See the Big Picture

The Doughnut provides a way to show the ‘safe and just space for humanity’. In a sense, the Doughnut is a ‘balanced scorecard’ for the planet.

From a Big Picture perspective, if the Doughnut is a way to understand the gaps we need to close to be within the safe and just space, what are the changes we need to make to close these gaps?

I now see the Embedded Economy model on page 71 as a starting point for exploring all of the systems that need to change to close these gaps.

Has anyone else been using the Embedded Economy model on page 71 to identify the systems that need to change, the changes required and the interdependencies?

I am seeing the Embedded Economy model as a good starting point for a model (big picture) of a Human Activity Ecosystem for the Anthropocene.

Any thoughts appreciated…

Bruce

Pls, Bruce, let’s stick to the Donought (Donut) Economy and not introduce the embedded Economy as a model. The Donought Economy is clear and appealing : a circular economy with the 17 SDG’s in the heart. #fair #healthy & &. Let’s go for the donut - from local to global. Moving fast forward … Regards, Conny

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Hi Conny,

I totally agree that the Doughnut model works from local to global. This is a great measurement tool for identifying Gaps that need to be addressed.

I did not think I was introducing anything new. In the Doughnut Economics book, the chapter ‘See the Big Picture’, introduces a model of ‘the Embedded Economy’ on page 71.

I have found this to be a useful model - especially with the link to Jeremy Rifkin and his 3rd industrial revolution related to the common.

My post here is to see if any people are starting to use the Embedded Economy (Big Picture) model on page 71. I see this model as a way to understand the systems that are actually creating the gaps on the Doughnut Model. This implies, for example, understanding how the underlying financial flows may need to change or the importance of supporting ‘households’ through the changes.

My interest in the model comes from my background in the areas of programme management, system engineering and change. I believe this ‘Embedded Economy’ model can help identify the changes necessary to close the Doughnut gaps.

I do appreciate your feedback. Does the above help address your concern about using the Embedded Economy Model? If not, please help me understand why…

Regards, Bruce

Making Macroeconomics a Much More Exact Science

Today macroeconomics is treated as an inexact subject within the humanities, because at a first look it appears to be a very complex and easily confused matter. But this attitude does not give it fair justice–we should be trying to find a better way to approach and examine the topic, in a better way that avoids these problems of complexity and confusion. Suppose we ask ourselves the question: “how many different KINDS of financial transactions occur within our society?” Then the simple and direct answer shows that that only a limited number of them are possible.

Although our sociological system comprises of many millions of participants, to answer this question properly we should be ready to consider the aggregates of all the various kinds of functions (no matter who performs them), and then to idealize these activities so that they fall into some more general terms, expressing the different types of sociological transactions into what becomes a relatively small number. Here, each activity is found to apply between a particular pair of agents or entities—with each entity having its individual properties. Then to cover the whole sociological system of a country, the author finds that it takes only 19 kinds of flows of money for the mutual activity in the transfer of goods, services, access rights, taxes, credit, investment, use of valuable legal documents, etc. Also these flows pass between only 6 different representative agents or entities.

The analysis that led to this initially unexpected result was prepared by the author and it may be found in his working paper (on the internet) as SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”. In this model these double flows of money verses goods, etc., are shown to pass between only 6 kinds of role-playing entities. Of course, there are a number of different configurations that are possible for this type of simplification, but if one tries to eliminate all the unnecessary complications and sticks to the more basic activities, then these particular quantities and flows provide the most concise result, and yet it is presentable in a fully comprehensive seamless manner that is suitable for further analysis.

Surprisingly, past representation of our sociological system by this kind of an interpretation model has not been properly examined nor even presented before. Previously, other partial versions have been modeled (using 4 entities, as by Professor Hudson), but they are inexact due to either their being over-simplified. Alternatively, in the case of econometrics, the representations are far too complicated and almost impossible to follow. These two reasons of over-simplification and over-complexity are why there is this non-scientific confusion by many economists and their failure to obtain a good understanding about how the whole system works.

The model being described here in this paper is unique, in being the first to include, along with some additional aspects, all the 3 factors of production, of Adam Smith’s “Wealth of Nations” book of 1776. These factors of production are Land, Labor and Capital and along with their returns of Ground-Rent, Wages and Interest/Dividends, respectively. All of them are all included in this presentation diagram.

(Economics’ historians will recall, as originally explained by Adam Smith and David Ricardo, the prescribed independent functions of landlords and capitalists. The former persons rent and speculate in land values whilst the latter are owners of the durable capital goods in industry, which may be hired out. Regrettably these different functions were deliberately combined for political reasons, by John Bates Clark and company about 1900, resulting in the neglect of their different influences on our sociological system.)

The diagram of this model is in my paper (noted above). A mention of the related teaching process is also provided in my short working SSRN 2600103 “A Mechanical Model for Teaching Macroeconomics”. With this model in its different forms, the various parts and activities of the Big Picture of our sociological system can be properly identified and defined. Subsequently by analysis, the way our sociological system works can then be properly calculated and illustrated.

This analysis is introduced by the mathematics and logic that was devised by Nobel Laureate Wassiley W. Leontief, when he invented the important “Input-Output” matrix methodology (that he applied it to the production sector only). This short-hand method of modeling the whole system replaces the above-mentioned block-and-flow diagram. It enables one to really get to grips with what is going-on within our sociological system. Subsequently it will be found that it is the topology of the matrix which actually provides the key to this. The logic and math is not hard and is suitable for high-school students, who have been shown the basic properties of square matrices.

By this technique it is comparatively easy to introduce a change to a pre-set sociological system that is theoretically in equilibrium (even though we know that this ideal is never actually attained–it being a convenient way to begin the study). This change will then create an imbalance and we need to regain equilibrium again. Thus, sudden changes or policy decisions may be simulated and the effects of them determined, which will point the way to what policy is best. In my book about it, (see below) 3 changes associated with taxation are investigated in hand-worked numerical examples. In fact when I first worked it out, the irrefutable logical results were a surprise, even to me!

Developments of these ideas about making our subject more truly scientific (thereby avoiding the past pseudo-science being taught at universities), may be found in my recent book: “Consequential Macroeconomics—Rationalizing About How Our Social System Works”. Please write to me at chesterdh@hotmail.com for a free e-copy of this 310 page book and for additional information.

2019-08-29T16:00:00Z

BruceMcN

‘The Embedded Economy (Big Picture) model on page 71’ is indeed ‘a way to understand the systems that are actually creating the gaps on the Doughnut Model.’ because the gaps arise from the fact that the focus in the accepted economic thinking is on profit and growth instead of spreading the flows in the societal system as equally as possible. The Embedded Economy is a scheme based on flows but in the circle at the centre the flows are not sufficiently detailed.

My texts ‘Zooming in on ‘The Embedded Economy‘ scheme’ and ‘Completing the flows of ‘Embedded Economy’ scheme’ prepare readers to think of economics as the collection of (all) flows that have to be spread as equally as possible over all people in the society. That ‘collection of all flows’ needs to be structured and reduced to the essential categories in order to be able to manage them and take the right decisions to correct them.

You refer quite rightly to ‘how the underlying financial flows may need to change’, for the monetary system is the one that most urgently needs correction. There are, however, more systems that need to be corrected and/or modified.

The monetary system: speculative financial transactions should be abolished by far more regulation over a (not too long) medium period of time because they damage and destroy their own base, namely the physical / productive economy. With the high speed that computers and communications equipment offer the mere financial economy can operate and handle transactions at a tremendously high speed that is impossible for the physical economy. As a consequence the financial concentration accelerates making it a deadly threat.This complies with ‘the importance of supporting ‘households’ through the changes.’.

The political system: More long term vision and complementary budgetting for longer periods (2 to 5 years). More phased instead of instant solutions. Better taking care of social consequences of the decisions.

The accounting system in economic entities: Extending the registrations of flows (IN and OUT) with their ‘footprint’ terms for a better management and preservation of the ecosystem.

The education system: The education of all youngsters should comprise basic insight of economics based upon a model wherein the societal reality is recognizable.

Kind regards
André Bequé

This is an insightful thread because what seems to be complementary theories are contesting for space.

Hi,

I am continuing to explore the embedded economy model in the book. I am getting a better understanding of the household and the enterprise (part of market). I know State has an important role to play.

I have just finished reading “Saving Capitalism” by Robert Reich. This book has given me insight into the role of the state (government) in creating the rules for markets. Robert challenges a concept of a “free market” that is independent from the state,

Has anyone else read “Saving Capitalism” or watched his Netflix movie by the same name.

The embedded economy picture appears to support this thinking.

Regards, Bruce

Indeed I have Bruce and indeed it does, these are complimentary ideas.
Always good when independent thinkers come up with the same conclusions…
Tony

Hi Tony,
Thanks for the confirmation. I am interested to know how you are using the embedded economy model?

I am attempting to use the model as an end state model in a transformation programme. This helps me identify the key systems interacting to create the state shown in the doughnut (current state, the changes and desired future state in a system of systems).

As a result of the book and video, I now see the role of government in a different light. I am now looking at the GND in the USA as the mechanism to restore some of the regulations that have changed the dynamics of the economy. Many of the democratic candidates in the USA seem to be talking about the GND in the same way Robert Reich describes the problems in the economy.

If government (the state) has this much influence on the economy, the various elections take on a new role, eg we get the economy we vote for. The economy appears to be an emergent property of the interaction of the systems in the embedded economy model.

Thanks again for your feedback. I am interested to understand how you are using the model,

Regards Bruce

Hi Bruce

I use the model pretty often to explain the key players, State, Market, Household, Commons when I speak/write about my own work.

I’ve used it to explore 3 key areas of interest to me , which may overlap with your thinking/work

You might find some of that writing of interest/helpful to you…
regards
Tony
https://ripple.foundation/

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