What is a decision-maker or a member of the "collaborative public" supposed to do with anything we government economists say under the banner “economic efficiency" as commonly used in Cost Benefit Analysis? How are we supposed to prove-up on any claims that something is "more economically efficient" than something else simply because it has a higher index number (PNV, B/C, etc)? The short answer in the US is that Benefit-Cost Analysis is pretty much required (OMB's Circular A-4 [PDF- 48p]) for many larger projects/programs/policies. Still, we can't just use "requirement" as a justification. Can we? OK, we can. But should we?
If we make such claims of "economics efficiency," why are we not also talking about "social efficiency," "environmental efficiency," and so on? In short, why would we want to talk about economic efficiency in any context other than then normal one of efficient operation of markets? To the extent we do want to talk efficiency at all, are we going to run our talk to ground by explaining, in appropriate context, the inherent relativity of "efficiency?" (See my four questions below).
I don't intend to answer any of these questions here. See instead my earlier posts: Cost Benefit Analysis Failings and Cost-Benefit Analysis: Wonder Tool or Mirage?, or better still the suggested readings below. As a personal aside, I haven't practiced "efficiency analysis" for many years, even before formally announcing my dissent from whatever mainstream there may have been in 1995. I do value my educational experiences wrestling with the efficiency theory and methods, however. They helped me to think more clearly, and to spend some considerable part of my professional life attempting to dissuade people from continuing to prop up government decisions with what seem to be in the main sophomoric cost benefit analyses. Here are links to my 1995 three-part series explaining my dissent from those who advocate for "efficiency analysis." You can read them in the order I provided them back then, or you can skip to my "Economic Advice" directly.
Design For a Sustainable Economics, Robert Gilman
Learning to Practice Economics in Context, Dave Iverson
Economic Advice for Forest Managers, Dave Iverson
In "Economic Advice" I suggest that we answer four questions when dealing with efficiency: Efficient at what? Efficient for whom? Efficient by what standard? Efficient for how long? (And then what?) The "And then what" question is asked repeatedly after any given response from an analyst or decision maker, to daylight the short sightedness embedded in most decisions. It is drawn from Garrett Hardin's little book Filters Against Folly: How to survive Despite economists, ecologist, and the merely eloquent.
Is there a better way to frame things? I think so. Wasn't that Aldo Leopold's plea when he suggested that we "[Q]uit thinking of land as solely an economic problem. Examine each question in terms of what is ethically and esthetically right, as well as what is economically expedient. A thing is right when it tends to preserve the integrity, stability and beauty of the biotic community. It is wrong when it tends otherwise."
This is the approach advocated by Green Economics.For more, see The GAIA Atlas of Green Economics. Here's Wikipedia's take on Green Economics. Green economics is built on a foundation of interdependence spanning local to global and spanning four spheres of action/influence: economics, society, ecology, and ethics. Specifically, "…The economy shapes and is shaped by the society and ecology of which it is a part. And all human activity is guided by ethical considerations, although ethical norms will change in response to economics, social and ecological influences. …" This notion of wholeness and interdependence is what we need to move from a non-sustainable to a sustainable platform for economics.
Can partial economic efficiency analysis help put us on a road to wholeness, interdependence aand a sustainable platform for economics? How? My answer is no. If your answer is yes, I'd love to hear why. If your answer is no, then you may have crossed a personal threshold toward sustainability.
PS. If you want to look deeper into critiques of CBA, take a look at this list of quotable quotes titled Critiques of Cost Benefit Analysis,
Suggested Reading:
Deborah Stone. 2002. Policy Paradox: The Art of Political Decision Making (revised edition).
Margaret Jane Radin. 1996. Contested Commodities
Thomas Prugh. 1995. Natural Capital and Human Economic Survival
James G. March. 1994. A Primer on Decision Making: How Decisions Happen
Elizabeth Anderson. 1993. Value in Ethics and Economics
Andrew Bard Schmookler. 1993. The Illusion of Choice: How the Market Economy Shapes Our Destiny
Herman E. Daly and John B. Cobb. 1989. For the Common Good
A. Allan Schmid. 1989. Benefit-Cost Analysis: A Political Economy Approach
Robert L. Heilbroner. 1988. Behind the Veil of Economics
Mark Sagoff. 1988. The Economy of the Earth: Philosophy, Law and the Environment
Andrew Sayer. 1984. Method in Social Science: A Realist Approach
E.F. Schumacher. 1977. A Guide for the Perplexed
E.F. Schumacher. 1973. Small is Beautiful: Economics as if People Mattered
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