Economic Efficiency - Competing Goals

Competing Goals

Efficiency is but one of many vying goals in an economic system, and different notions of efficiency may be complementary or may be at odds. Most commonly, efficiency is contrasted or paired with morality, particularly liberty and justice. Some economic policies may be seen as increasing efficiency, but at the cost to liberty or justice, while others may be argued to both increase efficiency and be more free or just. There is debate on what effects specific policies have, which goals should be pursued, the relative weights that should be placed on different goals, and which trade-offs should be made.

For example, some advocates of laissez faire (such as classical liberalism in the 19th century and Objectivism in the 20th century) argue that such economies protect property rights and are thus both free and just, regardless of whether or not they are more efficient, though advocates also generally believe that laissez faire economies are more efficient.

Others argue that laissez faire leads to concentration of power and thus curtails liberty and reduces competition, and leads to unjust distribution of income and wealth, regardless of whether it increases efficiency, for example in the early 20th century American progressive movement – some (such as the Freiburg school) argue that laissez faire decreases efficiency in addition to being unfree and unjust, while others argue that government involvement may reduce efficiency, but that this is an acceptable cost for the increase in liberty and justice.

In welfare economics, trade-offs between efficiency and distributive justice, particularly in redistribution – to the extent that a certain policy decreases efficiency – is often visualized by the metaphor of the leaky bucket, imagining income or wealth as water moved between individuals, and inefficiency as leakage. Opponents of redistribution argue that redistribution is not only inefficient (the bucket leaks), but unjust (income or wealth should not be redistributed by the government at all, but rather the market alone should decide distribution).