Economic Efficiency

I do believe in the power of the markets to maximize efficiency. From an engineering perspective I respect all processes which seek to create a more optimal solution via continual refinement.

There are two common pitfalls which keep us from getting to this optimal state. One is when the process gets stuck in local maxima of the optimization function. Often engineering or other market actors will use a pretty naive hill climbing approach to optimization. We make better and better vacuum tubes but what’s really needed is for someone to create the transistor.

Large markets actually deal with this problem pretty effectively. Since there are so many actors and little risk to the Economy as a whole if one of these actors fails there is room for a great deal of experimentation. Very different solutions can begin in other places in the optimization space and eventually out compete the old solutions which remain stuck in their local maxima.

As anyone who has ever done much engineering or software development knows there is another often more nefarious problem with the optimization process. Often the hardest part is to determine what exactly should we optimize and how do we measure it.

Our Economy is something I don’t pretend to understand but there sure are a lot of measurements of how its doing. Stock Market indices, Money Supply, GDP etc. Its commonly viewed that “Growth is Good” and having the GDP increase every year means more wealth for us. I wouldn’t argue with that. I would definitely rather live in a country where the economy is growing than one where it is shrinking. I don’t think I’ll be emigrating to Zimbabwe anytime soon for instance. My problem is I keep getting stuck on the question of whether or not this is the best thing to measure.

When I look at my own economic position I find that I don’t really need any more growth. I might not be as happy or fulfilled as I could be but having more money isn’t going to be the thing that gets me closer to that point. In fact I suspect I’d be just as happy with a little less as long as it doesn’t mean I have to give up my $3,000 bicycle.

The point being I guess that if I don’t really need any more than I have and I really don’t think anyone else does either then shouldn’t we describe additional wealth allocation to people who have as much as me or more as simply waste in the system. Isn’t the system then by definition Non-optimal?

Now maybe you are thinking: You commie fool don’t you get it. Wealth is not some finite resource to be allocated, its something people create and who better to get the reward of this creation than the people who created it in the first place? I agree completely. I got over my whole communism thing in around the 5th grade. I would not advocate for the government to be directly in the business of redistribution of wealth. Our goverment is corrupt enough as it is.

However the current trends of wealth concentration should be troubling to people at both ends of the scale. Throughout history widening disparity between the haves and have nots has often resulted in wars and other nasty outcomes. I don’t think there is any reason to believe that couldn’t also occur between the haves and the have a lot mores even if the lowly “haves” all have cable TV.

So I guess what I’m saying is this: If wealth creation is good but inequal distribution of wealth is bad shouldn’t the government focus its polices on making it easier for the people with less wealth to create more and stop worrying about the overall amount of wealth so much. What If we measured the growth in income among households with less than 100,000 in assets for instance? Once we had that measure we could talk about how to optimize it. I’m not sure what policies would result but I’m guessing it wouldn’t be subsidies to Oil Companies or the elimination of the Inheritance Tax.

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