Wandering Thoughts

September 1, 2009

Efficiency of What

Filed under: Ramblings and Musings — terence @ 9:03 pm
Tags: , , ,

More random musings…

When economists talk about efficiency, whether they know it or not, what they’re really talking about is efficiency of Utility (well being, happiness, or something similar). While it’s easier, and often a necessary approximation, to think of efficiency in terms of dollars and cents, doing so is meaningless on its own. It needs to be anchored eventually back to welfare.

Following from this, the point I take from Michael Sandel’s first Reith Lecture (well worth a listen; don’t let my rambling put you off) is that, while markets are quite efficient at some things, seeking to extend them into parts of society that have traditionally been the domain of impulses other than self-interest weakens the moral bonds that govern these spheres, and risks undermining social capital.

[Update: Continued the next night] And undermining social capital can reduce people’s well being. Or, to put it another way: if you get to fixated on dollar and cents efficiency and start expanding the reach of markets into moral realms you’ll ultimately undermine efficiency of Utility.

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