What if we don't reconstruct an "efficient" economy?

I have ranted, sometimes nearly hysterically, against the primacy of efficiency.  As I wrote in this post a while ago, even as an undergrad, and definitely in graduate school, I had an intuitive understanding that there was something wrong with the pursuit of efficiency.  After all, if I had worshiped efficiency, I would have then stayed in engineering, which is about making "things" less inefficient.

Years have gone by.  Heck, it has been decades.  I have only become even more of a efficiency-hater.  Especially in the world of higher education, for which I often quote Leon Botstein:

No matter the outcome of such a conversation, a very important point is that we must make clear that the university will never be an efficient institution. A university is, by definition, inefficient. If one wants a great university, one has to put up with “wasted” time, unproductivity, seeming leisure.

However, whether it is in higher education, or by individuals who want to manically multitask, there is a huge worship at the feet of efficiency.  If only people would understand that efficiency is more satan than god!

The COVID-19 life is a context in which we could engage in discussions on efficiency.  Right?

Efficiency means getting the most “bang for your buck”, the most benefit for every pound spent. Any other course of action is wasteful, surely? But eliminating waste implies eliminating excess capacity, and we now see the consequences of that in health systems worldwide. Our obsession with efficiency, if it means failing to plan for a pandemic or a climate emergency, will cost lives.
Our priority should be resilience, not efficiency. We need to build resilient systems and economies that are explicitly designed to withstand worst-case scenarios – and have a fighting chance of coping with unforeseen disasters too.

Am reminded of an old joke about an auditor who viewed fire engines that the company had as wasted investment because they were rarely used!

If only we would use the coronavirus conditions to rethink efficiency!

Should we focus our energy on rebuilding an economy that was governed by the rules before COVID-19 brought activities to a halt?

What if, instead of going back to work full-time, we decided to work less, buy less, make less, and not fight to raise GDP at any cost?

What if?

Seriously, what if?  Why not think about prosperity without growth?

“Reversing consumerism’s financial and cultural dominance in public and private life is set to be one of the twenty-first century’s most gripping psychological dramas.”

What good is all the wealth when, for instance, four months into a lock down of sorts, and six months since the virus went, ahem, viral, we in the US are yet to develop enough testing capacity and PPE?  Does it not mean that all that wealth is inefficient, when we should have instead invested in "wasteful" resilience?

I suppose I will have lots more time to "waste" on such matters after I am laid off!

Less is an enabling agent of more?

I got a hefty increase in my salary.

What will I do with the additional income? Consume it in many new and expanded ways.

Consumption is practically what the modern economy is all about, once we got beyond basic survival.  And, oddly enough, even those concerned and worried about the natural environment--including me--love to get salary increases so that we can consume more, even though this additional consumption will have negative implications for the natural environment.  How twisted are we!

Such a worry about consumption and economic growth is not new.  In graduate school, I learnt about the Club of Rome's Limits to Growth.  This report came out when I had barely started elementary school!  Almost 50 years later, we continue to worry about the consequences of growth and consumption.

Could it be different this time?

Now the focus has turned from scarcity to excess—specifically, of carbon dioxide in the air. In the past 50 years the burning of fossil fuels has more than doubled its concentration, accelerating global warming with its potentially calamitous consequences.

Levels of CO2 in the atmosphere 50 years ago versus now should truly worry all of us.  The industry, increasingly because of consumer feedback, and despite the maniacal and wrong-headed tRump and his toadies, is actively reducing its environmental impacts.

Fearing a backlash from eco-conscious consumers, firms are striving to lower their carbon intensity. So long as this brings down costs, CEOs happily oblige and society reaps the benefits of higher efficiency and better resource allocation. But if that leads to higher sales, companies’ overall environmental impact may rise.

What can be done then?

They should not be shamed—or required to urge customers to buy less of their wares, as some activists who glued themselves to corporate headquarters in London seem to demand. Governments can make citizens want less by making consumption pricier, with carbon taxes or other regulations. Until they do, firms will try to sell more stuff—because most people want more of it.

Yep, even most of us environmentalists want more stuff--we are addicted to stuff.  Getting rid of this addiction is impossible.  Well, an individual could, but most of us cannot.  Reducing consumption is, therefore, not in the mix of actions that we would like.  Which means, are we looking at an impossible task of squaring the proverbial circle?

We don't know shit!

When people ask me what economic geography is about, one of the examples I give them is what I refer to as a big-picture question.  And that is: Why are some countries rich and some poor?

People always get excited about this example.  Their response is typically along the lines of "wow, I had no idea that geography includes such topics.  I would love to take your classes."

What I don't tell them is this: Don't ask me for the answer on why some countries are rich and some are poor because, well, nobody knows!

We can fairly easily explain why a country is poor.  That is not what I mean.  But, how to place a country on a path of sustained economic and social growth?  This continues to be a mystery, as it was to me when I began graduate school more than three decades ago.

The Economist addresses this metaphorical elephant in the room:

Economists have precious few hard facts about growth. They know that sustained growth in GDP per person only started in the 18th century. They know that countries can become rich only by growing steadily over long periods. They know that in some fundamental way growth is about using new technologies to become more productive and to uncover new ideas. Beyond that, almost everything is contested.

That's what I don't tell people when they ask me about economic geography.  We don't know shit!

But, this is too important a question for us to ignore. The fact that we don't know shit does not mean that we give up.  Why?

A clearer understanding of how growth happens, and why growth-boosting institutions sometimes wither or fail to take root, could raise the living standards of billions of people. The economics of growth should therefore be central to the discipline, even though the questions it poses are objectively hard, and the answers rest more in history and politics than in elegant mathematics.

Note that dig about "elegant mathematics"?  One of the reasons that I chose to go far away from from the economics folks is because of their worship of the math and statistical models, which really don't give any credible answer.  Yet, that is how the academics play their game.

The Economist wraps it up with a valuable advice:

Until they can give better answers in this area, economists should speak with greater humility about how this structural reform or that tax change might affect long-term growth. They have not earned the right to confidence.

Like I said, we need to admit that we don't know shit.

But then, Que sais-je?!