Tag: efficiency

Heartless Capitalism Revisited

~ purplesage41 ~ 1 Comment

Some fifty years ago, I wrote a column for the local newspaper on Heartless Capitalism to run on Valentine’s day.  Faculty in the economics department at Clemson University took turns writing columns once a week.  I told Russell, our coordinator, that I would like to write a column for Valentine’s Day with the title Heartless Capitalism. “What’s it about?” he asked. “I don’t know yet, ”I replied. It turned out endorse a popular theme in political economy of that era, presaging Ronald Reagan as well as the movie Wall street in which Gordon Gecko proclaims that greed is good.

My argument was based on the basic focus of economics, efficiency. In a world of scarce resources and unlimited wants, economists bow at the altar of efficiency.Efficiency means accomplishing the most (output, enjoyment, satisfaction, etc.) our of our available resources OR spending the smallest amount of resources in order to achieve a given outcome.  We taught our students that the goals of microeconomics were efficiency, equity, and freedom, but really only efficiency mattered, We could demonstrate how efficiency was attained with graphs and equations. 

Efficiency is not really a goal, more a way of attaining a goal, which is MORE—economic growth.Moreover, efficiency depends on greed as a motivator.. One way to be more efficient—to get more “stuff” out of your available inputs—is to use relatively more of resources that are abundant and less of the resources that are scarce., because abundant resources are cheap and scarce resources are expensive When land is scarce, we cultivate by methods that focus on yields per acre. When copper is scarce, we substitute other materials. when capital is scarce we use less capital and more labor. And so on. You get the picture. That is how economist’s explain the statement that greed is good. If greed is abundant and altruism is scarce, why not harness the abundant resource of greed to produce more output or produce it at lower cost? 

“Greed is good” became the mantra of  many economists as way to create and sustain economic growth. Greed is good weas a necessary condition for the implied goal, more is better.   I never went that far.  I had read Schumacher’s Small is Beautiful (!973).  Much latter, I read Alan Blinder’s 1990 book hard Heads, Soft Hearts in which he argued that the Republicans were the party of hard heads, hard hearts and the Democrats were the party of soft heads, soft hearts, What we really needed was hard heads, soft hearts. Efficiency is about hard heads. Equity about soft heads, caring about others, compassion, or altruism. Greed is a powerful motivator, but altruism needs to keep it in check.

Both greed and altruism are learned attitudes, embedded in the culture in which one is raised.  Like so many dimensions of life, greed and altruism are not either-or but rather both-and. Greed makes us wealthy. Altruism makes us us better persons and provides us with a world that is more safe, pleasant, and sustainable than greed alone can create.. Greed begets material wealth but at a high unaccounted cost in terms of social relations, equity, and the earth.

As you celebrate this holiday of the heart, listen to both head and heart as you navigate your balance between work and play, being and becoming, giving and getting, earning and caring. Your bottom line needs to be aligned with your lifeline.

Efficiency: First Among Equals

~ purplesage41 ~ Leave a comment

Brace yourself, dear readers.  My economist self wants you to hear my confession.

For many years I taught introductory economics, as well as more advanced classes. I taught the introductory classes because a colleague and I had a multi-edition principles text, and it was important to road test it regularly. In one of the earlier chapters it was customary to introduce the claim, which was in most mainstream textbooks, that economics was value-free. Economics was just a set of tools for making choices about how to use resources wisely that was useful for all of us as workers, owners, consumers and citizens. A few pages later, we introduced them to goals, which we insisted were not values.  Microeconomic goals (WHICH WERE ASSUREDLY NOT VALUES!! were efficiency, equity, and freedom. The next semester, students were introduced to the macroeconomic goals (WHICH WERE ASSUREDLY NOT VALUES!!) of full employment, price stability (as opposed to inflation) and economic growth.

Having defined the goals, it was easy to discover and implement decisions processes, anticipate the effects of changes in the marketplace or in government policy, and prepare our students for life in a capitalist society.

If economics were a religion (which it might be), my heretical self might be seeking penance for the sin of inflicting this mindset on innocent adolescents, but I was just expounding on doing what my colleagues and I routinely taught.  If I were to start over, I would hope that some of those students would question who set these goals.  At least for macroeconomics I had an answer. The Employment Act oi of 1946 created a Council of Economic Advisors to serve the president and guide him in pursuing these “self-evident” goals.  Actually, I feel less penitent about the macroeconomic goals, although the powers that be seem to worry more about price stability than full employment and never question the conflict between growth and sustainability. But it is the microeconomic goals that I feel called to challenge, and especially the presumed incompatibility of efficiency and equity.  (Freedom we will save for another day.).

Not all goals are created equal.  Efficiency is the primary goal, equity gets a greeting card on some holidays, and freedom is loosely defined and somewhat hard to pin down.  Efficiency is defined in economics in either of two ways getting the most (most WHAT?) out of our available resources or satisfying our wants/needs/desires at the lowest possible expenditure of time and effort. Want to insult an economist? Just tell him (more hims than hers) that his proposal or idea pr practice is INEFFFICNENT.  You will not get nearly the same reaction if you claim it is inequitable.  In fact, Economist Arthur Oken argued that these two goals are constantly in conflict. Equity means a leveling of incomes and assets, but it threatens efficiency because it reduces work incentives.  Some of those who pay more taxes to provide benefits and those who receive more government benefits will just drop out of the labor force. A  nation of idlers! Parasites on those who continue to work and pay taxes! Reducing work incentives Is clearly inefficient.

Efficiency versus equity is another false binary.  We need both.  As a result of this false idolatry of efficiency we have an income distribution that is more like that of a third world oligarchy than a prosperous democracy.  The very rich can use their wealth to redirect government policies to their benefit rather than the needs and desires of the confused and misled majority.  We have outrageously expensive health care costs and a severe shortage of affordable housing, a minimum wage that has not been increased since the Clinton administration, falling life expectancy and a growing environmental crisis.  Other nations that choose to strike a healthy balance between these two goals are more prosperous and more democratic.

When we name these “goals” as the values that they are, values that are the driving forces in our political economy, the choices are much clearer.  The values of efficiency and equality that both support a healthy economy and a democratic polity are not enemies, but partners.

Read my 2023 book, Passionately Moderate: Civic Virtues and Democracy, available from amazon in paperback and Kindle formats.