Efficiency is an important topic in economics. Broadly defined, economic efficiency describes how well (or poorly) an economy uses its available resources to maximize gains and minimize waste. 

For Christians, this is often compared to the idea of stewardship. Scripture is full of injunctions to use wealth rightly, affirming humanity’s role as steward of creation. Does this mean that, if used correctly, economic efficiency makes society morally good? Can Christians improve their moral reasoning by incorporating efficiency? Today’s post will explore the first question, using content from my new scholarly paper on these questions.

Economic Efficiency Explored

Let’s unpack how economists think about efficiency. A distribution of resources is efficient if traders have captured all potential gains from exchange. Alternatively, efficiency means society’s resources are valued as highly, in dollars, as they can be. 

Suppose I’m auctioning off an apple. Alice would pay up to $3 for the apple; Bob would pay at most $2. If I give the apple to Bob, I have allocated the apple inefficiently, because it is worth more to Alice than Bob. But if Alice and Bob are allowed to make side deals, inefficiency is temporary. Bob will sell Alice the apple at some price above $2 but below $3. Alice and Bob are each better off, and the apple has attained its maximum dollar value. This simple example shows how markets, as vast networks for exchanging resources, promote efficiency.

Efficiency is essential for descriptive social science. There’s no way to explain human behavior except through the lens of purposiveness. All action is an attempt to improve self-perceived wellbeing. Unrealized gains from exchange mean people could be better off than they are.

Traders don’t leave $20 bills on the sidewalk. If we see them, there must be some hidden reason they cost $21 or more to pick up, strange as that might sound. Economics is at its most insightful when it discovers convincing reasons for why seemingly inefficient behavior is actually efficient, once we consider all the relevant constraints.

A Prescription Problem

So what about our original question? Can economic efficiency make a society morally good? Actually, many problems with efficiency arise when we try to use it prescriptively. There is no compelling ethical reason to care about efficiency. “Maximizing the dollar value of society’s resources” is not a useful guideline for ethical reflection. And yet, many economists seem to think their job is to improve the efficiency of markets by acting like policy engineers. This is unjustifiable. 

First, economists often do not recognize they have crossed the descriptive-prescriptive boundary when they design policies. “We’re just helping people get what they want,” they claim. But in many instances, what people want is morally wrong. As I wrote in my essay, “The tragedy of sin means we want things that God does not want for us.” Christians especially cannot reduce morals to preferences.

Second, claims about market inefficiency selectively overlook the costs of rearranging resources, as well as the costs of designing and implementing policy. “We can all imagine a more satisfactory world, of course,” wrote Paul Heyne, an accomplished Christian economics educator. But we have “no more warrant” for ignoring certain costs than we do for pretending scarcity itself doesn’t exist. The appearance of inefficiency is a mirage generated by selectively ignoring costs or imagining benefits.

Third, and perhaps most concerningly, the economist-as-efficiency-engineer perspective requires economists to abandon explanatory power for actual power—coercive authority over human beings. As Catholic economist Mary Hirschfeld explains, economists’ prestige “is tied up with their ability to offer advice to policymakers on how to regulate markets to pursue various goals.” Frankly, this creates perverse incentives for economists to act as social planners first and social scientists second.

So economic efficiency is in itself not a moral good. It reflects the goals of the people acting within the economic system. Whether those goals are morally appropriate depends on Christian teachings, not efficiency. So how should Christians use the idea of efficiency in an economically informed way? That’s something we’ll explore in the next post.