The last 30 years have seen the demise of the Soviet Union and its administrative-command economy as well as a revolution in technology and trade that has reduced the transaction costs of using markets.
Many governments around the world have recognized the reality of the power of markets, liberalizing international trade and de-nationalizing production to benefit from the power of domestic competition. The Scandinavian countries have understood that even supporting a generous welfare state requires domestic economic growth, which has led them to cut business regulation and taxation in ways that have given them freer markets than in the US.
The result of all of these events has been an unprecedented reduction in human poverty. The number of people living on less than $1.90 per day (the current standard for extreme poverty) fell from 1.9 billion people, or about 37 percent of the world’s population, to about 700 million (9.6 percent) between 1990 and 2015.
In other words, severe poverty fell almost 75 percent in a mere 25 years, thanks to the freeing of global markets, especially in China and India. No government policy in human history has even come close to what markets have done over that period.
The success of that basic economic insight, that markets improve human well-being, has generated immense cognitive dissonance among many progressives.
Instead of recognizing the ways in which markets have addressed one of the left’s major concerns (severe poverty around the world), progressives, most of whom are not formally trained in economics, continue to attack both economics as a discipline and economists’ belief in the power of markets to address the condition of the least well-off.
Enter the Doughnut
The latest entry in this endeavor is Kate Raworth’s Doughnut Economics. Raworth’s indictments of the discipline are a familiar list: homo economicus is unrealistic, economics doesn’t predict crises, it cannot account for the use of natural resources and the damage economic growth does to them, and it equates economic growth with “human well-being.”
Her contribution is a new visual model of the economy that sees it embedded in the center, with the state, the household, and the commons, as a series of concentric circles (like a doughnut) including “society” and the earth.
