|
|
|
Is efficient better than inefficient? |
| |
A competitive market, in a simple world, like the one in the above example produces an efficient outcome. Economics is right on this. Most other arrangements, such a having the government hire away some of the workers to build parks, will not be efficient. That is because the government will do something wrong, like build too many parks, more than people would be willing to pay for. This means you could move a worker from park work to farm work, and pay him the extra revenue he produced, and he would be better off an no one worse off. If this is true, and with non-market programs, something like it usually is true, then the non-market program, is by definition, not efficient.
This does not prove that all non-pure-market systems are inefficient, but there is no general rule on how to make an efficient system except to use a pure market (under special simplifying assumptions).
Why economics does not favor the efficient outcome (it's agnostic)
In the present example we are left with a choice: is the efficient market paying $5,000/year better, or is the market plus government park-building plan better. Economists will generally favor the market. They will say it is efficient and the government intervention is not. Given simplifying assumptions, they are right, and even in the real world they are probably right that the market is closer to being efficient in some reasonable sense that is not well defined in economics.
But standard economics looks at the two proposals as follows. In the market scheme, the workers are worse off and the land owners better off. In the a scheme to tax land owners and hire workers to build parks, it’s the other way around. In each situation, some are better of and some worse off. Economics, of the pure kind the focuses on efficiency, can only make “Pareto” comparisons. If someone is better off, and no one is worse off, in one scheme then it is “Pareto Superior,” PS. In this case neither scheme is PS to the other, so economics is agnostic.
The economic conclusion is correct, but limited. The pure market is efficient, while government intervention is not, but neither is PS to the other so nothing can be said about which is better.
|
|
http://zfacts.com/p/383.html | 01/18/12 07:22 GMT
Modified: Wed, 31 May 2006 18:44:40 GMT
|
|
