Tuesday, 3 September 2019

Doughnuts


I remember a review of some other book, ages back, that went along the lines of "what's true in it isn't new, and what's new in it isn't true."

Michael Cameron over at Waikato Uni reaches a similar conclusion.
This book is partly a critique of current economic thinking, and partly some of Raworth's ideas on a new model for economics. Any critique of economics hits the zeitgeist right between the eyes, and so this book got a lot of press when it was released in 2017 (e.g. see here), and again in New Zealand earlier this year when Kate Raworth visited the Treasury.

However, I found the book to be quite unbalanced and full of lazy writing. Raworth is a great fan of metaphors and stories, but to my taste they were overdone. Moreover, large chunks of the book were unnecessary in order to make the central argument. The first couple of chapters essentially create a strawman of economics, which Raworth can then set alight. The economics she describes, with GDP growth as its core and only goal, is not an economics I recognise. Her argument is valid in many places, but she doesn't contribute anything new in pointing out that decision-makers are not purely rational. In her desperation to make us believe that economics and economic teaching is not fit for purpose, she far over-sells her argument.
It depresses me when Wellington bureaucrats, with minimal training in economics, see imprimatur from Raworth having given a talk at Treasury, and take the book as some kind of overturning of economics.

Listen to Arthur on it. Economists are fans of economic growth because economic growth tends to correlate with all of the things we really do care about. And we favour making sure that external costs are appropriately incorporated: carbon taxes or an ETS; appropriate water charging frameworks and the like. The worry for me is that when folks take Raworth too seriously, the become complaisant about the merits of economic growth, and what we give up if we don't fret our current low productivity growth rates or the growth costs of other policies.

A few weeks ago, James Shaw tweeted:
It's good to worry about this.

But it's also worth understanding what 7% of global GDP is, at the end of the century. If annual economic growth rates were just 0.09 percentage points lower every year over the next eighty years, that's a 7% difference in GDP at the end of the line. So if economic growth were 1.91% instead of 2% over that period, GDP would be 7% lower at the end of eighty years. Growth compounds; small differences in any year add up to big differences down the track.

How often do we throw away fractions of a point of GDP growth, reasoning them to be small, and taking Raworth's kind of rhetoric too seriously - and not considering the long term consequences?

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