Stop going by the book

Doughnut Economics: Seven Ways to Think Like a 21st Century Economist
Kate Raworth
Penguin Random House

Doughnut Economics: Seven Ways to Think Like a 21st Century Economist Kate Raworth Penguin Random House ₹699  

Two strong arguments on the dangers of economics becoming a mass of mathematics disconnected from the real world

In 1937, Leland Bach (later founder-dean of the Carnegie Mellon business school) watched unemployed men lining up at the labour exchange, while his economics professor said lasting recessions were impossible in competitive capitalism. That episode, cited by Rakesh Khurana in From Higher Aims to Hired Hands (Princeton University Press, 2007), would strike a chord with those economics students who, since 2008, have watched the global economy imploding while the equations say all is for the best in the best of all possible worlds.

Many students have asked why economics is a mass of mathematics disconnected from a world where terrified governments pour trillions of public dollars into measureless caverns of private banks’ debt, where no standard tenet of macroeconomics works, and where inequalities and mass poverty have reached levels unknown since the Great Depression. The students want a wider range of perspectives within economics, so that they can analyse the economies we live in. Even Nobel winners Paul Krugman and Paul Romer have separately criticised neoclassical macroeconomics for putting mathematical tidiness ahead of explanatory power.

Too orthodox?

One call for changes in economics teaching is The Econocracy (Penguin Random House, 2017), by Joe Earle, Cahal Moran, and Zach Ward-Perkins. This direct, rigorous, and even entertaining book contains some of the authors’ original research, and shows that neoclassical economics has eliminated almost all other approaches.

This orthodoxy means a fetishistic reverence for standard textbooks, the near-disappearance of evaluative judgement from exam papers, and a divorce from the study of real economies. Others have noted that too; Narendar Pani, in Redefining Conservatism (SAGE, 1993), says that in India, a rise in the official lending rate does not reduce inflation but makes for increased non-formal borrowing. Earle and his colleagues reveal contradictions even in the mainstream. For example, Nicholas Stern and Richard Tol have reached diametrically opposed conclusions about the seriousness and the effects of climate change.

In addition, one neoclassical concept — the Non-Accelerating Inflation Rate of Unemployment (NAIRU) — is almost identical to Karl Marx’s concept of the reserve army of the unemployed, but NAIRU’s proponents must fall silent there, or betray their own purported neutrality. Presumably, they must also avoid feminist economics; time-use surveys show vast areas of activity which macroeconomics cannot see, because for it economic activity is solely the market exchange of commodities. Earle and his co-authors, however, show that the dichotomy between the free market and the state is false (for example, the state creates and enforces contract law), and note some of the Austrian School arguments that economics can be done without mathematics.

Yet neoclassical economics is an epistemological monopoly. The Econocracy shows how it has become one, and proposes a far wider range of perspectives in economics teaching. The authors list 10 such, from ‘old’ neoclassicism through post-Keynesianism and Marxism to feminist and ecological economics; they want that range taught so that economists develop a capacity for informed judgement rather than a dependence on mathematical formulae. Their evidence is very impressive, and they provide an excoriating account of what neoclassical financial policies have done to British universities.

Radical viewpoint

A kindred work, Kate Raworth’s Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, is as radical as The Econocracy. Raworth, an Oxford economics graduate, began her career in microfinance among women in Zanzibar before moving to the UN Development Programme and then into sustainability research.

Raworth starts with the evolution of several sacred neoclassical cows, which then look very different. For example, when writing a beginners’ textbook for MIT engineering students, Paul Samuelson told the story not in equations but in pictures. The book has sold four million copies worldwide, and some of its diagrams have become almost as hallowed as the church’s frescoes and stained-glass windows.

Another exalted economic bovine, the general equilibrium point, was questioned even by mainstream economists in the 1970s, but abandoning it would have had such consequences for the discipline that textbooks dismissed the exposés. Raworth notes that because economists assumed a universal tendency to equilibrium, they could not see that in 2008 the system was falling off a cliff.

The menagerie’s biggest creature is Gross National Product (GNP); that and its cognate Gross Domestic Product (GDP) have given generations of politicians easy numbers with which to claim economic success. Even GNP’s originator, Simon Kuznets, tried to state that national income cannot encompass the enormous value of goods and services produced by households, or by all society in everyday life. He was ignored.

Raworth, who despatches these animals to distant fields, sharply criticises GDP and its other cognate, unlimited growth — which is the way to environmental catastrophe and hides crucial detail; the top 10 per cent of carbon emitters account for 45% of emissions, while the bottom 50%’s contribution is 13%. Secondly, it would take only 3% of current global food supply to feed the world’s billion-plus malnourished people to the caloric minimum level.

Raworth’s alternative is the doughnut, a two-ring diagram, where the inner ring contains human needs and purposes. Any economics must recognise and accommodate those, but must remain within the outer ring, namely the environmental limit — the Earth’s finite resources and limited capacity to sustain life through worsening environmental degradation. If some of the inner content (such as the concept of rights) needs further argument, this approach centres economics on action informed by a wide range of considerations.

Several vibrant groups are reshaping economics on similar lines; these include the Post-Crash Economics Society at the University of Manchester, the Rethinking Economics group, the Glasgow University Real World Economics Society, and the Post-Autistic Economics movement. In 2015, students nearly took over the American Economics Association’s annual conference by demonstrating outside and asking awkward questions inside.

They could find unexpected friends; various U.S. professors admit getting tenure before they criticise banks publicly. The widening challenges show that we can still know ourselves as other than the beings neoclassical economics has to make us think we are.

The Econocracy: On the Perils of Leaving Economics to the Experts; Joe Earle, Cahal Moran, Zach Ward-Perkins, Penguin, ₹599.

Doughnut Economics: Seven Ways to Think Like a 21st Century Economist; Kate Raworth, Penguin Random House, ₹699.

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Printable version | Feb 27, 2020 2:33:01 AM |

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