A Doughnut-shaped World

or putting the systems in the economics

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For the first issue of the newsletter, I am writing about Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist . This is only a case. The topics will vary, and I will mostly write about things that interest me at that moment. This time is economics, the next time it might be history, or artificial intelligence, or innovation. But let’s get into it.

The Doughnut

What is the Doughnut? The Doughnut is a new image, and the thesis here is that a new image can change the world. To be precise, the Doughnut is a metaphor, and a blueprint, for economic justice.

Kate Raworth, whom literally wrote the book on the topic, doesn’t like neo-liberalism, but she definitely likes doughnuts. And the Doughnut is in fact the representation of the economic model that she proposes.

The center of the Doughnut is where we don’t want to go. It is a world of hunger, poverty, inequalities, diseases. This is the Shortfall.

The outside of the Doughnut is just as bad. An inhabitable world where climate change, pollution, and a lot of other bad things we have caused are making our existence terrible. This is the Overshoot. Between the Shortfall and the Overshoot is the Eden. It’s the green part of the Doughnut, an environmentally safe and socially just space in which humanity can thrive.

Look at the picture. There are many ways in which we can fall short of our social foundation, such as through lack of education, quality healthcare, water and food. We should be able to build a world in which these rights are taken for granted, while at the same time ensuring that collectively we do not overshoot our pressure on Earth’s life-supporting systems, on which we fundamentally depend.

(For an interactive Doughnut, go here).

Systems Thinking

The Doughnut is Raworth’s own attempt at bringing Systems Thinking in 21st-century economics.

And I have to admit, I knew very little about Systems Thinking before diving into this. All I had was the intuition of this holistic science of thought that deals with complex phenomena as first-class citizens. Now that I know a tiny bit more, I am delighted.

Systems thinking is both a philosophy and a toolbox for understanding the world, a holistic approach to analysis that focuses on the way in which a system's constituent parts interrelate and how systems work over time and within the context of larger systems.

For the purpose of this issue, however, we will not dive into this fascinating world made of causal loops, connections, and feedbacks. We’ll stick to the doughnut.

As we now know, we want to sit comfortably in the sweet spot of the doughnut. But once we are there, what can we do to keep our firm position? Or, alternatively, what can cause us to go astray, either falling inside the doughnut or running past its external boundary? The answer is feedback loops.

I expect most readers to be familiar with feedback loops: processes in which the outputs are reused as input (see image below).  Feedback loops can be reinforcing, and these can get ugly. Population growth is an example of a reinforcing loop: the more we have, the more we will have, unless something happens from the outside that stabilizes things. The content of the loop is amplified, accumulated, and magnified.

What we like more are balancing feedback loops. Here, something happens in the system that balances things out. Balancing feedbacks happen in our body when the temperature is regulated, and they happen in our house when the thermostat stabilizes the temperature of the room. They also happen a lot in nature, such as in the water cycle, or in the relationships between predators and prey in a certain habitat.

If we want to find the right place in our doughnut-shaped world, it is crucial that we understand the feedback loops of our doughnut-system, and that we balance the ones that would otherwise spiral out of control.

The accumulation of CO2 in the atmosphere is caused by reinforcing loops, which we partially understand and need to address. The 2008 global financial crisis was also the result of feedback loops which we did not understand, or whose effects we underestimated.
So on one side, we need to think in systems to find patterns and loops that make us understand the world better. At the same time, we need to critically study these systems and their interaction in order to find how we can intervene to change their behaviors.

Policies need to be set out by people who understand systems. Small improvements that do not revert disastrous feedback loops are not enough, not anymore.

Economics is Broken, she says

Now, I am definitely not an expert in economics, but I am very well-trained in listening to politicians, economists and the media talk to us about economics. And the metrics they feed us, the ones that they use as a proxy for the success of an economy, are all growth-related. Mainly is GDP, and that’s not good.

One of the pillars of modern economics, the axiom that has been defining public policy and political economy for decades, is economic growth. The theory goes that the growth of a country’s economy is what improves people’s life. Moreover, on the path to growth, inequalities, emission, pollution, and a whole plethora of bad phenomena will get worse, before they can eventually get better once Growth has run its course (see the Kuznets curve).

I am sure that some kind of intelligent debate must be going on in economic circles around the theme of growth. Pardon my hubris, but I’ll say what I think nevertheless, or at least what I got from the book.

GDP is a shitty metric. I cringe every time I see some tv news channel abuse our intelligence with it. I feel demoralized every time a prediction of an increase in GDP of 0.3% instead of 0.2% makes people more comfortable. An increase in domestic product might easily become unnoticeable if bad policies are put in place. Pure economic growth is, by default, very weakly aligned with any good metric on quality of life, happiness, poverty, sustainability.

I don’t know if we need smarted economists, or simply more ethical ones, but I definitely know that we need better metrics for success, and they need to be actually aligned with our long-term goals as humanity.

Infinite growth, finite planet

Some of the points in the book might seem naive. The author acknowledges it, and I do too. They are naive because they are so obvious that almost everyone would agree with them. And yet they seem to be ignored in economic departments, conferences, and international organizations all over the world. As the saying goes, it is difficult to get a man to understand something, when his salary depends upon his not understanding it.

One of these points is: how can manage infinite economic growth with finite resources? I feel embarrassed by the fact that we really need to ask questions such as these in 2020, but here we are. The short answer is that we really can’t, unless we make economies regenerative by default.

What sounds better, however, is becoming growth-agnostic. This must sound insane to someone in the field. But maybe, at times, it is better to take a step back and question one’s assumptions.

We live in a world where growth is said to improve people’s quality of the life. This is a possibility. However, one needs to admit that growth is quite a gross metric, and is not directly linked to desirable outcomes. As a matter of fact, I am sure we can think of many examples of unsustainable, destructive economic growth.

My point is, it really doesn’t have to be this way. Our economics models are based on growth. That’s not the only possibility. That’s not a law of the universe. It might still, in the end, be the best thing we can do. But a good first step is realizing that this concept is not inevitable, and it’s not free from scrutiny.

We can build a thriving, distributive, regenrative economy that is growth-agnostic. We can focus on better metrics, implement better policies, be more regenrative and sustainable, whether we grow or not.

See the Connections

Economy belongs to a world of systems. These systems are different in nature, and in purpose. They are the houseold, the commons, the market, the state, the society, the planet. They continuously interact, counteract, distribute, rigenerate.

They are governed by feedback loops, and the loops spread across systems and work in complicated ways.

Home economics is not a rational, all-knowing actor separated from these systems. It’s integral part of them.

Doughnut economics might help us build new first principles for finding solutions in the messy world we lived it. Maybe give it a read.