Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

by Kate Raworth

at this rate, by 2050, there will be more plastic than fish in the sea.14

1968, the prestige of Nobel Prizes awarded for scientific advances in physics, chemistry, and medicine was controversially extended: Sweden’s central bank successfully lobbied and paid for a Nobel-Memorial prize to be awarded annually in ‘Economic Sciences’ too, and its laureates have become academic celebrities ever since.

these citizens of 2050 are being taught an economic mindset that is rooted in the textbooks of 1950, which in turn are rooted in the theories of 1850. Given the fast-changing nature of the twenty-first century, this is shaping up to be a disaster.

Then I became a mother—of twins, to boot—and spent a year on maternity leave, immersed in the bare-bum economy of raising infants.

Ha! I hope this wit continues throughout the book.

What if we started economics not with its long-established theories but with humanity’s long-term goals, and then sought out the economic thinking that would enable us to achieve them?

Neuroscience has since confirmed the dominant role of visualisation in human cognition. Half of the nerve fibres in our brains are linked to our vision and, when our eyes are open, vision accounts for two-thirds of the electrical activity in the brain. It takes just 150 milliseconds for the brain to recognise an image and a mere 100 milliseconds more to attach a meaning to it.

Words are processed by our short-term memory where we can only retain about seven bits of information . . . Images, on the other hand, go directly into long-term memory where they are indelibly etched.’

In the deft words of the statistician George Box, ‘All models are wrong, but some are useful.’

There may be no perfect frame waiting to be found, but, argues the cognitive linguist George Lakoff, it is absolutely essential to have a compelling alternative frame if the old one is ever to be debunked. Simply rebutting the dominant frame will, ironically, only serve to reinforce it. And without an alternative to offer, there is little chance of entering, let alone winning, the battle of ideas.

‘tax justice’—which

This is the opposing frame of the conservative tax relief stancs.

in 2011 when I first drew the Doughnut

It's that old!?

But inequality, it turns out, is not an economic necessity: it is a design failure.

It means going beyond redistributing income to exploring ways of redistributing wealth, particularly the wealth that lies in controlling land, enterprise, technology, knowledge and the power to create money.

Though claiming to be value-free, conventional economic theory cannot escape the fact that value is embedded at its heart: it is wrapped up with the idea of utility, which is defined as a person’s satisfaction or happiness gained from consuming a particular bundle of goods.9 What’s the best way to measure utility? Leave aside for a moment the catch that billions of people lack the money needed to express their wants and needs in the marketplace, and that many of the things we most value are not for sale. Economic theory is quick—too quick—in asserting that the price people are willing to pay for a product or service is a good enough marketplace proxy for calculating their utility gained. Add to this the apparently reasonable assumption that consumers always prefer more to less, and it is a short step to concluding that continual income growth (and therefore output growth) is a decent proxy for ever-improving human welfare.

As George Lakoff and Mark Johnson vividly illustrate in their 1980 classic, Metaphors We Live By, orientational metaphors such as ‘good is up’ and ‘good is forward’ are deeply embedded in Western culture, shaping the way we think and speak.13 ‘Why is she so down? Because she faced a setback then hit an all-time low,’ we might say—or, ‘Things are looking up: her life is moving forwards again.’ No wonder we have so willingly accepted that economic success must also lie in an ever-rising national income.

Donella Meadows—one of the lead authors of the 1972 Limits to Growth report—and she didn’t mince her words. ‘Growth is one of the stupidest purposes ever invented by any culture,’ she declared in the late 1990s; ‘we’ve got to have an enough.’

when political economy was split up into political philosophy and economic science in the late nineteenth century, it opened up what the philosopher Michael Sandel has called a ‘moral vacancy’ at the heart of public policymaking.

Instead of prioritising metrics such as GDP, the aim should be to enlarge people’s capabilities—such as to be healthy, empowered and creative—so that they can choose to be and do things in life that they value.21 And realising those capabilities depends upon people having access to the basics of life—adapted to the context of each society—ranging from nutritious food, healthcare and education to personal security and political voice.

In Maori culture, the concept of well-being combines spiritual, ecological, kinship and economic well-being, interwoven as interdependent dimensions.

30–50 percent of the world’s food gets lost post-harvest, wasted in global supply chains or scraped off dinner plates and into kitchen bins.

Is this one of those stats that lies because the whole story is misrepresented by the numbers?

As economist Tim Jackson deftly put it, we are ‘persuaded to spend money we don’t have on things we don’t need to make impressions that won’t last on people we don’t care about’.45

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.28

a 2014 survey of 15,000 mothers in the United States calculated that, if women were paid the going hourly rate for each of their roles—switching between housekeeper and daycare teacher to van driver and cleaner—then stay-at-home mums would earn around $120,000 each year.

From passports to medicines and AK-47s, many things cannot be legally bought or sold without official licence. Trade unions, immigration policies and minimum wage laws all have an effect on a country’s going wage rate. Company reporting requirements, the culture of shareholder primacy and state-funded bailouts all influence the level of corporate profits. Forget the free market: think embedded market. And, strange though it sounds, that means there is no such thing as deregulation, only reregulation that embeds the market in a different set of political, legal and cultural rules, simply shifting who bears the risks and costs and who reaps the gains of change.

The commons are shareable resources of nature or society that people choose to use and govern through self-organising, instead of relying on the state or market for doing so. Think of how a village community might manage its only freshwater well and its nearby forest, or how Internet users worldwide collaboratively curate Wikipedia.

far from providing a valuable service to the productive economy, finance has turned into the tail that wags the dog.

Despite their current rhetoric of ‘free trade’, when it comes to trade negotiations almost all of today’s high-income countries—including the UK and the United States—took the opposite route to ensure their own industrial success, opting for tariff protection, industrial subsidies and state-owned enterprises when it was nationally advantageous. And today they still keep tight control over their key traded assets such as intellectual property.47

In 2012–13, as treaty discussions got under way, over 90 percent of meetings held by the European Union—520 out of 560—were with corporate lobbyists.

‘Financial economics,’ they concluded, ‘helped create in reality the kind of markets it posited in theory.’

we can best depict our economic selves. First, rather than narrowly self-interested, we are social and reciprocating. Second, in place of fixed preferences, we have fluid values. Third, instead of isolated, we are interdependent. Fourth, rather than calculate, we usually approximate. And fifth, far from having dominion over nature, we are deeply embedded in the web of life.

WEIRD societies: ones that are Western, educated, industrialised, rich and democratic.21

There is a ‘well-documented lifestyle effect’, he notes, in which ‘people outside the top 1 percent increasingly live beyond their means. Trickle-down economics may be a chimera, but trickle-down behaviourism is very real.’34

Wikipedia page lists over 160 cognitive biases, like a jumbo-size game of spot-the-difference between rational economic man and his fallible human equivalent.

This presumption of man’s dominion over nature runs far back in Western culture, at least to the Bible’s opening verses.

I hadn't thought of that!

When Chief Oren Lyons of the Iroquois Onondaga Nation was invited to address students at the University of Berkeley’s College of Natural Resources, he highlighted this risk. ‘What you call resources we call our relatives,’ he explained. ‘If you can think in terms of relationships, you are going to treat them better, aren’t you? . . . Get back to the relationship because that is your foundation for survival.’45

in the words of the late British MP Jo Cox—we have ‘far more in common with each other than things that divide us’.47

do monetary incentives serve to reinforce and ‘crowd in’ people’s intrinsic motivation to act, or instead crowd it out by replacing it with the extrinsic motivation of money?

As a result, general equilibrium theories dominated macroeconomic analysis through the second half of the twentieth century, and all the way up to the 2008 financial crash. The ‘New Classical’ variants of equilibrium theory—which assume that markets adjust instantly to shocks—jostled for attention with so-called ‘New Keynesian’ variants that assume there will be adjustment delays due to ‘sticky’ wages and prices. Both variants failed to see the crash coming because—being built on the presumption of equilibrium, while simultaneously overlooking the role of the financial sector—they had little capacity to predict, let alone respond to, boom, bust and depression.

He jumped back in at a much higher price in June—just two months before the bubble finally peaked and burst. Newton lost his life savings as a result. ‘I can calculate the movement of stars but not the madness of men,’ he famously said in the bubble’s aftermath.24 The master of mechanics had been confounded by complexity.

economist Steve Keen—one of the few who did see a crash coming—pithily put it, ‘Trying to analyse capitalism while leaving out banks, debt, and money is like trying to analyse birds while ignoring that they have wings.

Minsky had realised that—counter-intuitive though it sounds—when it comes to finance, stability breeds instability. Why? Because of reinforcing feedback loops, of course.

In Minsky’s own words, ‘The tendency to transform doing well into a speculative investment boom is the basic instability in a capitalist economy.’28

Steve Keen has teamed up with computer programmer Russell Standish to develop the first systems-dynamics computer program—aptly named Minsky—which is a disequilibrium model of the economy that takes the feedbacks of banks, debt and money seriously. As Keen told me in his characteristic style, ‘Minsky finally gives wings to the economic bird, so at last we’ll have a chance of understanding how it flies.’31

Fascinatingly, however, the game was originally called ‘The Landlord’s Game’ and was designed precisely to reveal the injustice arising out of such concentrated property ownership, not to celebrate it.

He's Talking about Monopoly

The game’s inventor, Elizabeth Magie, was an outspoken supporter of Henry George’s ideas, and when she first created her game in 1903, she gave it two very different sets of rules to be played in turn. Under the ‘Prosperity’ set of rules, every player gained each time someone acquired a new property (echoing George’s call for a land value tax), and the game was won (by all) when the player who had started out with the least money had doubled it.

Just as a bathtub will only start to empty if water pours in from the tap more slowly than it drains out of the plughole, so carbon dioxide concentration in the atmosphere will only fall if new emissions flow in more slowly than CO2 is drawn out. When Sterman first drew the carbon bathtub in 2009, global annual inflows of CO2 were 9 billion tons, compared to outflows of just 5 billion tons: it meant that annual emissions had to fall by half merely to start reducing atmospheric concentrations.

Today’s economy is divisive and degenerative by default. Tomorrow’s economy must be distributive and regenerative by design.

In their book The Gardens of Democracy, Eric Liu and Nick Hanauer argue that moving from ‘machinebrain’ to ‘gardenbrain’ thinking calls for a simultaneous shift away from believing that things will self-regulate to realising that things need stewarding.

Economics is more than two thousand years behind medicine in honing the ethics of its own profession.

here are four ethical principles for the twenty-first-century economist to consider. First, act in service to human prosperity in a flourishing web of life, recognising all that it depends upon. Second, respect autonomy in the communities that you serve by ensuring their engagement and consent, while ever aware of the inequalities and differences that may lie within them. Third, be prudential in policymaking, seeking to minimise the risk of harm—especially to the most vulnerable—in the face of uncertainty. Lastly, work with humility, by making transparent the assumptions and shortcomings of your models, and by recognising alternative economic perspectives and tools.