Doughnut Economics (8): Be agnostic about growth

Kate Raworth’s seventh “Way to Think Like a 21st-Century Economist” is to replace the idea that economies should keep growing forever by one that strives for economies that make people thrive regardless of whether economies grow or not.

My issue with degrowth

Let me put one thing straight first: barring interstellar travel I do think there is a maximum size to an economy. Economies grow for all kinds of reasons: more people, more use of energy, be it renewable or not, more use of material inputs, more ideas on how to do more with less. All, I believe, are finite resources – and that includes ideas. So the only way to grow forever would be some kind of asymptotic growth, which is not what any side of the growth debate has in mind. I’ve said a lot more about this in an earlier post.

Nevertheless I have never liked the degrowth movement. Some of their ideas are fairly traditional environmental-economic fare: taxing environmental pollution, for example. Others, such as imposing a maximum to anyone’s income, seem overly intrusive to me. I agree with Jeroen van den Bergh, one of the few mainstream environmental economists engaged in serious debate with degrowthers, that degrowth puts the cart before the horse. If environmental pollution and resource depletion are the problem, then focus your policy on environmental pollution and resource depletion. Putting a brake on growth to stop pollution is like stopping your car when you’re in the wrong lane of the highway: you’re not going in the wrong direction anymore but you’re not getting home either. So much easier to change lane! Moreover, history shows plenty of examples of stagnating or shrinking economies with devastating pollution – apparently degrowth is not the panacea its proponents make it out to be. And on the short term it might not even be necessary: within sound ecological limits there may still be plenty of room for growth, at least for the foreseeable future, driven by great ideas or scale economies.

So I’m happy to see that like Jeroen van den Bergh, Kate Raworth takes the agnostic view: degrowth is not the answer, but neither is growth. We need sensible limits on pollution and resource use, and if we can create more welfare by making more efficient use of the space we have within those limits, fine!

Are economists growth addicts?

Most macroeconomics textbooks deal with what growth is, how it works, and surely every environmental economics textbook discusses how growth may be related to environmental pollution. Interestingly, however, I have not come across any economics textbook that clearly explains why we actually need growth. I asked some of my colleagues at Wageningen University, but the responses did not get much further than “I guess people do not like stagnation”, “people always want more.” Is that the best we can tell our students? Moreover, wouldn’t a little satisfaction make us happier?

So what do economists believe? Are they such growth fetishists as Kate Raworth claims? Interestingly, Jeroen van den Bergh, together with Stefan Drews, has also looked into this question. The answer is mixed, but it by and large vindicates Raworth. In a survey among 814 respondents who have ever published on the relation between the environment and economic growth, economists appeared more likely than others to argue that continued economic growth is essential to improve people’s life situation; less likely to argue that economic growth always harms the environment; and less likely to argue that a good life is possible without economic growth. The variation around the means was huge, however, so the differences for these statements were not statistically significant. Other tests in the paper, however, suggest that economists are significantly more optimistic about the prospects for economic growth than environmental scientists. The most striking difference, however, is between environmental economists and those labelling themselves ecological economists. That should not be surprising to anyone who knows these fields. By and large, environmental economists are usually economists who happen to work on environmental issues, whereas ecological eonomists are more likely to be ecologists or environmental scientists who are interested in the relation between the economy and the environment. There are exceptions, but this is roughly the difference and it explains why ecological economists tend to be more pessimistic about growth, and more activist than environmental economists, many of whom like to believe they are doing value-free science.

Why grow?

Raworth discusses three reasons why we are, as she says, addicted to growth. I find the political and social reasons she mentions most convincing and interesting. Economic growth enables politicians to dodge a couple of tricky problems. If poverty is a problem in your country, but taxing the rich would quickly put you out of power in the next election or coup, economic growth is a welcome way to alleviate poverty without raising taxes. As much of economic growth comes from capital accumulation, which in and of itself needs hands and minds to build those machines and factories, growth keeps a lot more people occupied than stagnation. In other words, the lump of labour is not necessarily a fallacy in a stagnant economy.

Our social addiction to growth is more philosophical and comes close to what my colleagues said: people are never satisfied. Raworth rightly argues that this desire is not necessarily universal as some cultures appreciate sufficiency rather than insatiability. Again I am wary of the top-down policy interventions she proposes, like limits on advertising. As somebody with serious leanings towards Buddhist thought and practice I agree that this insatiability is a form of spiritual poverty. A core Buddhist premise is that happiness is not achieved by satisfying our wants, but by being less attached to our wants – a view confirmed by modern psychology. But to turn that view into policy means telling people how to live their individual lives to an extent we only see in theocracies. Better to set clear ecological limits and within those limits let people decide for themselves.

Preparing for landing

The most interesting question is addressed at the end. I would have expected that even mainstream economists would eventually pick it up, but so far I have not even seen the degrowth literature address it. If an economy stops growing, be it gradually or suddenly, be it by design, disaster, or depletion, how do we manage the slow-down? The usual response is to get the economy growing again, but let’s just for the sake of argument assume that we know it will not. How do we organise such a stagnant economy? How do we allow the poor a bigger cake if the whole pie will never get bigger? How do we allow people the pride and integration in society that comes with having an honourable job if it is more efficient to let a few people work overtime and have the rest sit on their hands? Rather than address these tricky questions it is a lot easier to dodge them and argue for growth.

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  • Doughnut Economics (9): What makes a good economist?


Doughnut Economics (1)

Kate Raworth’s book Doughnut Economics has caused a fair amount of controversy, not least among Dutch economists. This piece is a good illustration: Bas Jacobs (Erasmus University, Rotterdam) explicitly warns against reading it, accusing Raworth of attacking strawmen, while Ewald Engelen (University of Amsterdam) hails the book as “the book of 2017.” I find the sheer polarization and vitriol in such debates fascinating: what makes people disagree so fundamentally with each other on issues each finds self-evident?

And then fellow-tweeps Anthony Rogers and Ngaio Hotte suggested to read it as some sort of resource economics Twitter book club so I decided to buy it. I’ll write my impressions in a series of blog posts, but first I want to say a few things about where I come from, and with what state of mind I started reading the book. In the meantime this might already explain some of the extremely hostile responses by economists.

Where I come from

In an elevator I would introduce myself as a natural resource economist, but actually my academic background is a bit more complicated. At highschool I had only about two years of economics – I hated it and dropped it as soon as I could. After highschool I studied Environmental Studies at a Dutch polytechnic institute (Hogeschool in Dutch, comparable to the German Hochschule). Only somewhere in the fourth and last year of this education programme I developed an interest in the economics of the environment. Sure we want a clean environment, but how clean? When is it clean enough, and how much health care, wealth, and other goodies are we willing to forgo to reach that quality? I also felt my education so far had been inadequate: I knew a little of everything, but I was an expert in nothing.

So I came to Wageningen University to follow a study programme called, back then, Agricultural and Environmental Economics. I became fascinated with the combination of economics and ecology: I wrote a minor thesis on fisheries economics, and in my PhD thesis I combined metapopulation ecology with spatial-economic land use models. More recently I got bored with bioeconomic modelling so I am now exploring the boundaries between my field and other social sciences, such as psychology, sociology, and anthropology. Even though I first felt my environmental studies were too broad, I now think it enabled me to understand and communicate with other sciences – the horizontal bar in the T-shaped model that Wageningen University likes to champion. The vertical bar is my economics education.

So where am I now? I’m no Bas Jacobs, nor am I Ewald Engelen. If you want me to list my top five economics books of the year you’ll have to wait at least five years before I have read enough of them. (Note that this post appears more than a year after I started reading Doughnut Economics – so much to read, so little time.) I’m your average associate professor on the tenure track, struggling to find time to keep up with the literature between the teaching, supervising PhD candidates, writing proposals, and joining committee meetings. What I’m trying to say is: I cannot pretend to speak for the entire field of economics. The field is too broad for anyone to oversee anyway, so my perspective is only one of many possible perspectives and probably a very limited one at that. All I can and will do is draw from my own experiences in class, conference rooms, and coffee breaks with colleagues. I might avoid topics I know nothing of, and I’m sure I won’t be able to avoid saying a few silly things.

My mindset reading Doughnut Economics

I started reading the book with a fair dose of skepticism, and it is important to understand where that skepticism came from, not least because it may explain why economists’ responses have been so downright hostile. As a natural resource economist I work a lot with other disciplines, notably ecology, sociology, and environmental science. Here are just a few responses I usually get after telling people I’m an economist:

  • “You look more like a leftie to me!” (If only you knew.)
  • “What I think is really stupid of you economists is that you think the economy can keep growing forever…” (We don’t)
  • “You economists ignore the environment. You call it an externality, as if it does not matter!” (That’s not what an externality is)
  • “Economics is not really a science, is it? After all you did not see the crisis coming” (Neither can climate scientists predict specific hurricanes.)

I can relate to climate scientists who have to debunk the same old nonsense time and again (“You don’t take into account the sun’s influence!” “The climate has not warmed in 16 years!”). The difference is, unfortunately, that climate contrarians usually do not get the starry-eyed media attention that anti-economics writers tend to get.

Don’t get me wrong here – I think there is a lot in my field that can be improved and criticism is vital. The tragedy is that a lot of the criticism comes from people who don’t know what they are  talking about, who have their own dogmas, prejudices, and political bias, and, most tragically, whose prejudice and poor understanding of the field prevents them from seeing the problems that do deserve attention.

My experience with Economics of Good and Evil by Tomas Sedlacek is a good illustration of this. Sedlacek takes a very original approach to economics, drawing from philosophy and ancient mythology to reflect on how the field deals with moral questions. I gave up on the book when I read how Sedlacek interprets the concept of utility:

…it is clear that any sentence on the maximalization (sic) of such utility is naturally valid. We gain a tautology: Utility is gained by an individual through activities that increase utility. And because each person has utility from something else, we get: An individual does what he wants to. We can see that this sentence is vacuous – and for this reason it can be constantly “valid” because it says that A=A. […] If an individual maximizes utility, which everyone defines themselves, Popper would immediately ask: How would an individual have to act in order not to maximize their utility? In other words: Can one go in an opposite direction to their optimization function? If it is not possible to present a thinkable example, then the theory is not falsifiable and is de facto pointless. (Tomas Sedlacek, Economics of Good and Evil, Oxford University Press, 2011, pages 224-226)

Despite having been the Czech president’s economic advisor, Sedlacek does not seem to understand that utility functions were never meant to be a testable hypothesis any more than the Gordon-Schaefer growth function is supposed to hypothesize how populations grow. Both utility functions and biological growth functions are mere models, i.e. abstractions of much more complicated processes. In the case of utility functions this complicated process is how people decide what they want. Such a simplified model helps us understand the choices that people make and how their choices play out at an aggregate level in the overall economy. Utility functions are nothing but preference orderings: indeed, an individual does what he wants to do, but what he wants, how he acts upon what he wants, and how his choices interact with those of others, that is the object of investigation in economics.

The biggest tragedy, however, is that Sedlacek apparently has not read enough economics books to pinpoint the restrictive properties underlying utility functions. Utility functions need to have particular properties in order to be rational, i.e. consistent, so that they can be used in the kind of formal analyses that economists like to do. These properties can be tested, they have been tested, and some have been shown to be false in at least some situations and individuals. For example, utility functions (to be more precise, preference orderings) have to be transitive in order to be rational. This means that if you prefer A over B, and B over C, you must prefer A over C. This property can be tested in a simple laboratory setting, so many psychologists and behavioural economists have done so. Rather unsurprisingly, they found it is often violated.

Perhaps I should have checked who Tomas Sedlacek is before I read the book, because a search on Scopus yields two publications in Czech-language journals and one interview, where in the latter he repeats the tired old slur that “economics is a religion”. With all due respect to the Czech, publishing only in your local language is not exactly convincing of your awareness of the state of the art in your field. Nobody should take my opinion on economics seriously if my publication list featured nothing more than two publications in Economische en Statistische Berichten.

You might respond that in a field so fundamentally stuck in its own dogmas it takes an outsider to shake it up. But then I have to refer to climate science again. Suppose somebody who has never published in climate science, or only in a handful rather obscure journals, writes a book that purports to revolutionize climate science. Would you read it? Now add another feature: suppose that a casual browsing through the book reveals that it regurgitates all the nonsense that climate scientists have been debunking for years: that the so-called climate pause invalidates all of climate science, that climate scientists ignore the sun’s influence, that climate variation on geological scales suggests that current changes are nothing to worry about, and so on. Would you take it seriously – at all?

I hate to say this, but in that light I had every reason to be skeptical of Doughnut Economics. In Scopus I can find a whopping three peer-reviewed publications by Kate Raworth – none in economics journals. What’s more, see what Ewald Engelen wrote in his review of Doughnut Economics:

Take “externalities” – as if environmental pollution, depletion of resources, immeasurable animal suffering, declining species richness, carbon dioxide emissions are ‘external’ to our economic production, and not an intrinsic part of it.

I don’t know what I would find more shocking: that a best-selling book by somebody hailed as the new Keynes (granted, coming from George Monbiot you might not take this as a compliment) perpetuates the Suzuki Fallacy, or that somebody considered a celebrity economist in The Netherlands repeats this faux pas in his review.

So no, I did not expect much when I started reading Doughnut Economics.

Is it any good?

So now that I’ve read it, what do I think of the book? It’s certainly not as bad as Sedlacek’s – but that’s quite a low bar. Raworth makes an honest effort to construct an economics that is fit for the problems of the twenty-first century (global environmental change and dwindling resources combined with grinding poverty and repulsive inequality), where she believes that the economic approach has so far been inadequate. Not all is new, indeed, and while some economists accuse her of attacking strawmen, she actually cites a fair number of big names in economics who look beyond the standard neoclassical model, such as Elinor Ostrom, Richard Thaler, and Daniel Kahneman. She makes a number of very good observations, but also some statements that range from problematic to simply untrue – yes, she repeats the Suzuki Fallacy. My note book has a couple of “Spot on!!” notes as well as some “Nonsense!!” ones. Her recommendations are a mix of classical environmental-economic solutions, radical but interesting ideas, and poorly thought-through, hopelessly naive pies-in-the-sky.

So would I recommend it to my students? The short answer is: perhaps my MSc students, but definitely not my BSc students. For them there is simply too much in there that is simply not true (I want them to get the definition of externalities right, for example). The long answer is in the following blog posts.

Coming up next:

Science on marine plastic debris

Science just published an excellent article on the problem of marine plastic debris. Its main conclusion is that

“275 million metric tons (MT) of plastic waste was generated in 192 coastal countries in 2010, with 4.8 to 12.7 million MT entering the ocean.”

The authors break this number down by country, and show that four Asian countries (China, Indonesia, Philippines, Vietnam) contribute almost half the plastic waste going into the oceans. The US is 20th in rank, contributing 0.9%; the authors also explain that the EU would be 18th in rank if it were counted as one country, which implies that the EU also contributes about 1% to the total amount of plastic waste going into the oceans. A few more observations:

  • The list is dominated by middle-income countries. The only low-income countries are Bangladesh, Burma, and North Korea. Is this the environmental Kuznets at work?
  • There is a striking correlation between income and the quality of waste management. The countries with the highest percentage of mismanaged waste are low-income countries or lower-middle-income countries. Even upper-middle-income countries have rates between 50% and 80%.
  • Brazil and Turkey are intriguing exceptions: despite being upper-middle-income countries their mismanagement rates are 11% and 18%, respectively. What are these countries doing differently than the rest?
  • The US has a comparatively low mismanagement rate (2%), but compensates its effort by the sheer amount of plastics produced per capita: 2.58 kg, where most other countries range between 0.5 and 1.5 kg. EU figures are not given but I suspect the EU does worse on waste treatment than the US.
  • A notable exception to that observation is Sri Lanka with a whopping 5.1 kg plastic waste produced per capita. What do they need all that plastic for?
Overall I can’t help but thinking that the energy invested by well-meaning westerners to reduce their use of plastics is but a drop in the ocean as long as the emerging world does not clean up its act.