Friday, June 10, 2011

Some Initial Thoughts on Abandoning the Efficiency Trope

-- Posted by Neil H. Buchanan

At the tax sessions of the recent Law & Society meetings, a running joke developed regarding my objection to the use of the word "efficiency." In an early session, a scholar referred to an economic argument that relied on the idea of efficiency, and I pointed out during Q&A that there was no coherent meaning of that concept, either in the specific context mentioned by the author, or more generally. In subsequent sessions, when someone would use the word efficiency or its variants, he or she would smile and say, "Sorry, Neil, I know this will bother you, but ..."

That was all in good fun, but I do continue to marvel at the power of a word and a concept that are so dangerously misleading. I have had a long-standing plan to write an article explicitly discussing what is wrong with the concept of efficiency in theoretical or policy analysis, but other projects always came first. I now think that I should move this project up on my to-do list. Today, I will offer just a few thoughts on this broad and fascinating topic, as a way of getting the creative juices flowing. (I do have a couple of projects that simply must come first, so these thoughts will still be developing for a few months, at least.)

To begin, I should emphasize that I am not arguing that efficiency is overemphasized relative to some other worthy goal. The "equity vs. efficiency tradeoff" idea famously posits that policy makers must often choose between two good things, each of which we would like to maximize, if only we could. Alternatively, I am not arguing that efficiency is bad. Instead, I am arguing that efficiency is an incoherent concept. To say, "This is inefficient," or "Policy A is more efficient than Policy B," sounds profound but ultimately communicates nothing. My claim, therefore, is that people should stop advancing efficiency arguments because such arguments sound weighty but in fact confuse matters rather than promoting clarity.

Consider some simple examples. In one of the sessions at Law & Society, an author was summarizing the existing literature relevant to the topic of his paper. At one point, he (again after offering a humorous advance apology to me) said that a some scholars have described a policy as inefficient. Even from the context of his remarks, however, there was no way to know what that word was meant to describe. After a few moments of unsuccessfully trying to explain the argument, the presenter finally said that the policy was "duplicative." Finally, I thought, we know what "inefficiency" is supposed to mean in this context.

The problem, however, goes beyond merely using a general term where a specific one would better communicate the point. The standard use of the term efficiency in economic analysis is, of course, based on the concept of Pareto-efficiency. Unfortunately, it is very easy to use that concept to describe an "efficient level of duplicativeness," for example, in describing fail-safe mechanisms and other forms of back-up arrangements that would theoretically maximize whatever it is that one is trying to maximize. Being duplicative, therefore, is not simply a subset of being inefficient. Sometimes it could be efficient to be duplicative, while in other cases it would not.

Even so, we have come to use the word efficiency as if it communicates something important. A recent news article in The New York Times stated as fact that " the United States corporate tax code is inefficient." There are many problems with the U.S. corporate tax system, some of which might be covered by one or more uses of the term "inefficient," but a reader of that article was never given any useful guidance as to what the author was trying to convey. Presumptively, inefficiency is bad, and thus describing the tax code as inefficient conveyed nothing more than, "The corporate tax code should be changed."

Actually, such a description does convey one thing more: Describing something as inefficient is not merely to describe it as somehow bad, but to say that it is objectively bad. The power of the term thus lies in being not just usefully empty, but in carrying analytical heft by being supposedly untainted by mere opinion.

There is, of course, nothing wrong with having words with multiple meanings. According to a recent report, the Oxford English Dictionary has announced that the word "run" (actually, just its verb form) has 645 meanings: a run on a bank, running up a tab, and so on. This is part of the power and vibrancy of the English language.

Even so, each of those 645 meanings actually has content, so that a listener can understand in context what the speaker or writer is trying to describe. Efficiency is not simply subject to multiple interpretations. It is subject to mutually contradictory interpretations, each of which is a completely plausible application of the word.

One might object, however, that the problem here lies in the overlap between a word's everyday meanings and its use in a scientific context. Words like "power" and "work" have specific meanings in physical mechanics, which informed users understand differ from uses like "the power of love" and "workin' it, baby." If there were a scientific use of efficiency and its variants, it would merely be an unfortunate public misunderstanding that we use the term in contradictory and confusing ways.

As the example above shows, however, the supposed expansiveness and adaptability of the efficiency concept in economics is its own undoing. Describing something as Pareto-efficient (or not) requires specific assumptions and judgments that are not obvious, even to the initiated. Two economists could set up decision rules, based on equally valid uses of the concept of Pareto-efficiency, that would reach diametrically opposed conclusions about whether a duplicative system is "efficient" or "inefficient."

One of the examples to which I objected at Law & Society involved the question of whether there is an efficient level of human use of addictive substances. The scholar describing such an analysis pointed out that the evidence is "not inconsistent" with the idea that addiction can be Pareto-efficient, because people sometimes quit using addictive substances. (Trust me, you really do not want me to fill in the details of this particular debate.) The problem is that such evidence is also "not inconsistent" with the opposite conclusion, i.e., that addiction is irrational (and inefficient), precisely because people do sometimes quit. This bears no resemblance to science.

It is often said that "you can't beat something with nothing." If one does not like the efficiency concept, the argument goes, one must propose an alternative. In my work, I do hope to develop some useful alternatives that are -- unlike the efficiency concept -- not devoid of content. It is worth pointing out, however, that this aphorism is simply inapt in this context. Efficiency is an incoherent concept, so there is no "something" there that one could defeat. The question is not what the "something" is that will beat efficiency, but why so many people think that efficiency is anything at all.


Derek said...

Very interesting post. I can appreciate how words like "efficiency" can become stale in a particular discipline and cease to have any real meaning. I can also see how some words might never have been meaningful at all, just buzz words from the get go. But I'm not convinced from your examples that "efficiency" falls in either camp.

Something can't be efficient or inefficient in the abstract. If a system is inefficient it must be inefficient with respect to some end. So you're right that being duplicative might be inefficient with respect to some ends and efficient with respect to other ends. That doesn't mean saying something is inefficient is empty, it just means we have to know what the particular end is relative to which the policy is allegedly inefficient before we can assess the merits of the statement. Most of the time that's implied, I would think.

This doesn't speak to your point about pareto efficiency which I'd be interested in hearing more about. Nor do I mean to endorse the idea that addiction can be efficient or inefficient. I don't know what either of those things could mean, but I suspect the concept of "efficiency" is not the chief problem with the thesis.

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