The global economy is “efficient” alright: it efficiently funnels wealth to the top while leaving most of humanity behind.
Prominent figures in the world of finance and economics, including Christine Lagarde, Gary D. Cohn, Ray Dalio, and Lawrence Summers, on a panel at the World Economic Forum in Davos, Switzerland, January 22, 2015. (Jason Alden / Bloomberg via Getty Images)
When discussing markets, “efficiency” is a trick word. In everyday use or in disciplines like engineering, efficiency has a positive meaning, typically implying wise allocation of resources. But in economics the word is what translators call a “false friend,” a term you think you recognize but which others aren’t using in a way that matches your definition. Markets are frequently said to be “efficient” when they are in fact wasteful, chaotic, unethical, and harmful to the people they’re supposed to serve — as long as they swiftly deliver profit to the top.
Thankfully, the mix-up is becoming more visible to some influential economy watchers. In her book Homecoming: The Path to Prosperity in a Post-Global World, journalist Rana Foroohar hopes that “Panglossian ideas about the efficiency of unregulated markets will begin to fade.” She observes that industrial agriculture has an almost universal reputation for being efficient, when in fact its so-called efficiency “has come at great cost to everything, from our health to our food security to working conditions . . . not to mention the treatment of animals, and of course the disastrous consequences of it all for our environment.” What passes for efficiency often comes at the expense of resilience, Foroohar writes, and as a result severe system-wide fragilities have been introduced into the global economy, which guarantee supply-chain issues whenever there’s a disruption like war or a pandemic.
Foroohar is not alone in her observations. Sociologist Elizabeth Popp Berman’s book Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy recounts the rise of an “economic style of reasoning” in the policy-making of both Democrats and Republicans — let’s call it econ-mode. In this process, efficiency was enthroned as “the cardinal virtue” of policy, becoming a substitute for the idea of public interest. Cost-benefit analysis became mandatory; where once pollution could be considered just plain wrong, econ-mode could justify it if the benefits could be made to look greater than the costs. Ethical reasoning came to be considered “economically illiterate.” Berman writes that econ-mode “does not allow for commitments to absolute principles.” And since “claims about rights, justice, or liberty [shouldn’t be] weighing their costs,” we must be alert to the risks of efficiency-only arguments.
In his paper “Is Efficiency Biased?”, legal scholar Zachary Liscow concludes that “efficient policy-making places a heavy thumb on the scale in favor of the rich.” Since the 1980s, the ruling “law and economics” school has used econ-mode arguments to tacitly impose a “rich get richer” principle — the fruits of a long libertarian billionaire–funded effort to convert lawyers and judges to extra-shallow, short-course econ-mode doctrines. What Liscow usefully calls the “hidden meaning of efficiency” lurks in the mechanics of maximizing benefits. In econ-mode, benefits are best assessed by “willingness to pay,” and since the wealthy are more able to pay, their preferences are systematically prioritized. For example, Liscow writes that if “the monetary benefits of saving an hour of time for a rich person tend to be higher than . . . for a poor person, spending on transportation will be rich-biased.” Bus upgrades will lose to airport improvements.
Cases of abysmally bad cost-benefit kabuki abound. In their paper “Pricing the Priceless,” legal scholars Frank Ackerman and Lisa Heinzerling tell of one cost-benefit analysis they encountered that concluded that kids’ lives are valued too highly. The well-credentialed analyst studied child safety seat usage to assess the “true” cash value mothers put on kids’ lives. The time to fasten seats correctly versus that actually spent was converted to cash using hourly wage rates, yielding $500,000 per kid (less for poorer parents). In a blog post titled “Cost-Benefit Jumps the Shark,” Heinzerling cites an effort to curb sex crimes in prisons in which econ-addled analysts weighed how much prisoners were “willing to pay to avoid or to accept to endure” sexual assault.
These cases show how quickly cost-benefit analysis can become a “bogus quantification” bonanza. Can we go on allowing efficiency aficionados to paint “morally objectionable” moves as economically rational? Training in econ-mode seems to risk turning humans into “logic aliens,” to borrow a fabulously useful phrase from the philosophy of logic. What cost-benefit analysis concludes is smart is often alien and offensive to ordinary norms of decency. Econ-mode enthusiasts preach that cost-benefit and efficiency “maximize consumer welfare” by lowering prices. But low prices often depend on systemically oppressive practices which undervalue the needs, interests, and rights of the poor. Efficiency is too easily achieved by exploitation.
The problem persists at the planetary scale. Consider the twisted econ-mode logic of a leaked World Bank memo signed by former treasury secretary Larry Summers: since “costs of health impairing pollution depend on the foregone earnings . . . a given amount of health impairing pollution should be done in the . . . country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable.” Unless we forcefully reject this sort of “impeccable” econ-mode efficiency logic, it will continue to surreptitiously but systematically enforce pro–rich world biases in global affairs. Through econ-mode goggles it looks 2,700 times more impeccable to impose pollution on people in the planet’s poorest decile than to inconvenience the average top global 1-percenter (that’s how sinfully bad global rich-to-poor income ratios are now). And econ-mode experts likewise ignore that poorer nations are less equipped to cope with those efficiently distributed harms.
Innocent souls who’ve bought into the capitalism’s-got-this narrative of great progress on global poverty may be surprised to learn that 85 percent of humanity lives on less than thirty dollars a day, which is the rock-bottom poverty line in the rich world. Half of humanity makes less than one-fifth of our poverty level. The idea, cherished by elites, that economic growth is synonymous with alleviating poverty falls apart under the lightest scrutiny. In truth, the planet’s poorest decile gets 0.07 percent of global income gains, while the richest decile captures 24 percent. The global economy is efficient alright: it efficiently funnels wealth to the top while leaving most of humanity behind.
As philosopher of economics Lisa Herzog writes in her essay “The Epistemic Seductions of Markets,” markets and their zealous evangelists impose a rigorous one-dollar-one-vote regime. In that way they ruthlessly and, yes, efficiently allocate resources to whomever pays most, while the poor suffer.
Take for instance our global food system. We produce more than enough calories to feed all humans, but 77 percent of global farmland “efficiently” fattens meat for the wealthy, while rich-world pets are less food insecure than 2.37 billion people, or one in three humans. Meanwhile 150 million kids are permanently stunted by malnutrition, and grain for biofuels “eats up enough food to feed 1.9 billion people annually.” And under the guise of enhancing market efficiency, some the world’s richest people and institutions, like hedge-funders and elite university endowments, invest (which is to say gamble) in food commodity markets. Stripped of elaborate econ-mode euphemisms, this means that greed-driven ghouls are profiting by taking calories out of the mouths of the planet’s poorest and most vulnerable children.
Meanwhile, speculation-driven price increases triggered by the Russia-Ukraine war forced the World Food Program to cut rations, risking a collateral mass murder by markets. As I argue elsewhere, there’s a risk that “for-profit” famines could kill more people than combat will in the Russia-Ukraine war. It’s sheer econ-mode lunacy to suggest that markets allocate our food abundance rationally or efficiently, never mind ethically. Under-regulated markets are a highly mechanized way to put greed above need.
Letting “the market decide” routinely leads to ludicrous and often lethal priorities. The United States spends twice as much on cosmetics per year than has been allocated to the clean energy transition — $80 billion versus $37 billion. To see more clearly what’s happening here, that $37 billion per year in per-capita terms comes out to $9.34 per month, which is less than the cost of a monthly Netflix subscription to combat the climate crisis. Far better big-picture collective thinking is urgently needed to protect the planet, and the interests of the bulk of humanity, but markets just aren’t built to do that sort of work. Aggregating individual purchases in greed-driven markets doesn’t result in collective material prudence. Governments must step up and prioritize resource usage in the public interest. But they can’t do that well if they rely on the same efficiency-centered logic and rhetoric of econ-mode zealots.
Our economy is a gigantic Rube Goldberg expression of our collective ethics. But under the halo of efficiency, the distributional logic of markets often produces a deadly parody of decency. We can’t afford to let efficiency be an excuse for evident economic evils. We must learn to recognize when market efficiency acts as a materially and morally regressive force, and to break the mental monopoly that econ-mode has on our leadership class. We need what Berman calls an “alternative intellectual infrastructure” and a plurality of big-picture thinking methods — modes of reasoning that make room for ethics, morality, and sacredness. In other words we must reverse the “efficiency” revolution before it does any more harm.Original post