Thursday , November 23 2017
Home / Real-World Economics Review / We need doughnut economics. But we also need GDP growth. Lots of it.

We need doughnut economics. But we also need GDP growth. Lots of it.

Summary:
Some ‘alternative economics’ have reently been published: we are moving from criticism to alternatives. Which is a good thing: Kate Raworth broke ground with Doughnut economics. Jamie Morgan et all recently published ‘Quest for a new paradigm in economics. A synthesis of views of the New Economics working group’. We can also mention the people publishing in the Journal of Industrial Ecology, who do not look at the circular monetary economy but at the circularity (or not) of flows of materials and energy. And we can look at the seventeen sustainable development goals of the UN. Will it make a difference? I do not know. Things like this have been around for at least forty years, though especially measurements have become much better. And I do think that the reaction against monetary

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Some ‘alternative economics’ have reently been published: we are moving from criticism to alternatives. Which is a good thing: Kate Raworth broke ground with Doughnut economics. Jamie Morgan et all recently published ‘Quest for a new paradigm in economics. A synthesis of views of the New Economics working group’. We can also mention the people publishing in the Journal of Industrial Ecology, who do not look at the circular monetary economy but at the circularity (or not) of flows of materials and energy. And we can look at the seventeen sustainable development goals of the UN.

Will it make a difference? I do not know. Things like this have been around for at least forty years, though especially measurements have become much better. And I do think that the reaction against monetary measures of the economy is somewhat myopic. We do not have to move beyond the monetary economy. Neoclassical economics tried that and utterly failed. Hey, the very definition of poverty is: ‘not having enough money’. And we really have to look into that. But we have to look at other economies and circularities, too.  What we need for a new economy is a number of statistics is:

  • Monetary measures like the Flow of funds which track flows and stocks of debts and credits and changes in the amount of income and the like. Money is important.
  • This includes ‘real’ estimates of flows of production and spending, like  real GDP. Mind that ‘real’ GDP is not measured but estimated. Nominal GDP is measured, statisticians use scores of methods to take prices out of the nominal measures and to recalculate these nominal measures into ‘real’ estimates, like the purchasing power of wages or the volume of retail spending. Aside from problems like changes in quality (surely not always improvements in quality – take anti-biotics!) this is problematic as relative prices change. We should, however, not only see this as problems but also as exciting events which require economic explanation.
  • And we need a set of statistics which maps labor, paid as well as unpaid and idle as well as occupied
  • And  set of statistics which map flows of materials and energy (inputs as well as outputs like CO2)
  • And statistics about (risk of ) poverty, health and well-being
  • And environmental statistics

All these data are available. Economists use them. But not the economists at the IMF, the OECD, central banks etcetera. At least: not too much. Even the treasure trove of the national accounts is severely under-used as well as mis-used and misunderstood. And while MIlton Friedman got a Nobel prize for, amonth other things, his non-sectoral analysis of the crude and clumsy aggregate of M-3 money (which only gets meaning when it is connected, as the ECB does, to credit creation by sector) no prize was given to Morris Copeland, who developed the subtle Flow of Funds, used by central bank statisticians all over the world. The alternative is already developed, at least when it comes to the data. But how to make sense of this wealth?

Reworth does the best job to integrate all this, though she pays too little attention to poverty and flows of materials statistics and underestimate the value of monetary statistics like the Flow of Funds and the National Accounts. Morgan et all should halve or double their pamphlet and rewrite it. At this time the lingo is not even fit for graduate economic students. They also do not seem to master all the kinds of already available statistics. I love the articles in the Journal of Industrial Ecology but these very much take the social side of the economy out of the equations. And I’m enthousiastic about the development goals and sub-goals of the UN. This surely is the broadest approach though less integrated than the Reworth book and wanting when it comes to procreation.

The alternatives of Reworth and Morgan et all are characterized by a neo-Malthusian ‘limits to growth’ nature in combination with a somewhat smug emphasis on wellness, local communities as well as personal choice, development and growth. This does give it a suburbian, consumerist tinge. Also, more attention should have been given to population growth. World population will grow to at least 12 billion people. These humans need shelter, clothing, education, food, health care, transportation – items typically included in GDP. We will need quite a bit of GDP growth.

The models move beyond the neoclassical market transaction model in the sense that they pay attention to different kinds of resources and coordination mechanisms in a technological, stock based way instead of just looking at the flow of economic transactions. Unlike neoclassical economics, they do assume that non-monetary world of families, friends and voluntary associations is based upon fundamentally other coordination mechanisms than the money based world of markets and the government. An example: private cars are not used for about 95% of the time, a percentage which no government or company could accept for its cars. But the one thing poor people need most is: money. We do need jobs. Paid jobs. Billions of them. This has to be at the core of any kind of economics.

There is quite some talking about ‘wealth’ by Reworth and Morgan et all, which is taken to be some kind of non-monetary fixed capital (natural, human, social, whatever). My problem: in our world, ownership of capital is very much the right to a flow of income related to ownership of financial or fixed capital. Capital, as economists define it, is inherently monetary by nature and as such a social relation. This of course sounds very abstract. But remember the time when the Cameron government tried to sell the ‘public woods’ of Britain to the logging companies at the same moment “the Secretary of State for Communities and Local Government … announced he is “removing the structures of control” and making it “much easier” to get planning [i.e.: cutting and cottage building] permission across the country. Planning is being massively deregulated, just as the forests are sold”. Property rights are political and social by nature – these rights were crafted in wars and revolutions like the USA civil war, the European protestant revolutions and the Glorious Revolution. It’s not just about the existence of wealth – but also about the ownership of wealth. We do need a re-distribution of property rights, like the seigniorage rights connected to the creation of deposit money which are at this moment owned by banks. Will this re-distribution happen?

It is a start. And the data necessary to change economics are available and have been available for a long time. We need to integrate them in a coherent system. Especially Reworth and the United Nationas do an excellent job. But it is not yet enough. And we need growth, which will show up as an increase of GDP. And jobs. Billions of jobs.

Merijn T. Knibbe

Economisch historicus en statisticus, wadloopgids, docent, vader en blogger

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