“Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment.” This is Article 23 of the Universal Declaration of Human Rights declared by the UN in 1948. It sounds like a pretty good right to me. I recently learned that […]
Author: Brad Voracek
Sectoral analysis provides a key framework for understanding the macroeconomy. GDP is a flow representing the value of all goods and services produced in a specific time period. This flow can be tracked in two different ways, on the spending side and on the income side. On the spending side the GDP […]
Many of us know we need to rethink economics, but Kate Raworth actually did it. Envisioning the economy as a doughnut, two boundaries become clear. If we fall into the doughnut’s middle hole, human needs fail to be met. If we drop off of the outer edge, life is unsustainable.
You should be weary of people who seek to get the “first lick” on a young impressionable brain. Paul Samuelson knew that by writing a successful economics textbook, he could influence how students frame the economy, and thus the world. From the 50’s to the 70’s, his textbook was the most widely used in introductory economics courses. Today, that role has been given to Gregory Mankiw’s “Macroeconomics” (see the Open Syllabus Project). Both view the economy in the same narrow way, with the same simple pictures that don’t seem useful today. Raworth’s Doughnut Economics breaches the pattern and envisions a new economics, for a new generation with clearly defined challenges and scant tools to solve them.
For so many years, the principle goal of economics, and thus the economy, has been GDP growth. Growth for whom or through what means wasn’t nearly as important as just ensuring there was in fact growth. Raworth emphasizes the importance of framing, and if you ask an economist what picture they foresee for GDP, they often describe an upward exponential function.
Thankfully, many young students that I’ve met recognize that infinite growth is unsustainable. Hopefully, their generation can popularize a GDP graph in the shape of a sideways S, respecting the upper bound to growth we have to live within. Enter Raworth’s doughnut. In Raworth’s framework, the outside of the doughnut reflects an upper bound we can not pass based on environmental limits of our planet. The inside of the doughnut reflects a social foundation we can not let crack, the necessities for humanity to thrive.
The goal should no longer be growth, but ensuring we take care of our social foundation and respecting our environmental ceiling. Raworth calls this balanced space in the middle the safe and just space for humanity, and that’s the goal we should direct ourselves toward. We can not ignore who growth is leaving behind, or what damage this growth is doing to our planet. These bounds are the crucial factor for Kate’s “doughnut.” They can move us beyond a narrow single measure called GDP, to looking at all the interconnected measures that are so important for our livelihood.
Once we’ve moved beyond the single measure, we have to also abandon the single neoclassical narrative that espouses the godlike nature of “the market”. The market, the household, the state, and the commons all have a place in the big picture, and different challenges have to be faced by different actors. The neoclassical story tells us there is a “tragedy of the commons,” what if that story was actually the tragic one? Kate takes a stab at the characters of the old narrative, and offers us a new script for them.
EARTH, which is life-giving—so respect its boundaries
SOCIETY, which is foundational—so nurture its connections
THE ECONOMY, which is diverse—so support all of its systems
THE HOUSEHOLD, which is core—so value its contribution
THE MARKET, which is powerful—so embed it wisely
THE COMMONS, which are creative—so unleash their potential
THE STATE, which is essential—so make it accountable
FINANCE, which is in service—so make it serve society
BUSINESS, which is innovative—so give it purpose
TRADE, which is double-edged—so make it fair
POWER, which is pervasive—so check its abuse
The big picture story requires the next generation of economists to be savvy with systems thinking. The old economics used mechanical equilibrium thinking, where economies trend towards a static state. A new economics recognizes the flaws of this equilibrium thinking, recognizing like Minsky said that “stability is destabilizing.” A new framework for economics will recognize the different feedback loops that influence the economies stability.
The language of complexity, evolution and systems needs to infiltrate economics. We need to be thinking about how we can design a resilient economy, one that can resist shocks. We need to look at the big picture, understanding the sources and sinks of different resources. We have to know where our food comes from, ensuring it is distributed properly, and we have to know where our plastic is being disposed, ensuring it’s not destroying the planet. We have to get familiar with the language of stocks and flows, the stores of resources and also their movements. These will be our new tools.
Raworth’s story gives hope to the young economists that are bent on saving the dying planet we’ve inherited. Her vision for a new economics, and the new economy, align with the work we’ve been doing here at The Minskys. Even better though, she has produced a frame for which we can better espouse our ideas. We started out thinking about systems – the sources and sinks of money creation. We’ve recognized the physics envy of mainstream economics. We understand the need to nurture human nature, so maybe we should be studying the grants in the economy and not just monetary exchanges. Without this, we’ll fall inside the doughnut’s hole, where there is no paid maternity leave, and austerity all around. We’ve also thought about ways not to breach the doughnut’s bounds, with a Green Job Guarantee, Basic Income, or Community Currencies for example.
Raworth’s doughnut frames the important aspects of the economy, and is simple to use. Observe your local community! Do you see human needs not being nurtured? That means we’ve breached the inside of the doughnut. Do you see irresponsible damage being done to our home, the earth? Then we’ve breached the outside of the doughnut. We have to design solutions to keep us in the doughnut. We’re all economists now, because we have to be. The future is pretty bleak for humanity without a planet to stand on.
If you too wish to start thinking like a 21st century economist, be sure to check out the book in it’s entirety here. There are also a series of animated shorts here. After that, it’s as simple as grabbing a pencil and drawing a doughnut.
To understand why economics students around the globe are calling for Rethinking Economics, the book The Econocracy is a thoughtful and accessible place to start. An econocracy, as defined by authors Joe Earle, Cahal Moran, and Zach Ward-Perkins is “a society in which political goals are defined in terms of their effect […]
William “Sandy” Darity’s work is the proof you need that the American dream is just that, a dream. The promise that anyone who takes initiative and works hard has an equal chance at success is not true. A close look at data on income and wealth reveals an inherently unequal society. Our […]
It’s disappointing to see debates between proponents of the Basic Income Guarantee (BIG) and the Job Guarantee (JG). These discussions detract from the fact that both of these ideal policies are distant from the policies we currently have in place. Supporters of either of these policies should be working together to get either one implemented, and we can debate adding the other later. Today, we need to move beyond our current disjointed welfare system to one that will help Americans, and either policy (or both!) seems like a step in the right direction.
If we look at the current system, the three largest welfare programs we have are Medicaid, the Earned Income Tax Credit (EITC), and the Supplemental Nutrition Assistance Program (SNAP). Before the Affordable Care Act (ACA), Medicaid was limited to certain low-income individuals, but the ACA expanded this program so that all adults with incomes below 138% of the federal poverty line are eligible. For FY 2015 Medicaid cost $532 billion to cover 73 million individuals. EITC provides additional income to low wage workers, and in 2014 paid out $67 billion to 27.5 million tax filers. Finally, SNAP guarantees an income to buy certain necessary items, and paid out $69 billion to 22 million households in 2015.
Then beyond those three largest programs, we have a smattering of additional programs that help the poor in this country. There’s a housing assistance program, Supplemental Security Income (SSI) for the elderly, Pell Grants for college tuition, the Temporary Assistance for Needy Families(TANF) program, the Child Nutrition Program, the Head Start preschool program, various Job Training programs (like AmeriCorps and Job Corps) under the Workforce Investment Act, Unemployment Insurance, the Child Tax Credit, Supplemental Nutrition for Women, Infants, and Children(WIC), and then theres others I’m sure I missed (oh yeah, the Obama phone!) along with various state and local programs. The amount of overlap, overhead, and bureaucracy involved with running all of these programs surely diminishes their effectiveness.
All of these programs provide support by doling out income or necessities, with or without a requirement that the recipient be working. BIG and JG would both be ways to consolidate all of these programs, and then the debate becomes how much does someone have to work in order to receive assistance. A lot of people who advocate for BIG think that our current system has a lot of pointless jobs, and BIG would be away to allow those people to pursue something more creative. Considering that most entrepreneurs have one thing in common — access to capital — that may not be too far off. Then there are JG proponents who probably agree with that point, but think we can use the policy to help organize jobs that need to be done (liking cleaning up our environment, or building our infrastructure). Most people who support BIG worry that a JG would create “make-work”, quoting Keynes famous “bury bank notes and dig them back up” line. To them, just giving people the bank notes makes more sense. On the other hand, JG proponents worry about losing the social utility of work. People want to contribute to society, and they see work that needs to be done. Both policies seem hard to pass in todays political climate.
I think proponents of both the BIG and JG are disappointed with a U6 unemployment rate of 9.5%, current companies lack of interest in maintaining our environment, and over 45 million Americans living in poverty. Call it whatever you want, let’s guarantee every American access to the necessities: healthy food, shelter, and healthcare. Clearly this is going to require some people to do some work, so let’s make sure that work gets done with our social structure as well. Calling it a BIG or a Basic Necessities Guarantee (BNG) or a JG doesn’t matter so much to me.
In fact, I’d probably start with calling it the EITC. Get rid of the minimum income phase in, and we instantly have a “BIG”, with all the infrastructure already in place. It would only go to unemployed or low income citizens, since the EITC phases out, which helps it be a progressive policy. So that it can cover the housing benefits and others, we could expand the credit a bit too. How do we pay for this? It’s simple. Scrap the other welfare programs (keep Medicaid, that one’s complicated). The overhead of having all of these programs is gross. How feasible is this plan? Honestly, no clue. I’ve never made a policy. I’ve barely met anyone who even makes policy. It seems like the closest option there is, however. I can see the complaints already though. These ungrateful welfare abusers will buy alcohol and drugs with their new found income! Somehow it’s not OK to drink and do drugs if you’re poor, but if you’re rich, go for it, right? If you get rid of SNAP, people won’t buy food for themselves! Well surprise, there’s already a way to trade SNAP benefits for cash — it’s called craigslist.
Then there’s the other major complaint this would cause — now there is no incentive to work. We have to keep abject poverty as a social option so that people keep working at McDonalds making the McObese, and keep stocking the Wal-Mart shelves so that Wal-Mart can pay starvation wages which allow people to be eligible for the EITC in the first place. I’m not really sure those are the jobs that need to be done. If our low wage workers were working on local farms producing fruits and vegetables, I’d probably agree… someone has to do those things (or make robots to do them!). Yet I haven’t seen any proof an income stops people from working. It’s all speculation. I bet people still do things. Here I am, incomeless, and I’m doing something. I’m writing. I’m volunteering. I’m applying to jobs that I want to do and think will have a positive benefit. Getting rejected, but still, I’m trying.
Let’s see what happens when everyone has some cash on hand. If we start starving and need the government to force us to produce food, we’ll do it then. Yet from the friends I’ve talked to, boredom is a very potent driver of change. I know my fellow millennials and I have dreams of growing our own food in our parents backyards, or the empty lot across the street, or the empty K-Mart, or the empty mall. If only they’d let us. If only we had a little income, a little land, and some water to give it a try. If only the police weren’t killing and hurting us. If only Nestle wasn’t pumping out water from government land for free and forcing us to spend money on it. A lot of us worked our asses off at school, and what did we get? The choice between huge corporations who we see as destroying the environment, or low incomes working retail living with our family and friends. Meh. My friends and I want something different. I choose believing there’s something better than choosing between two evils.
Remember when the public hated huge corporations for destroying small business, not each others’ identities? Do we remember The High Cost of Low Price? BIG and JG proponents, let’s not quibble. We’re on the same side. There’s work to be done. Get organized. Make it happen.
Originally published on Medium
The jobs in our society that focus on caring for others are often held by women. Women hold 70% of teaching jobs, 90% of nurses are female, social workers, childcare, customer service, you name it. If the duties performed in a particular industry involve caring for another person, most of the workers […]
Over forty years ago, President Lyndon B. Johnson declared a “War on Poverty” in his state of the union address. This war emphasized education as the remedy to America’s economic hardships. Critics, like Hyman Minsky, worried from the beginning that this would not be enough. As explained in some of his writings […]