Doughnut Economics - Kate Raworth - Part 5 of 8

2020 Reading Challenge - Day 213

August 2, 2020

Book 58 - Doughnut Economics
Kate Raworth
Chapter 4 - pages 111-138

I have ditched the "Reading Time" metric in my titles because it's getting too hard to track that as well as everything else!

This chapter is entitled "Get Savvy with Systems" and demonstrates how economic models based on mechanical equilibrium need to shift to dynamic complexity. The market is not so much a mechanism as an organism. The market is described as if it were a stable, mechanical system but it's really a complex adaptive system.

Our brains tend to cope best when things are near, short-term and responsive. We do well with linear change, not so well with exponential change (just look at the Covid-19 numbers and graphs).

Early economists tried to make economics as mathematical as physics but their models were based on a bunch of flawed assumptions that aren't even real. Raworth points to the traditional supply vs demand graph as a perfect example. That diagram doesn't work for the economy as a whole. Economics is really an area of organized complexity which is one of the least understood areas of science... and requires systems thinking.

In the dance of complexity, there are three things to keep in mind: stocks and flows, feedback loops and delay - these are at the heart of systems thinking. The interplay of these three gives rise to complex adaptive systems which are unpredictable and evolve over time. What might look like a sudden event (like what happened to the financial markets in 2008) is really built up over time.

The two curves of supply and demand need to be twisted into feedback loops and things that are called externalities (external to the traditional economic models) prove to be key. The problem with the financial markets in 2008 was that regulators missed some key indicators, like the fact that it wasn't just about what individual banks were doing... it was the entanglement of individual banks.

On top of that... there is the dynamics of inequality in which success goes to the successful or the rich get richer and the poor get poorer. This leads to monopoly not competition and isn't so much based on merit or talent as it is on luck at key points. Raworth introduces us to the real story behind the game of Monopoly, which blew my mind. It was designed by a woman in 1904 who wanted to show the unfairness associated with land ownership. The game could be played two ways, one in which a tax on land purchases and rents is distributed among the other players and the traditional way that we all know (and hate) so well. The success to the successful is a feedback loop and it needs to be weakened if we are ever to deal with the acceleration of inequality.

Similarly, with climate change... we're into a feedback loop and it is not enough to just stop the rising CO2 emissions, we actually need to cut emissions in half if we hope to have any impact. If we don't... systems thinking shows us what will happen.

The twin dynamics of social inequality and deepening ecological degradation have played out before.... just look at Easter Island and the Greenland Norse. "Today's economy is divisive and degenerative by default. Tomorrow's economy must be distributive and regenerative by design."

The shift needs to be from economists as mechanics, to economists as pruners or gardeners. And... it needs to evolve over time with little experiments. Most systems have a healthy hierarchyand are resilient with self-organisation. We would do best to avoid jumping in with both feet but rather ease in and test and evolve.

Raworth concludes with suggesting that economists need the equivalent of a Hippocratic Oath - to act in service, to respect autonomy, to be prudential in policy making and to work with humility.