Key idea #2: economics is obsessed by growth, but it’s a narrow metric that doesn’t tell the whole story.
Thanks to Rob Liu for granting permission to reprint this from the Conscioused website.
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It’s worth remembering that economics wasn’t always about endless growth. Take the ancient Greeks. For them, economics meant the art of managing a household. To master the discipline was to understand how to make the most of limited resources. Making money and acquiring wealth was an entirely different kind of activity. In fact, they even had a different name for it – chrematistics.
That all began to change in the mid-eighteenth century when economists began to redefine their field as a science rather than an art. By the nineteenth century, economists like John Stuart Mill were changing the focus of their discipline. They shifted the emphasis away from managing resources toward studying the general laws of economic life. Later economists such as Milton Friedman, the most important representative of the school of thought known as the Chicago school of economics, embraced this new view of things. They believed that the field should stop trying to change the world and instead simply describe things as they are.
That left a void at the heart of economics. It no longer seemed to have any sense of purpose. So economists developed a new obsession: growth. By the end of the twentieth century, the discipline was addicted to measuring how much wealth nations were generating. But the metric used to gauge economic performance – gross domestic product, or GDP for short – doesn’t tell the whole story.
Take it from American economist Simon Kuznets. In the 1930s, the US government commissioned Kuznets to figure out a method of measuring national income. Gross National Product – a measurement of value produced in countries later supplanted by GDP – was his solution. But Kuznets grew increasingly skeptical about GDP. By the 1960s, he was pointing out its shortcomings. Most importantly, he thought, it only captured parts of a nation’s total wealth – other parts were missing entirely.
That’s because the concept only focused on one economic sector: the market. It ignores the value of goods and services produced by other actors like households, society or the state. If you want more growth, Kuznets argued, you should “specify more growth of what and for what.”
He was ahead of his time. Unfortunately for us, few have heeded his advice.
- Key idea #1: the doughnut is a new way of thinking about sustainable economics in the twenty-first century (see below).
- Key idea #3: there’s more to the economy than the market, and it isn’t self-contained, as many mainstream economists believe.
- Key idea #4: economics often rests on flawed and mistaken assumptions about human behavior.
- Key idea #5: the real world economy is a complex network of interrelated systems.
- Key idea #6: inequality isn’t a precondition of economic growth.
- Key idea #7: twenty-first century economies can be both more sustainable and help regenerate the environment.
- Key idea #8: growth isn’t an infinite upward curve – we have to start asking ourselves what comes next.