Economic efficiency is one of the most important concepts economists use to classify and understand the social world. Unfortunately, it is also one of the most misused. There are two aspects of economic efficiency, the positive and the normative, both of which must be understood in order to apply the concept fruitfully. The former involves analyzing whether a given state of affairs is or is not efficient; the latter involves ascertaining whether a given state of affairs ought to be changed, presumably in favor of a more efficient one. This essay will show how, after going over the positive aspects of efficiency, misunderstanding efficiency results in unjustified normative conclusions wherein efficiency becomes the stated motivation for public policy that (unintentionally) impedes the achievement of other social goods. The essay will conclude by arguing that economists’ misuse of one of their fundamental concepts is a consequence of their misunderstanding the scope of their discipline.
Economic efficiency is one of the most important concepts economists use to classify and understand the social world. Unfortunately, it is also one of the most misused. There are two aspects of economic efficiency, the positive and the normative, both of which must be understood in order to apply the concept fruitfully. The former involves analyzing whether a given state of affairs is or is not efficient; the latter involves ascertaining whether a given state of affairs ought to be changed, presumably in favor of a more efficient one. This essay will show how, after going over the positive aspects of efficiency, misunderstanding efficiency results in unjustified normative conclusions wherein efficiency becomes the stated motivation for public policy that (unintentionally) impedes the achievement of other social goods. The essay will conclude by arguing that economists’ misuse of one of their fundamental concepts is a consequence of their misunderstanding the scope of their discipline.
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