The thought of how long I must continue to work 8hours a day with someone else owning my time has been swirling in my head for quite a while now. Yes, we get paid for the work and we need the money to solve the money problems. But it is not just work. It is also the emotional planning related to work we carry around beyond work hours – planning for coming weeks, upcoming meetings, reviews, PPT preparation, how to handle difficult people, toying with design questions. Assuming a longevity of 80years (we can be lucky, right!!), translating that to 700K hours, ~66% goes into childhood and taking care of self (sleeping, eating, washing, exercise). The remaining 33% is the meaningful adult time we get (~231K hours of career, family, friends, travel, hobbies). Depending on years we work, career can take anywhere between 30 – 60% 😳. With those thoughts in my mind, engineer in me got to work…to get out of 8hours regimen, what is the corpus I would need to lead a portfolio life 😀. Get the power of compounding work its magic. I play around with seed corpus amount, interest rate, withdrawal rate and inflation rate. It looks positive and seems to be a good plan.

Then the doubter in me kicks in. Ambani, Adani, Bezos, Bill Gates, Musk, and the likes would be making the same assumption. With their corpus even a nominal growth of 3% hits the stratosphere. Am I being naïve in assuming this kind of compounding? For this to happen the economy needs to grow at a similar rate. GDP of countries needs to grow year over year. Governments and most economists would like us to believe growth will continue forever. Should we just believe them? Even a GDP growth of 2% is an exponential curve and marches towards infinity. Is that kind of growth sustainable? The curve must flatten, right? We humans do not keep growing. Trees and animals in nature do not keep growing. Fossil fuel and earth’s resources fueled the GDP growth in the last 150+ years. The burn rate of earth’s resources is faster than the creation rate. We started this century with a bubble bust and hit a financial crash in 2008. Now we are going through another crunch. Browsing the podcasts and lectures to get a better understanding led me to Doughnut Economics by Kate Raworth. Did the author answer the question I started with, when can I move out 8hr regimen? You need to read till the end for that!! This is not a book review as I highlighted in the title. I just wanted to share my key takeaways from the book.

The notion that GDP can continue to grow comes from the traditional circular flow model. Model does depict well the macroeconomic ideas. But it leaves out key ingredients though. There is no mention of the energy and the materials that fuel the macroeconomy or of the society within which these activities take place. We need a new visual representation that embeds the earth, energy, materials, and society. Embedded economy model envelops our economy model within earth. To quote the author, within Earth is human society and, within that, economic activity, in which the household, the market, the commons and the state are all important realms of provisioning for human wants and needs and are enabled by financial flows. We must reimagine our economy as an open system with constant inflows and outflows of matter and energy. We depend upon Earth as a source – extracting finite resources like oil, clay, cobalt, and copper, and harvesting renewable ones like timber, crops, fish, and fresh water. In addition to source our economy depends upon Earth as a sink for its wastes too – such as greenhouse gas emissions, fertilizers run-off, and throwaway plastics. Our Earth is a closed system because almost no matter leaves or arrives on this planet other than sunlight. Energy from the sun may flow through it, but all other materials can only cycle within it.

               

                                             Circular Flow Economy Model   

                                                                Embedded Economy Model

     Image Credit: Reproduced from the book

The economy’s fundamental resource flow is not a roundabout of money but rather a one-way street of energy – and nothing can move, grow, or work without using that energy. The book gets into the details of each cast in both the models, their roles, and how they function in the circular flow model and how they expect to function in the Embedded Economy model.

Embedded Economy Model while it incorporates earth resources and society into it, still does not give the full picture. With finite resources it does show GDP growth has to level off. There is not enough evidence to show that as countries get richer, inequality will fall after a period of rise. On the contrary, the income gap is widening. Like inequality, economic expansion does not seem to address the environmental problems also as believed. We need to stop our septic focus on GDP growth. Instead shift the focus to sustainable development that fits in ecological ceiling and supplies a safe and just place for humanity meeting the needs. The Doughnut model gives a visual representation of the new compass. Beneath the Doughnut’s social foundation lie shortfalls in human well-being, faced by those who lack life’s essentials such as food, water, education, and housing (12 basic needs). Beyond the ecological ceiling lies an overshoot of pressure on Earth’s life-giving systems, such as through climate change, chemical pollution, air pollution, and bio-diversity loss. Between the two limits lies the sweet spot, an ecologically safe and socially just space for humanity.

                                         The Doughnut: 21st Century Compass

                  .                                     Doughnut Transgressions – both sides

Image Credit: Reproduced from the book

Doughnut’s inner ring, the social foundation, sets out the twelve basics of life on which no one should be left falling short. They are all included in the UN’s Sustainable Development Goals. The social foundation of human rights and the ecological ceiling of planetary boundaries create the inner and outer boundaries of the Doughnut. Given this Doughnut Model, it begs the question how are we doing? Despite the unprecedented progress, in the past multiple decades we are far beyond the Doughnut’s boundaries on both sides – refer to Doughnut Transgressions diagram – the dark wedges below the social foundation show the proportion of people worldwide falling short on life’s basics. The dark wedges going beyond the ecological ceiling show the overshoot of Earth’s boundaries. Not a good situation to be in, not just for us but what we leave for our children and future generations.

Kate Raworth gives an overview of current economic growth model and issues in the first chapter. Then in next seven chapters she dives deep into 20^th century economics, its promises, shortfalls, and challenges. She makes her compelling arguments on the reason for failure, and how to think and move to 21^st century Economics. Each chapter talks about how to shift the focus From –> To

1. Change the Goal: GDP  The Doughnut
2. See the Big Picture: Self-contained Market  Embedded Economy
3. Nurture Human Nature: Rational Economic Man  Social Adaptable Humans
4. Get Savvy with systems: Mechanical Equilibrium  Dynamic Complexity
5. Design to Distribute: Growth will even it up again  Distribute by Design
6. Create to Regenerate: Growth will clean it up again  Regenerative by Design
7. Be Agnostic about Growth: Growth addicted  Growth Agnostic

Depending on which side of the fence you are or which *ism you believe in, Kate Raworth’s arguments will come across as biased (if there is no bias there is no need for this book, right? ) and few may question her data too. Her thoughts and solutions do come across as ambitious, radical, and too optimistic to implement. For the doughnut model to work it would also need a mindset change in people – derive happiness from being in the doughnut safe space than from how well we do compared to others in terms of income and wealth. Of course, other *isms have their challenges too – most to all of them assume a starting position which does not exist!! Personally, I feel she does make compelling arguments and backs it up with data. Post finishing the book my concern did go up – what kind of environment we are leaving for our future generations.

I started with 8hour question and ended up in a zone which is related but different. That is the reward you get from reading books, one book leads to another, and the hyperlink never ends – you keep adding to the To Read list. The book did answer the question partially that compounded growth assumption is not realistic!! Coming back to how long I must continue to work 8hours a day with someone else owning my time, all I can do is to repeat Inspector Clouseau’s reply to Sonia Solandres from Pink Panther 2, “Let me bring you up to speed… We know nothing. You are now up to speed” 😀

PS: June 5, 2023, marks the 300th anniversary of Adam Smith, an influential Scottish political economist and philosopher, best known for his most book The Wealth of Nations. The most famous former student of University of Glasgow. Adam Smith is considered the father of Modern Economics. Kate Raworth refers to Adam Smith a few times in her book.