Friday, February 06, 2009

Efficiency vs. Well-being

Should society be primarily an efficient arrangement or should it aim to promote the well-being of its members? If it's efficiency you favor, then go ahead, lay off as many workers as you wish so long as you can still provide the goods and services demanded by paying consumers. However, if it's the general welfare you're concerned with, get ready to accept some inefficiencies.

This is the fundamental debate underlying key policy decisions: Should we stimulate the economy? Should we subsidize arts, education or public transportation? Should we spend resource on people unlikely to produce something of equivalent value?

I'd argue that, at heart, human beings are fundamentally inefficient. Let's do the return on investment (ROI) math.
  1. Most human beings take about 22-23 years of utter subsidization -- infancy, parenting and schooling -- at a cost of $125,000 to $250,000, depending on household income level, not counting college.
  2.  Add college: from about $40,000 to $200,000 for a 4-year undergraduate degree.
  3. So society has invested between $125,000 and $450,000 on each person before they have produced a single widget or service of any economic value.
  4. Then, let's assume that for about 40-45 years this person works. 
  5. Subtract from this person's income his or her living expenses, then ask, at age 65, has society recovered $125,000-$450,000, adjusted for inflation?
  6. Wait! From age 65 to whatever (100?), as a norm human beings go back to being non-productive resource consumers; in most cases, they end up being subsidized by someone else. So subtract what is spent in those years. Do we still have a profitable ROI?
So, you see, human beings are inherently inefficient. Let's get rid of them, shall we?


Anonymous said...

I think your post creates a false dichotomy between efficiency and well-being. When economists talk about efficiency, they mean getting the most well being out of the available inputs. If art produces more well-being than, say, finance, it is more efficient to invest in art than to invest in finance.

Of course, there are concerns completely apart from efficiency, like equality. The relative weight that we should give to these concerns is certainly up for debate. But I don't think anyone would want less efficiency, all other things equal.

abandonallfear said...

The post seemed pretty clear to me. Wouldn't that then make sense that some religions, cultures and societies banned usury because of it places efficiency (or profit) before people?


Does equality belong in the equation? It seems to me that real equality is at odds with all forms of progress and civilisation, unless you're talking about people being given equal opportunities to progress, but that's not the same as the choices that a factory owner or government has in relation to the economy.

If a government, for instance wanted to make every equal economically then that's communism. Capitalism is the framework we are working in, so equality doesn't come into it.

heartinsanfrancisco said...

You're right -- we're a waste and should all be replaced immediately.

BHudson said...

I'm with Anon on this one. Yes, human beings are monetarily inefficient. But the fact that the human race is not bankrupt shows me that there's more to society than money. As he said, efficiency is (or, at least, should be) about wellbeing, not necessarily profit.