We need a new economics with the Earth at its core

Written by Kate Raworth via Prospect on 7/13/18

A raging debate about economics has kicked off after Howard Reed suggested in Prospect’s May issue that we need to “rip it up and start again.” Fierce resistance has come from academics who insist that such critics ignore what economists really do. My concern lies not with what economists do—many do excellent and innovative research—but with what economists teach, especially in introductory courses.

Most people who study economics only study a little before becoming politicians, journalists, civil servants, executives, lawyers and community leaders. That makes the most basic course—Economics 101—the most influential one. It frames the economic narrative in boardrooms, in editorial meetings, in parliamentary debates, and in public discourse.

Paul Samuelson, author of the classic 1948 economics textbook, understood the power of Econ 101, writing: “The first lick is the privileged one, impinging on the beginner’s tabula rasa at its most impressionable state.” Samuelson’s textbook, and those derived from it, have indeed licked the impressionable minds of students ever since, determining what’s made visible and what’s left invisible; what’s seen as central and what’s peripheral.

Pictures that speak a thousand words

Take the first diagram taught to novice students today. Worldwide it is almost always the same: supply and demand, a criss-cross of two smooth curves representing the market in balance. This chosen starting point has far-reaching implications, implying from the outset that the economy is essentially the market, and that markets tend towards equilibrium. That’s two untruths in one sentence and not a wise way to begin.

What about the biggest picture of the “macro-economy” in standard textbooks? It’s Samuelson’s diagram of the Circular Flow of Income, depicting the economy as a set of circular pipes with income, like water, flowing round and round between households and firms. It may be useful for calculating GDP, but by fixating only on monetised flows it portrays the economy as self-contained and self-sustaining, a miracle of perpetual motion.

What’s missing? It ignores the living world, and the energy and matter continually drawn into the economy and spewed out as waste. It is silent on the unpaid care that raises children and gets “labour” ready for work each day. And it overlooks the commons, in which people co-create things they value, from neighbourhood gardens to Wikipedia.

Teachers of Econ 101 protest that their approach does address the environment. Yes it does, but in a problematic way. Students wanting to discuss climate change, air pollution, or ocean acidification are offered just two words: “environmental externalities.” The logic is impeccable: with the market put centre stage on day one, anything outside market contracts is defined as external.

But as the cognitive linguist George Lakoff teaches, words matter. If you care about refugees, you don’t call them “illegals”; if you care about Earth’s life-supporting systems, you don’t call them “externalities.”

Growth disorder

Lastly, what shape of economic progress is assumed in textbooks worldwide? An ever-rising curve of GDP growth. In nature, growth is a healthy phase of life, but things eventually grow up and mature. Yet textbook theory tacitly assumes that economies can buck nature and succeed by growing forever. Students are rarely invited to consider whether endless GDP growth is desirable, necessary, or possible.

In the 21st century, Econ 101 should start with the obvious: that economic activity is embedded within society, within the living world. That it relies on provisioning by the household, the market, the commons and the state alike. And that economies are complex, dynamic systems shaped by feedback and tipping points—from stock market booms and busts to the rise of the 1 per cent and the collapse of ecosystems.

Does such a syllabus exist? In my view, not yet, but the CORE project, led by Wendy Carlin at UCL who wrote about it in Prospect’s June issue, is clearly taking steps in this direction. The CORE text opens by depicting the economy within society and the biosphere, but it doesn’t follow through to explore the implications for pursuing endless growth. It introduces the language of systems dynamics, but still frames environmental degradation as “external effects.”

And it presents diverse theoretical viewpoints, but stops short of the fully pluralist approach that the student movement, Rethinking Economics, is calling for. Still, this cautious revisionism is to be welcomed—especially if it brings teachers along while encouraging more students to raise their hands and question the basic theory.

CORE may not yet have embraced the full implications of its own new starting point but, in time, perhaps it will. Being multi-authored, multi-perspective, and open access, it can evolve faster than traditional textbooks. If the CORE team choose to, they have the opportunity to bring the most important course in economics firmly into the 21st century.

Meanwhile, the vast majority of students worldwide still encounter last century’s Econ 101. So if, on day one, you find yourself being introduced to supply and demand, dare to raise your hand and demand to be supplied with a starting point fit for this century instead. Every student deserves it and the world desperately needs it.

Matthew Wisner