Kate Raworth Seems Particularly Ignorant

But then, you know....

So here’s the opening of her recent article in The Guardian:

In the 20th century, the definition of progress seemed clear. It was growth, measured in terms of national income, or gross domestic product (GDP). And that growth was to be endless, an ever-rising curve. No matter how rich a nation already was, its politicians and economists would consistently claim that the solutions to its problems – from poverty to pollution – depended on yet more growth.

But this promise has not been delivered on. It is clearly time to reimagine the shape of progress and, with it, the policies that could bring about prosperity for a fractured humanity on a destabilised planet.

OK, so economic growth, as measured by GDP, doesn’t solve either poverty or pollution. Hmm, OK:

And:

True, air pollution isn’t everything, but it’s a guide. And:

So, err, global economic growth - as measured by that bastard redheaded stepchild, GDP - is going great, pollution is falling and we’re in the middle of the greatest reduction of poverty in the entire history of our species.

But economic growth as measured by GDP does not, in fact, solve the problems of poverty and pollution. Oh no.

It’s possible to think that Ms. Raworth is not playing with a full deck here.

But, you know, Guardian column written by ill-informed ignorant, who cares and who’s surprised? But, aha, aha, that’s Professor Raworth to you and me. The inventor of Doughnut Economics. That startling new theory that tells us all we have to shiver in the dark awaiting our deliveries of insect dusted turnip flour which we will, we are sure, enjoy. Because, you see, the economy is limited by the natural world. No, really! The Earth is only this big, see, which means there’s a physical limit to how much of it we can use! Realz! This completely changes economics, right, because no one has ever noted this before!

Err, yes. So, the science which describes itself as studying the distribution of scarce resources is entirely changed by the observation that resources are scarce, is it?

Ho Hum. Amazin’ what you can get them to make you a professor for these days.

Although we can easily appreciate the limits of growth in the living world, when it comes to our economies, we have a harder time. Thanks to the availability of cheap fossil fuel-based energy in the 20th century, rapid economic growth came to be seen as normal and natural, indeed as essential. Its continuation over many decades led to the creation of institutional designs and policies – from credit creation to shareholder dividends to pension funds – that are structurally dependent on growth without end. In other words, we have inherited economies that need to grow, whether or not they make us thrive.

At which point it’s possible to identify where Ms Raworth went wrong - she didn’t read her Solow. Which, given that he’s the guy who got the Nobel for his descriptions of growth and how it happens would seem to be a shame. You know, a familiarity with Nobel winning work in your specific subject - economic growth etc - would seem to be a useful attribute of an academic?

So, to use another Nobel Laureate, Paul Krugman. Raworth thinks growth comes this way:

While the growth of communist economies was the subject of innumerable alarmist books and polemical articles in the 1950s, some economists who looked seriously at the roots of that growth were putting together a picture that differed substantially from most popular assumptions. Communist growth rates were certainly impressive, but not magical. The rapid growth in output could be fully explained by rapid growth in inputs: expansion of employment, increases in education levels, and, above all, massive investment in physical capital. Once those inputs were taken into account, the growth in output was unsurprising--or, to put it differently, the big surprise about Soviet growth was that when closely examined it posed no mystery.

This economic analysis had two crucial implications. First, most of the speculation about the superiority of the communist system--including the popular view that Western economies could painlessly accelerate their own growth by borrowing some aspects of that system--was off base. Rapid Soviet economic growth was based entirely on one attribute: the willingness to save, to sacrifice current consumption for the sake of future production. The communist example offered no hint of a free lunch. Second, the economic analysis of communist countries' growth implied some future limits to their industrial expansion--in other words, implied that a naive projection of their past growth rates into the future was likely to greatly overstate their real prospects.

Economic growth that is based on expansion of inputs, rather than on growth in output per unit of input, is inevitably subject to diminishing returns. It was simply not possible for the Soviet economies to sustain the rates of growth of labor force participation, average education levels, and above all the physical capital stock that had prevailed in previous years. Communist growth would predictably slow down, perhaps drastically.

And from the same essay, Solow’s explanation of market economy growth in the same period:

How, then, have today's advanced nations been able to achieve sustained growth in per capita income over the past 150 years? The answer is that technological advances have led to a continual increase in total factor productivity a continual rise in national income for each unit of input. In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent.

Raworth is claiming that all that growth comes from inputs - therefore, as the inputs come up against planetary limits therefore the growth just will have to stop. And we’d better plan that rather than run into - or over - those limits. That’s Soviet thinking that is. For what actually happens in our sort of economy is that the growth comes from gaining more output from each unit of input.

Global energy intensity (total energy consumption per unit of GDP) declined by 1.2% in 2022, i.e., faster than in 2021, but slower than its historical trend (-1.9%/year between 2010 and 2019).

See? We use less energy each year to gain each unit of value. Growth isn’t dependent upon using ever more energy to create the GDP - technological change does it.

So, that’s Ms. Raworth dealt with then. True, it’s not as bad as some of the Planetary Boundaries people - who as we saw last week actually argue that we’re gonna run out of rock in only a quarter billion years. But not as bad as is not the same as good. Because she really is arguing the following - the science of the allocation of scarce resources doesn’t include that resources are scarce.

As above, amazin’ what you can say to become a professor these days. Or, perhaps more accurately, it’s amazin’ how badly you can misunderstand your own subject and still become a professor these days.