Economic model circular flow diagram12/20/2023 Like rational economic man, this representation of economic activity bears little relationship to reality. The unpaid work of carers – principally women – is ignored, though no economy could function without them. Energy, materials, the natural world, human society, power, the wealth we hold in common … all are missing from the model. It depicts a closed flow of income cycling between households, businesses, banks, government and trade, operating in a social and ecological vacuum. The central image in mainstream economics is the circular flow diagram. This means changing our picture of what the economy is and how it works. Instead of economies that need to grow, whether or not they make us thrive, we need economies that “make us thrive, whether or not they grow”. The aim of economic activity, she argues, should be “meeting the needs of all within the means of the planet”. The loss of an explicit objective allowed the discipline to be captured by a proxy goal: endless growth. The dominant model – “rational economic man”, self-interested, isolated, calculating – says more about the nature of economists than it does about other humans. It aspired to be a science of human behaviour: a science based on a deeply flawed portrait of humanity. Raworth points out that economics in the 20th century “lost the desire to articulate its goals”. Simon Kuznets, who standardised the measurement of growth, warned: “The welfare of a nation can scarcely be inferred from a measure of national income.” Economic growth, he pointed out, measured only annual flow, rather than stocks of wealth and their distribution. In Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, Kate Raworth of Oxford University’s Environmental Change Institute reminds us that economic growth was not, at first, intended to signify wellbeing. This is what the most inspiring book published so far this year has done. We cannot use the models that caused our crises to solve them. We cannot hope to address our predicament without a new worldview. If this destroys our prosperity and the wonders that surround us, who cares? You can see the effects in a leaked memo from the UK’s Foreign Office: “Trade and growth are now priorities for all posts … work like climate change and illegal wildlife trade will be scaled down.” All that counts is the rate at which we turn natural wealth into cash.
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