Scales of Pareto Efficiency: Global and National

Nob Akimoto

Nob Akimoto is a policy analyst and part-time dungeon master. When not talking endlessly about matters of public policy, he is a dungeon master on the NWN World of Avlis

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38 Responses

  1. Patrick Cahalan says:

    I’m looking forward to you and Roger reading my post; there’s overlap between mine and his and mine and yours.Report

  2. How predictable was it that Nob would write this kind of lowest-common-denominator, crowd-pleasing, mass-appeal post? Red meat, through and through. It’s as if Michael Bay was your editor! For shame, Nob. For shame.Report

  3. Citizen says:

    What function will inequality play when the governing rules are to maximize profit and control?Report

  4. Will Truman says:

    Nob, at what point do you think the United States reached near-efficiency?

    I was watching a documentary the other day on the copper mining around here. It was told from the POV of the workers, their dismal conditions, and the labor unrest that followed. It was hard not to be primarily sympathetic to the workers, though the thought that kept running through my mind was “But it’s also vitally important to get that copper!” Copper was essential to the increasing to increasing overall economic efficiency for everybody, including the workers.

    The focus on efficiency, however, and accepting the costs of it, becomes an easy thing. As long as we’re chasing that next big rainbow, we can argue things like “the whole country is helped on the sacrifice of a comparative few.” Which is great, as long as you aren’t one of the few. It was left uncertain to me how much of that sacrifice could have been foregone without the sacrifice being quite so steep. The division of spoils therefore becomes important, to the extent that it was not so required.

    But it seems like we’re in a different place now than we were then. Having reached, or come close to, the Poretto Efficiency threshold, might explain the difference. Why I am at once more and less sympathetic to unions more generally today than looking backwards at the ones who were fighting for their members’ lives.Report

    • The problem is that it’s actually pretty hard to tell when it’s a change of a factor of production, or whether it’s an increase in Pareto Efficiency that’s changing what the economy looks like. Reality doesn’t like clear cut theoretical models like this one.

      In general my belief is that after large-scale disruptions like industrialization or deindustrialization, shifts to Pareto Efficiency happen pretty quickly in a consumer economy. I think the defining moment for the US was when labor and goods became more mobile following the construction of canalways, railroads, the interstate highway system and the abolition of slavery. In essence when the barriers to trade WITHIN the continental United States started to go away, the economy was able to more efficiently assign factors of production to maximize productivity.

      An unstated conclusion to my post is that global inefficiency and the move toward efficiency is masking a lot of the distributional problems within the national economies and muddling the debate between socially optimal use of resources with the concept that everyone can get ahead.

      Everyone IS getting wealthier because there’s more production thanks to greater global inputs. But whether this shows a socially optimal use of resources is a different matter entirely.Report

      • Everyone IS getting wealthier because there’s more production thanks to greater global inputs. But whether this shows a socially optimal use of resources is a different matter entirely.

        It seems pretty clear to me that it’s not socially optimal. The question for me, going forward, is the extent to which we can make it optimal without introducing inefficiencies. I mean, back in the 1900’s, you might have been able to look around and say “Look! We’re as wealthy as ever! Let’s start looking at ways to divide resources up, because we’ve got nowhere to go from here.” Maybe things could have been divided more equitably and socially optimally without hindering the progress that was made on the backs of those with few economic options. But it seems to me that it might have been tempting to think that the efficiency progress had been made and that it was a better time to look at fairness, inequality, and so on. Not realizing what was around the corner and that what we thought was efficient was still wildly inefficient.

        Yet when I look around us now, I feel that way. I don’t know where we have to go from here (other than waiting for the rest of the world to catch up?). Or that where we go will be positive enough to outstrip the fears I have about where it will leave significant portions of the labor pool without the ability to sufficiently contribute (and, thus, without the ability to be sufficiently compensated).

        Yet every generation thinks it’s at the end of history… so I don’t know.Report

        • We’re slowly hitting a lot of technological barriers to moving forward. There’s simply going to be a resource scarcity issue coming up at some point unless we see some massive technological shift in energy (possible) and transportation (not as likely) that shifts the global production possibilities out.

          That said, we have a long way to go until the global economy is Pareto Efficient… And until we do, I have a feeling we can continue to put off that discussion about allocation.Report

          • Kimmi in reply to Nob Akimoto says:

            contract the “globalization” of resources, and you don’t need the transportation. Do it enough, and horse & buggy will suffice.
            We’ll get to energy eventually, but I’m still waiting for the fusion reactor prototype to get built. (the plans were “easy” to get money for…)Report

      • James Hanley in reply to Nob Akimoto says:

        whether this shows a socially optimal use of resources is a different matter entirely.

        One of the problems is that there is no objective way to define what is a socially optimal use of resources. It’s a purely subjective measure. You say we need more butter, less guns. I say without guns I can’t bag enough game, so all I have to eat is butter, which will surely cause my death from heart disease.Report

        • Nob Akimoto in reply to James Hanley says:

          You know very well that guns vs. butter isn’t a literal comparison of guns and butter. :p

          And while socially optimal use of resources is a subjective measure, it’s no more subjective than the social valuation of marginal labor valuation.Report

        • Kimmi in reply to James Hanley says:

          if that was all you were gonna use the guns for, and you weren’t gonna use them as cheap ways to gain profit at the cost of bloodshed in the cities, I wouldn’t have any problem with you getting guns. Probably better for the environment than you driving 100 miles for butter (WV, again)Report

  5. M.A. says:

    What happened to the Stiglitz’s column?Report

  6. George Turner says:

    I doubt we’ll hit actually resource scarcity, as the resources, though finite, are vast. It’s more a question of not actually producing from the available resources due to economics, labor costs, insufficient technical abilities, or that the energy required to access and refine the resources has a higher market price than the materials produced.

    Currently we’ve used much less than the top millimeter of continental crust for all our existing materials. If we went down 20 meters every single human on Earth would get a string of luxury hotels, 600 Boeing 747’s, a Nimitz class aircraft carrier, 4 Soviet Alfa class attack submarines, and hundreds of tons of metals like vanadium and chromium, plus many pounds of platinum and gold. But production on that scale is not easy. Our abilities still fall far short of exploiting the full potential of just the Earth, much less the solar system.Report

    • Nob Akimoto in reply to George Turner says:

      And we’d have no life left on the planet to use all those toys with.Report

      • M.A. in reply to Nob Akimoto says:

        Sure we would, everyone would just have to live in tunnel cities built into the Himalayas.Report

      • George Turner in reply to Nob Akimoto says:

        And that’s why people will stay poor. The resources are almost infinite, their willingness to benefit from them is almost nonexistent. That’s why even rich Westerners are only using the top millimeter of soil, and why the US only has a dozen aircraft carriers instead of the world having 7 billion of them (that, and boating accidents would be a pressing problem).

        Many people don’t like mining, yet almost every tool in their daily life, their house, their car, their laptop, their silverware, the wiring that supplies them with power, comes from mining. If you decree that resources can’t be extracted, you won’t have much of anything and will live like a poster child for Unicef.Report

    • “…or that the energy required to access and refine the resources has a higher market price than the materials produced.”

      But it’s already pretty clear that energy is going to be the limiting factor. And electricity in particular. If everyone in China and India were to consume electricity at the per-capita rate of Japan (currently the most efficient large economy), you need to more than double the world’s output. Then add to that for population growth. There are no practical ways to do that. I have a standard bet these days, although I’m getting old enough that the odds are worse than 50/50 that I’ll live long enough to see if I’m right. By 2037 (25 years from now), the US Eastern Interconnect will be having serious problems keeping the lights on reliably.Report

  7. Nob Akimoto says:

    Curious at the lack of response.

    I’d be interested in seeing critiques about the meta.

    Is this post too obtuse? Am I missing something important with this discussion?Report

    • BlaiseP in reply to Nob Akimoto says:

      It’s excellent, Nob. Took me a good long while to think through it. Cut and pasted it into LibreOffice to compose a response, which may I tell you was hard work 🙂Report

    • I for one very much liked it, and I think your point is right on the money. There’s just no buzzwords for people to use as a trigger for outrage.Report

    • Patrick Cahalan in reply to Nob Akimoto says:

      I commented a bit this morning on other threads, and then spent the rest of my free time polishing my post, which will go up in about a half hour.

      This post is great, by the way; I like the focus on the global economy, which is where I think the problem is as well. I took a slightly different approach, but I think we’re both looking at the situation from near vantage points.Report

  8. BlaiseP says:

    I can see how government expenditures might be organized along the arc of guns and butter. I’m not sure I see how this can be applied to working markets. If demand increases for a particular product, guns, butter, oatmeal, aircraft, the market responds with ever more efficient means of production. Even capital, though it seeks the highest rate of return, will retreat from the market in the face of endemic risk.

    The problem is not mere resources. Even abysmally poor countries have resources for sale. If the West has become more Pareto Efficient, it has done so by rising above the sale of logs and ore. The West has investment capital to fund the development of multi-axial turret lathes to turn those logs into furniture and that bauxite into aluminium skinned aircraft.

    It seems to me market inequalities between rich and poor nations arise from their relative places in the technological and financial hierarchy. The West stays on top by technology transfer, selling tools to the poor nations so they can sell furniture and not logs. The global economy is horribly efficient, seeking exploitable resources of every sort, including human beings.

    Poor nations open the door to the exploiters in hopes of rising in the world — and there is no shame in starting at the bottom, selling logs, if your aim is to become a nation of woodworkers. But that’s not how it works out in practice. Entire towns in China have become centred around pillar industries: one neighbourhood in Foshan, Lekong, is entirely dedicated to the manufacture of furniture. Yanbu Town only makes underclothes. The spectrum of guns and butter is irrelevant in the city of Foshian. This neighbourhood does guns, that one does butter and it’s hugely efficient.

    Da Vinci tells us to consult nature for solutions to our most vexing problems. Nature teaches us specialization and interdependency are the hallmarks of successful species. Were an alien to come a-visiting, he would probably not look to us for any real picture of life on this planet. He would consult the insects, the true working societies of this earth.

    The world is moving beyond the nation-state and its absurd notions of National Economies. Liberals and Conservatives are different sides of the same coin: the Liberal sees an individual in the context of society and the Conservative sees the society comprised of individuals. If there is to be any equality in the world, it will only arise when mankind proposes to live in the light of equal justice.Report

  9. Jaybird says:

    Part of the problem is that while butter may not be able to get you guys with guns, guys with guns can always get you butter.Report

    • BlaiseP in reply to Jaybird says:

      Guys with guns eat butter. They seldom come back with any.Report

      • Jaybird in reply to BlaiseP says:

        Well, the original line was “while gold cannot always get you good soldiers, good soldiers can always get you gold.”

        I wanted to use guns and butter.Report

      • George Turner in reply to BlaiseP says:

        Butter was rendered largely irrelevant by margarine, and turned out to be about as deadly as tobacco. We already eat too much of butter and margarine, and they sell for next to nothing, so I can’t imagine why anyone would want to increase their production. On the other hand, the value of a Browning 1911, 1917, or 1919 has gone up over time, and not everyone owns them yet. You can also pass Brownings on to your grandchildren, something you probably don’t want to do with butter. And of course the production of a Browning doesn’t require the enslavement and exploitation of an innocent cow named Betsy.

        Pareto efficiency should really be the decision between producing the maximal number of Glocks or Brownings.Report

  10. Roger says:


    I basically agree to this.

    That said, I wanted to bring forward something you said on my post. I bring it here is because I doubt you are still tracking the other.

    You wrote:
    “You constantly bemoan that “liberals” are out to paint libertarians as strawmen, yet you applaud a post that says liberals and progressives are avid, greedy, narrow-sighted zero-sum thinkers, while libertarians are on the side of saints and angels and positive sum gains for everyone…really?”

    The point of my piece was to suggest progressives are more prone to mistakenly viewing the world as zero sum, even when it isn’t. But have you actually read the comments by your fellow self described progressives? They aren’t denying it. They are arguing that it is true. That the rich have raped and stolen from the poor and that is why inequality is as it is.

    They aren’t just making my point, they are making it more vehemently and extremely than I ever would have. I agree that not all progressives fall for this bias, and I agree that libertarians tend to fall for the opposite bias. What do you believe?Report