Against ‘Efficiency’

Sandy Ikeda shares the abstract of an essay he is contributing to a Festschrift for Jane Jacobs. The Death and Life of Great American Cities is one of my favourite books, and I look forward to reading the Festschrift, particularly Ikeda’s essay. My favourite two paragraphs from the abstract:

The modern demand to rationalize the city and to make it “more efficient” is misplaced.  A living city cannot be efficient.  Efficiency, in the economic sense, presupposes an overarching plan against which measured outcomes can be evaluated.  A living city, however, follows no such plan.  It is itself the unplanned, collective result of the countless individual plans executed continuously in it, day after day.

Neither can it be inefficient, because that too presupposes a system-wide plan.  Both efficiency and inefficiency presume that we know how things ought to be, what success and failure look like, and that’s impossible in the urban dynamic.  Instead, borrowing from ecology (and certain heterodox schools of economic thought), we might say that a living city is a “dynamically stable” process, in which the forces of positive and negative feedback, as well as sudden mutation and diversity, combine under the right conditions to generate order through time.  It embodies trial and error, surpluses and shortages, apparently useless duplication, conflict and disappointment, trust and opportunism, and discovery and radical change.  These are in the nature of the living city.

This point applies to any form of social organization. I have recently become very suspicious of anyone positing a social welfare function as the basis of policy (something I try to get at here and here). I think Arrow’s Impossibility Theorem and the impossibility of interpersonal utility comparison make it fairly obvious that no social welfare function could hope to be neutral. Most often, advocacy of utility maximization is a way of dressing up implicit moral judgements as value-free economic science.

5 Responses

  1. “Most often, advocacy of utility maximization is a way of dressing up implicit moral judgements as value-free economic science”

    I would premise that with the statement that the social welfare function needs to have content – without content I don’t think a social welfare function needs to include values, as it would be empirically empty.

    This distinction is important to me as I think the only value-free way we could perform social science is if we don’t actually have any conclusions – I think a conclusion requires value judgments, and the advantage of a framework like utility maximisation is that it makes the value judgments transparent.

    • Agreed, but I’m not sure how useful a purely formal social welfare function is. Thinking in terms of aggregate utility can be a useful cognitive shortcut in understanding tradeoffs, but I just don’t think there is any thing called utility (even when defined as preference satisfaction) which we can attempt to maximize at a societal level. There is no neutral way of deciding between my preferences and yours when they come into conflict.

      The utility maximization framework could make value judgments trasparent, but I’m not so sure this is actually the case in most welfare economics.

  2. “Thinking in terms of aggregate utility can be a useful cognitive shortcut in understanding tradeoffs, but I just don’t think there is any thing called utility (even when defined as preference satisfaction) which we can attempt to maximize at a societal level”

    Agreed – it is a tool for thinking about trade-offs. We can’t actually move from this to a policy prescription without falling into the realms of value-judgments. But the distinction between these roles is incredibly important.

    “The utility maximization framework could make value judgments trasparent, but I’m not so sure this is actually the case in most welfare economics”

    I think it occurs – but often the assumptions only seem transparent to us other economists :)

    I would say the advantage of the framework is that it can be used to make assumptions transparent – if this is not what is happening I would be willing to say that this is what SHOULD be happening, and criticise the discipline accordingly …

  3. fyi, Sandy (Sanford) is a he. (you can delete this comment, if you’d rather it not be seen.)

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