Efficiency vs. Well-Being

Many of today’s economists seem to forget what their actual quest are: they’re concentrating fully on efficiency of markets, instead on how to increase the well-being of societies. In this context you mostly think on the so called neoliberals, but this is a widespread disease, unfortunately.

Meanwhile, there is no urgent equivalence between market efficiency and well-being.

Reforms on the workplace may lead to increased market efficiency but lower worker job satisfaction and therefore a reduction in their sense of well-being. (Stiglitz, Sen, Fitoussi)

So, why it is so that many economists concentrate on efficiency? I think, the main reason is the fact that efficiency is something you can measure – more or less -, while actual well-being can’t be measured directly, and is also very hard to measure indirectly. Nevertheless, this doesn’t mean that economists shall proceed further like they have been doing so far. There are more and more voices calling for an other way of measuring well-being, not only through efficiency (see e.g. the quoted above report or Dasgupta’s “Human Well-Being and the Natural Environment”).

Thus, we can hope that economists will be ready to do a harder job – and so measure the things actually counting.

[UPDATE 14/06/24] Contrary to what I wrote here, the main reason why economists are equating efficiency with well-being (that they do is itself a very simplified proposition) is that this is the result of their models. It was shown in general equilibrium models that “free markets” secure the highest possible social welfare. This, of course, is based on many problematic assumptions, ranging from the flawed Walrasian models of the economy to the exclusion of externalities/market failures and the assumption that markets actually reach equilibria to the equation of some measure of gross national product with societal well-being (for limitations of the latter assumption see here). Measurement of “efficiency” is at least as difficult as the measurement of well-being.



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