7 ways to think like a 21st century economist

Editor’s Note: The following is an excerpt from the new book “Donut economyby economist Kate Raworth. You can buy the book here.

By Kate Raworth

Whether you consider yourself a veteran of the economy or a novice, now is the time to uncover the economic graffiti that linger in all of our minds and, if you don’t like what you find, wipe it off; or, better yet, paint it with new images that meet our needs and times much better.

The rest of this book offers seven ways of thinking like a 21st century economist, revealing for each of these seven ways the false image that has occupied our minds, how it has become so powerful, and the nefarious influence it has had.

But the time for simple criticism has passed, which is why the emphasis here is on creating new images that capture the essential principles to guide us now. The diagrams in this book aim to summarize this leap between old and new economic thought. Taken together, they presented – literally – a new big picture for the 21st century economist. So here is a whirlwind of ideas and images at the heart of “Donut Economics”.

1. Change the objective. For more than 70 years, the economy has been fixated on GDP, or national production, as its primary measure of progress. This fixation has been used to justify extreme inequalities in income and wealth associated with unprecedented destruction of the living world. For the 21st century, a much bigger goal is needed: to respect the human rights of every person within the confines of our life-giving planet. And this goal is encapsulated in the concept of the Donut. The challenge now is to create economies – local to global – that help bring all of humanity into the safe and just Donut space. Instead of chasing constantly growing GDP, it’s time to figure out how to thrive in balance.

2. See the big picture. The traditional economy represents the whole economy with a single extremely limited image, the circular flow diagram. Its limits have, moreover, been used to reinforce a neoliberal discourse on market efficiency, state incompetence, household domesticity and the tragedy of the commons. It’s time to redesign the economy, to integrate it into society and into nature, and powered by the sun. This new representation invites new narratives – about market power, state partnership, the central role of the household and the creativity of the commons.

3. Cultivate human nature. At the heart of the economy of the 20th century is the portrait of the rational economic man: he told us that we are interested, isolated, calculating, frozen in taste and dominating nature – and his portrayal has shaped what we do. have become. But human nature is much richer than that, as the first sketches of our new self-portrait reveal: we are social, interdependent, approximate, fluid in values ​​and dependent on the living world. Moreover, it is indeed possible to nurture human nature in a way that gives us a much greater chance to enter the safe and righteous space of the Donuts.

4. Familiarize yourself with the systems. The iconic intersection of market supply and demand curves is the first diagram every economics student encounters, but it is rooted in misplaced 19th-century metaphors of mechanical equilibrium. A much smarter starting point for understanding the dynamism of the economy is systems thinking, summed up by a simple pair of feedback loops.

Placing such a dynamic at the heart of the economy opens up many new perspectives, from the rise and fall of financial markets to the self-reinforcing nature of economic inequalities and the tipping points of climate change. It’s time to stop looking for the economy’s elusive levers of control and start managing it as a complex, ever-changing system.

5. Design to distribute. In the 20th century, a simple curve – the Kuznets curve – whispered a powerful message about inequality: It must get worse before it can improve, and growth will eventually equalize. But it turns out that inequality is not an economic necessity: it is a design failure. 21st century economists will recognize that there are many ways to design economies to be much more distributive of the value they generate – an idea best represented as a network of flows. It means going beyond income redistribution to explore ways to redistribute wealth, especially wealth that lies in controlling land, businesses, technology, knowledge, and the power to create money. .

6. Create to regenerate. Economic theory has long portrayed a “clean” environment as a luxury good, affordable only to the well-to-do. This view was reinforced by the Kuznets environmental curve, who once again whispered that pollution must get worse before it can improve and growth will clean it up (eventually). But such a law does not exist: ecological degradation is simply the result of degenerative industrial design. This century needs economic thinking that triggers regenerative design in order to create a circular – nonlinear – economy and restore humans as full participants in the cyclical processes of life on Earth.

7. Be indifferent to growth. A diagram of economic theory is so dangerous that it is never actually drawn: the long-term trajectory of GDP growth. The mainstream economy sees endless economic growth as a necessity, but nothing in nature develops forever, and the attempt to reverse this trend raises difficult questions in high-income but low-growth countries. It may not be difficult to give up having GDP growth as an economic goal, but it will be much more difficult to overcome our dependence.

Today we have economies that need to grow, whether or not they allow us to prosper; what we need are economies that allow us to thrive, whether they grow or not. This radical shift in perspective invites us to become agnostic about growth and explore how economies that are currently financially, politically and socially dependent on growth could learn to live with or without it.

These seven ways of thinking like a 21st century economist do not present specific policy prescriptions or institutional solutions. They don’t promise any immediate answers on what to do next, and they aren’t the full answer. But I am convinced that they are fundamental to the radically different way of thinking about economics that this century demands. Their principles and models will allow new economic thinkers – and the economist in all of us – to begin to create an economy that will allow everyone in the household to thrive.

Given the speed, scale and uncertainty of the change we face in the years to come, it would be foolhardy to try to prescribe now all the policies and institutions that will be fit for the future: the an upcoming generation of thinkers and actors will be in a much better position to experiment and find out what works as the context continually changes. What we can do now – and must do well – is to bring together the best of emerging ideas, and thus create a new economic mindset that is never established but always evolves.

The task of economic thinkers in the decades to come will be to put these seven ways of thinking into practice and add many more. We have barely embarked on this adventure by rethinking the economy. Join the crew.

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