Well, I’m about a third of the way through Doughnut Economics, and it’s not easy going. For me, it’s mostly because I have to keep reminding myself that it’s not actually a book about economic theory; it’s a book about economic policy.
Here’s what I mean by that. When I taught intro to microeconomics (I haven’t taught macro for about20 years), I try to make sure that students understand what we’re doing. We’re trying to develop a theory of the actual behavior of people making decisions. Since decision-making entails objectives, we need to specify, to the best of our ability what those objectives are. In micro, those decisions are made (mostly) by individuals (or households) and businesses. And those decisions are a restricted class of all possible decisions—which, in micro, are for households things like how do we decide on what and how much to buy; how do we decide on how to prepare ourselves for making a living; how do we use our income. For firms, it’s mostly how do we decide what to produce and how to produce it and how to sell what we’ve produced to buyers. And, to be sure, our decisions about these things are affected by a whole range of forces—advertising, social pressures, who our friends and neighbors are, and much more. But economic theory spends very little time or effort on where those preferences come from (which may be a mistake on the part of economists), and economists generally do not have anything to say about what those preferences ought to be.
People make other decisions as well, and these other decisions are, I think, more relevant to the issues she is concerned about. These are decisions, not about what and how much to buy, for example. These are decisions that are more about what sort of a society we want to live in—they are, broadly, political. What public policies do we support or oppose? If we live in a society in which our governments are responsive to the policy preferences of the people (i.e., not China, not Russia), how do we express our policy preferences? Through voting? Through other channels? And how are our policy preferences formed? These questions seem to me to be more sociological or political than economic.
Where economics (sort of) comes in is in two places. First, once we have decided on our policy objectives, what can economics tell us about how we can achieve those objectives more efficiently? So, for example, economists tend to suggest policy options that would be likely to achieve the optimal amount of reduction in carbon emissions at a lower, rather a higher, cost. Second, are there any unexpected consequences of those policies that need to be considered? Or, to put it fairly bluntly: Economic theory cannot tell you what your economic policy objectives ought to be. (In my opinion too many economists seem to forget that, but that’s for another day.)
So when I taught intro to micro, yes, I would start with the circular flow diagram—and then talk about what it leaves out. When I talked about how product markets work, I would spend time on market failures—how the private market for health care insurance can and does fail, for example. Or how product safety issues can arise (especially when the risks of using particular products are hard for individuals to identify and assess). Or how business concentration creates situations in which producers can achieve more of the benefits from buying and selling things in markets. Or how pollution creates what economists call “external costs”—costs that are not recognized or accounted for by buyers and sellers. Or external benefits (as in education)—benefits of an educated population accrue not just to those who get the education, but to everyone…which is why people of our age ought still to support public funding of education, even though we’re unlikely to benefit directly from the educations being obtained by “kids”. Issues, things get more complicated.
On the macro side of things, which deals more with four very different. Those four things are:
1) Achieving “full employment, which allows everyone to be able to earn an income and feel that, through their work, they are making a contribution to society (not that working Is the only way people contribute.)
2) Achieving equity. This is a complicated subject. There’s general agreement that part of it is making sure everyone can (does) have enough income to live a decent life. (That’s not a universal belief, though.) This is both within individual countries and across all countries. (For myself, this also suggests that extreme wealth is probably not a good thing. Unfortunately, extreme disparities in income, or standards of living, have been around for a very long time, and the political issues in reducing extreme wealth are difficult.
3) I’m putting this in here twice, really. Achieving global equity; creating a global economy in which we produce enough stuff that everyone has access to a decent life. I know people who argue that we should ignore this, because (they argue) it cannot be achieved without reducing the (average) standard of living in today’s already rich countries.
4) Not destroying the planet. I’m not sure this is even mostly an economic issue, but it has economic implications. Climate change is the most obvious aspect of this right now, but things like resource depletion and development of long-run sustainable energy sources also enter in.
Macro, you will note, is much more policy-oriented, and therefore much more politically contentious. And these issues seem more directly implicated in Raworth’s book than the micro issues. A lot of economists (including me, based on what I’ve read so far)-) would argue that she’s ignoring the micro part of the world that (sort of) adds up to the macro part. If we need to change people’s behavior—that is, if we want people to be willing to move toward the outcomes she is working toward, then we need to change individual behavior as well as change macro policies. And we need to develop macro policies that are broadly acceptable to people in rich countries and in not-so-rich countries.
If, for example, one issue is climate change, and if climate change is a consequence
of increasing the atmospheric carbon load, then we need policies that will accomplish a reduction in emissions. But that has consequences for people’s lives in rich countries and in not-rich countries. To the extent that we would prefer to achieve our goal—survival of the world—more-or-less peacefully, then the policies have t take account how people make decisions in their buying and selling behavior—which, conceptually, is relatively straight-forward. The difficulty is not an economic problem—it’s a socio-political one: How do we persuade people to accept the required policies? If we can’t persuade them, can we actually implement those policies without the consent of the governed? And what if the relative cost of implementing those policies falls more heavily on poor countries, by making it harder for them to escape poverty?
As I said, I’m about 1/3 of the way through. Right now, I don’t think the issues are really about economics. I think they are sociological and political. It might be easy to say, in the abstract, what policies are the appropriate ones. It’s less clear to me, right now, how she thinks we’ll get there.
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