sustainable and regenerative of our environment.
This can be achieved through transitioning to circular economies—ones that produce reusable goods rather than disposable products and repurpose “waste” into valuable resources.
To give an example, coffee grounds can be used to grow mushrooms and then become livestock feed.
In Lomé, Togo, workshops have even repurposed discarded computing equipment to build 3D printers using open-source designs which are both cheaper than ordering tools from abroad and more environmentally friendly than disposing of them as waste.
Overall, these kinds of systems show us how our economies can both become more sustainable and help regenerate the environment at the same time in order to protect our natural resources for future generations.
It’S Time To Break Our Addiction To Endless Economic Growth
Growth isn’t an infinite upward curve, and it’s time for us to start asking ourselves what comes next.
With evidence that growth is beginning to plateau in high-GDP, low-growth nations like Japan and Germany, and the Organization for Economic Cooperation and Development’s 2014 report projecting only moderate long-term growth that could double total greenhouse gas emissions by 2060, it’s clear that our current growth goals aren’t sustainable.
But how can we sustain GDP while making the transition to a more environmentally friendly model? That’s where Doughnut Economics comes in.
The authors propose closing tax loopholes as one way of becoming less dependent on growth – around $156 billion goes untaxed each year, money that could be used to end extreme poverty if governments taxed it or closed those loopholes.
Their other idea is demurrage – a currency solution which makes money less valuable the longer you sit on it, creating an incentive to spend rather than save.
It’s time for us to look beyond endless economic growth and find new ways of working with the environment instead of against it.
That means understanding doughnut economics – looking at ways of reaching the sweet spot inside the Doughnut without sacrificing people or planet along the way.
Wrap Up
Doughnut Economics is an inspiring book that looks at how we can create sustainable economies that serve our social needs without overexploiting the planet’s resources.
The book’s key message is clear: In order to build a better future, we need to recognize the limits of nature, while also taking into account our human needs.
The actionable advice provided in the book encourages us to think globally and act locally – sometimes just small changes or decisions like buying sustainable coffee or choosing an ethical bank can make a difference.
Overall, Doughnut Economics urges us to use this model as a guideline for building resilient economies that work for people and planet alike.
