Efficiency and the Road-Trip Economy

Whenever people talk about economic policies, the subject of efficiency is guaranteed to come up.

People are constantly concerned about efficiency, and being perceived as “inefficient” or “wasteful” can be a deadly blow to a politician or a policy idea.

In this environment, it’s easy to start thinking that efficiency itself is the purpose of the economy. But not only is efficiency not the purpose of the economy, it’s not even one of the purposes.

What is the real purpose of the economy?

Like any human-made system, the economy doesn’t have any inherent purpose. A human-made system can only have the purposes that we assign to it, and we can choose and change those purposes as we like.

If we think about small, simple systems, we can easily understand this idea. For example, what is the purpose of carpooling?

Let’s say Abby is a recent graduate who wants to save money. She knows that commuting to her downtown job is expensive, so she’s decided to organize a carpool with some co-workers. Logically, Abby picks the most fuel-efficient route, because this saves her the most money.

Meanwhile, Ben, Chandi, and Delroy are all going to a big concert this summer. It’s a one-time trip, so they don’t care too much about the cost of gas. But they do want to travel together for safety and for fun. So they pick a route that is easy, has regular rest stops with restaurants they like, and they incorporate a few landmarks to take photos on the way.

In both of these examples, people are using the system of carpooling, but the purpose is different. Abby wants to save money, and efficiency helps her to do that. Ben, Chandi, and Delroy want to stay safe and have fun, so efficiency is a lower priority.

These examples are easy for us to understand because they’re simple. When we talk about the economy, it feels complicated, abstract, and intimidating. But really, the economy is no different than Abby’s carpool or Ben, Chandi, and Delroy’s road trip.

The economy is a human-made system that we’ve chosen to solve a specific problem, and we decide what the purpose and priorities are.

What could be the purpose of the economy?

Here are a variety of real-life purposes for the economy, which have been proposed at various times throughout history by various schools of thought:

  • To maximize national wealth.
  • To protect individual freedoms.
  • To appease the gods through timely and appropriate offerings.
  • To support people’s efforts to reach their potential.
  • To ensure humankind constructs an interstellar colony ship before the sun’s energy runs out.
  • To correct inequalities of birth.
  • To reward work and penalize laziness.

In some of these scenarios, efficiency would be a high priority, just like it was for Abby on her commute. In other scenarios, efficiency would be a lower priority, like it was for Ben, Chandi, and Delroy on their road trip.

The important point is: the goal of the economy determines what role efficiency plays.

But why can’t efficiency itself be the purpose?

It can, if you want it to. After all, I’ve just said that human-made systems can have any purpose we assign to them.

However, I think it’s unlikely that efficiency is what you really want as the purpose of the economy, even though it might seem that way to you.

Efficiency, after all, is just a number. Prioritizing efficiency for its own sake would be like wanting the GDP to be an odd number every year—some kind of strange numerical fetish. Perhaps this fetish is the focus of your life, but I doubt it.

Instead, I think that if you care about “efficiency”, what you really care about are the consequences of efficiency (and inefficiency); the real impacts on your life that you can feel and experience. For example:

  • Whether inefficiency causes us to run short of resources . . . and suffer hardship as a result.
  • Whether efficiency helps us maximize our individual wealth . . . and have greater enjoyment of life as a result.
  • Whether efficiency helps us maximize our collective wealth . . . and be a more altruistic society as a result.

All of these concerns put a high priority on efficiency, but they are separate from efficiency, and they each depend on other factors as well.

For example, if your priority is to maximize wealth, then you would care about efficiency, because waste destroys wealth. But you would also care about stability, because financial crises destroy wealth even more than waste does. And you would care even more about sustainability, because an economy that terminates can no longer generate wealth at all.

We’re all on a road trip

With every difficult concept, we look for an easy starting point to begin our thinking. We like the idea that something might have a “natural” or pre-determined purpose, because it’s easier to figure out how to reach a specific goal than it is to choose a goal in the first place.

We want efficiency to be the default priority of an economy, because it feels good emotionally. Nobody likes waste, everyone likes wealth, and it’s easy to structure our thinking around those emotions. But that’s all they are—emotions, not natural truths.

There is no “natural” priority for the economy, because the priorities flow from the purpose. And there is no “natural” purpose, there are only the purposes we choose. Those choices are individual, and they flow from our individual concerns and values.

In the end, we’re all on a road trip, and we have to find a way to make it work for everyone.

The best way to do that is to look for economic ideas and systems that can accommodate many people’s desires. To do that, we need to stop treating efficiency like it’s the sole purpose of our economy, and remember to treat it as one priority among many.

 

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