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On the Efficiency and Morality of Markets

In my latest column for AIER, I address some misconceptions about economics and liberalism. A slice:

Efficiency describes a relationship between means and ends. Efficiency says nothing whatsoever about the contents of the ends. If you want to drive this morning from Philadelphia to New York in the shortest period of time, a well-functioning GPS navigator will show you the appropriate route, one that would likely include a long stretch on I-95. If, in fact, there’s no alternative route that you could drive that would get you to New York more quickly, then the route displayed by your GPS device is efficient given your goal. But if your goal is instead to take in some beautiful scenery along the way, subject to getting to New York before nightfall, then the most-efficient route will be one that keeps you off of I-95 and in your automobile for several hours more than you’d spend if you took the fastest route.

To act efficiently is simply to act in that way that best enables you to achieve your goal, whatever that goal might be. And because you have many goals, to achieve a goal efficiently leaves you with as many as possible resources — money, time, energy — left over to pursue your other goals, whatever they might be. You want to drive from Philadelphia to NYC this morning as quickly as possible so that you have as much time as possible to prepare for a late-afternoon job interview in Manhattan. Had you erred and driven a route other than the shortest, some of the time and energy that you would have had available to prepare for your job interview gets wasted driving. That same amount of time and energy would not, however, have been wasted had your goal instead been to take in lots of beautiful scenery.

There is, in short, no way to identify an efficient course of action independently of the actor’s goals. Yet once acceptable goals are specified, along with alternative, available means of pursuing them, there can be no objection to choosing the efficient course. Legitimate objections might well be made to the goals. Goals might be justly classified as ill-advised or even immoral. But given any set of acceptable goals, it’s foolish to warn against pursuing them efficiently. And it is literally illogical to insist that some degree of efficiency in pursuit of these given goals should be sacrificed in order to achieve some other objective or to better promote some other outcome, for to so insist would be to treat the stipulated set of goals, not as given, but as changeable.

When we liberal economists praise the market for its efficiency, we praise nothing more — or less — than what we believe to be the free market’s singular success (although, of course, not perfection) at enabling people to achieve as many as possible of their peaceful goals. When we protest against government interventions such as protective tariffs, we ultimately do so not because these interventions result in lower real GDP or wages. Rather, we protest because some individuals’ ability to pursue their peaceful goals is artificially restricted in order to artificially enhance other individuals’ ability to pursue goals – which, in effect, means that the government uses its coercive power to conscript some individuals to serve the ends of other individuals. Because there’s no reason to think that such coerced engagements are mutually beneficial – indeed, because there’s every reason to think that such coerced engagements are “negative sum” – the classical-liberal economist concludes that, insofar as the goal of economic policy is maximum possible material welfare for everyone, interventions such as protectionism are inefficient because these interventions prevent the achievement of that goal.

Reasonable people can and do disagree about what are and aren’t acceptable goals. Among the virtues – so says the classical liberal – of the free market is that it minimizes the role of coercion in settling such disputes. Aware of his and everyone else’s intellectual puniness, the classical liberal is never certain enough of the merits of his own particular concrete values to believe that these should be imposed on others. He is content to allow other adults to pursue goals that he finds questionable or unattractive as long as these pursuits involve no violation of anyone else’s equal freedom to pursue their goals.

In this way, it might be said, classical liberalism is morally too ‘thin.’ It imposes no moral code beyond keeping your hands to yourself and your promises to others. It tolerates activities that many wise and good people correctly understand to be self-destructive. But first, we can never really be certain that an activity that appears to be without merit won’t eventually prove to be advantageous for society. Second and more importantly, the hard fact that different people have different substantive conceptions of the Good and the Bad means that the moment we call on government to enforce, or even just to give preference to, our preferred ‘thick’ moral code, we effectively grant permission to those whose ideas of morality differ from ours to impose on us their own ‘thick’ moral code if and when the government falls into their hands — as we would be wise to assume it eventually will.