Is Economics Driving us to Utopia or Dystopia?
Economics is supposedly all encompassing, ubiquitous, and immensely powerful. However, anyone who can stretch their memory back just over a decade will remember when our infallible systems collapsed and drove the developed world into financial ruin. Although the idea that only one person was jailed is in fact a myth, in reality 47 were sentenced, it doesn’t feel like proper retribution for a catastrophe nor does it prevent us from repeating history.
As if international financial collapse wasn’t enough, our businesses consistently lie, steal, and cheat. Volkswagen pretended their cars didn’t blurt out 40 times the legal limit of nitrogen oxides, Nestlé sent sales reps into hospitals to convince new mothers to switch to formula milk which is proven to increase the risk of infant mortality, and countless banks are wrapped up in money laundering for FBI most wanted criminals, sanctioned Russian oligarchs and terrorist organisations. Adam Smith may have informed us that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest”, but I would argue that claiming nicotine is not addictive isn’t a lack of benevolence, but malevolence, and not what humanity wanted to achieve when we left the garden of eden.
So how did we go from surviving together in a dangerous world to forced child labour?
Economic thought began, not quite as we know it today, with Xenophon in Ancient Greece. The exact origin of the term economics is debated but Xenophon’s work was limited to household management. Importantly, it wasn’t until Aristotle defined chrematistics as the acquisition of wealth that we saw something that greater resembles today’s economic thought. Of course most contemporary thought is rooted in the words of Adam Smith, further developed and debated by many such as the likes of Keynes and Friedman. The dominant thought today is characterised by an obsession with growth and sweeping generalisations; very little addresses the reality of the systems we employ and the consequences of infinite exponential growth.
However, we appear to be on the cusp of a revolution of sorts. There are an increasing number of more radical economists who, most importantly, are starting to be taken seriously. It may sound strange to some, but it’s hard to gain traction with new ideas in economics. Despite its clear merit, behavioural economics was laughed out of forums and campuses in the late 20th century. Nobel laureate Richard Thaler reported opponents describing his, soon to be nobel prize worthy, theories as “wackonomics”. Thankfully, things aren’t quite as archaic anymore. Thaler’s work, despite the initial reaction, led to the creation of a ‘Nudge Unit’ within the UK government and the field is increasingly respected and regarded as a new frontier of research.
So where is this academic liberalisation taking us? Are the latest generations pursuing something better?
There is a growing movement of people unhappy with the old economic ways, it’s no surprise given rising house prices, stagnant salaries, and insurmountable student debt. I believe economist Kate Raworth has come to the closest to a theory encompassing this new wave of economics that isn’t content with exponential growth and increasing inequality. She describes our world through the tasty image of a doughnut…
The outer ring represents our resource and environmental limits, the inner ring represents the minimum quality of life we provide. The inner section details the shortfalls that cause ill-being, the outer sections are the consequences of overshooting. The nice little green area, our own little Goldilocks zone, that’s where we need to be.
I highly recommend having a quick play with the interactive model here, personally I find it makes a lot more sense than any other economic model I have ever encountered. In Doughnut Economics, Raworth discusses how the purpose of economic thought affects how the models we build affect us...
"Economics is the mother tongue of public policy, the language of public life, and the mindset that shapes society."
Kate Raworth, Doughnut Economics, 2017, p6
Much of what Raworth goes on to discuss from this is how our obsession with growth rather than reality has put us in a tricky predicament…
“Those attempting to guide the economy and our societies are like pilots trying to steer a course without a reliable compass”
Kate Raworth, Doughnut Economics, 2017, p43
Others have also pointed out how new models, such as the doughnut, are required to reshape our thinking of the purpose of economics. Raworth quotes environmental scientist Donella Meadows as saying “growth is one of the stupidest purposes ever invented by any culture”, which I think encapsulates the short-sightedness of the current models.
Doughnut Economics is a comprehensive answer to a majority of the problems we face today. I found that it explained all of the criticisms and frustrations I had felt with politics, economics, academia, and business. It has also shaped how I approach economic models. I'm studying economics at a young, modernised university but I am still encountering models entrenched in a time where the world was infinite. Some study modules cover sustainability, but the others refuse to acknowledge it, it surprises me that even today we allow economic thought without discussion of how reality has changed. Reading Doughnut Economics helped me apply the context of 21st century reality to things such as the circular flow model. Personally, I don't think an economic model that predates the jet engine, nylon, and the ballpoint pen should be taught without a reminder of the context.