SOMETHING is missing from the doughnut economy model: a deeper understanding of how the financial system, including government finances, really works.

On Global Doughnut Day (November 13), I made a presentation to students at the Glasgow School of Art. It followed a wonderful prop-led presentation from doughnut founder Kate Rowarth. Kate used pipes to represent resource flows and perpetual growth, a spring to show how difficult it is to control a complex system like an economy, and one of those plastic balls that concertina out to about ten times their size to show how poorly wealth is redistributed. I went down the quiz route for my presentation to show how our understanding of the economy is framed by assumptions of which we are not even conscious.

The doughnut is a wonderful framework to reimagine our global economy.

Doughnut economics envisions a world where economic prosperity is balanced with ecological limits. The "doughnut" represents two critical boundaries: an inner social boundary (the "social foundation") that ensures basic human needs are met and an outer ecological boundary (the "environmental ceiling") that prevents overshooting planetary limits.

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In this model, a thriving economy exists within the "doughnut" space, where it neither leaves people in poverty nor harms the planet. The doughnut has much in common with many of the articles we have written for The National, especially around degrowth.

So, what is missing from this almost-perfect economic model? Money.

The economic system we have has a direct impact on the possibility of a doughnut-based economy. How we view resources and our financial system creates a framework for constructing something like a city, regional, or nationwide doughnut-based economy. Our current misunderstanding of the economy will hamper the creation of a doughnut economy.

Are you ready to play the quiz I unleashed on those students?

True or false:

  • Q1: Taxes pay for government spending. We pay taxes to pay for things like education, defence and hospitals.
  • Q2: If the government doesn’t collect enough taxes, it needs to borrow money to make sure we have enough money to pay for everything.
  • Q3: The government can go bust.
  • Q4: When GDP goes up, wellbeing goes up too.
  • Q5: Banks can only make loans if they have your money as savings in their vault.

The attendees voted true by a large margin to questions one, two, three and five. Only on the question that GDP was directly linked to wellbeing was there some disagreement, although it was still a majority for true.

If we replicated this across the school campus, Glasgow, Scotland or the UK, I think we would have had the same result. This is how most people see the economy.

I summarised. Can Scotland create a doughnut economy within this type of economy where:

  • 1: money is finite
  • 2: bonds and taxes pay for government services
  • 3: the government can run out of money
  • 4: GDP growth leads to enhanced wellbeing
  • 5: banks only lend out money they have in the bank

I asked the students (and the same question to you) to consider the barriers, challenges and, of course, the possibilities of achieving a transformational new economy like the doughnut within this economic framework.

I gave them some questions to help them along the way:

  • How do we pay for the changes to the system?
  • What role do governments/banks/individuals have?
  • Who pays for these changes?
  • How quickly can we move?
  • Who is rewarded in this type of economy?

After a quick discussion, the feedback was downbeat. The challenges were clear, and many thought insurmountable.

We then changed the questions and asked them to get together to discuss another economic reality. What if none of the things we have said were actually true? What difference would this make?

What if:

  • 1: Taxes were not needed to pay for things, but governments could instead create currency to purchase or pay for these services.
  • 2: Governments didn’t need to borrow money to make up any shortfall between the taxes they collected and the money they spent.
  • 3: The government could never go bust.
  • 4: Chasing an increase in GDP will increase inequality and ecological damage, so we use new metrics.
  • 5: Banks were able to loan to anyone who had a good idea and who they thought would pay back that loan.

After a short discussion, the feedback was much more positive. Is this a trick question, one student asked. Of course, this would make things easier. If only the economy were like this!

It was almost unanimous: the doughnut almost became a reality under this second economy.

And then I dropped the bombshell. Not only is this second economy much more supportive of the doughnut, but this is how the economy really works today.

Quizzical looks. Disbelief. Pull the other one.

The economy is not what it appears. It is much more malleable for frameworks like the doughnut. We need to understand it better, and I believe we need to tackle this real-world financial system as part of the doughnut. Kate could add just one more prop.

I finished the presentation as I finished this article. I don’t imagine that I have persuaded you that I am right and what you have believed all along is wrong, but I do hope that I have sparked your interest. What if I am right? What opportunity is out there?

My hope is to persuade you to look past the economic paradigm that works for the interest of a tiny percentage of the population.

A doughnut economy becomes much easier when we all understand how the economy really works.

Join us on Monday 27, at 7pm to take part in our live Q&A covering our articles in The National this month.

Link for live Q&A: https://www.youtube.com/watch?v=U4DGS9EvlVY