Tuesday, July 13, 2010

In Praise of Inefficiency

As I watched Mad Men, I came to a conclusion about our economic woes: this country needs to be less efficient. We praise efficiency to high levels in a capitalist system; competition demands it. However, the more capitalism becomes truly in effect, the more efficiency turns from a positive force for development into a destructive force for individuals.

Everybody at Sterling Cooper has their own secretary, which is really remarkable if you think about it. There's no way those guys need that much help, so really, if the goal is maximizing profit, they're wasting a ton of money on a secretary who watches a door and fields a few phone calls. An efficient operation would lay off most of them, and there's the rub: inefficiency creates jobs. The less pressure there is on maximizing corporate profits, the more perks arise, and the more money spreads out. And it's not just expanding the service workforce: the copywriters drink all day and leave at 5. For every four guys you can keep until 7, you lay off the fifth and get the same output. His benefits package is pure savings, and moreover, if you stop the drinking, you get the same output from exactly four guys.

Better machines mean fewer machines, or less spent on machines. And those machines are built by people with jobs, who are going to lose them. Even things like a food budget helps: you're not going to lose much productivity if you stop paying for lunch, so it's a good corporate deal. But if you keep it, it's more money leaving dividend accounts and going directly into the economy. It trickles all the way down.

The flip side of this is that if you become inefficient, you start losing in competitions: other actors will start running circles around you. You can counter that by directly taking money out of the top, but in a corporate setup, that's impossible: you have legal duties in the other direction. Privately owned companies, not bound to maximize profit, will whimsically become inefficient and spend their own money on what is ultimately economic stimulus.

It applies to politics, as well: an efficient Republican party realizes that 100 Senate seats amount to a zero-sum game - each one they lose is one you gain. And there's only one presidency. This is clearly the game the current GOP is playing, and why shouldn't they? The success of the nation is inherently inimical to the opposition party, who will never get as much benefit from cooperating as they will from the failure of the majority. It's obviously in the GOP's interest to see Obama fail, and only patriotism would hold them back. But patriotism is whimsy in this context, inefficient. And of course, they ignore it. Sometimes Senate comity has prevailed in these situations, but that's bizarre and anachronistic at this point. And besides, if they really believe their dogma, two years of a botched economy followed by a political revival is probably long-run good for the nation. It's amazing politics went this long without open war between the parties.

1 comment:

  1. Great points. I think there are examples of inefficiency built structurally into a system.

    Commercial salmon fishing is a great example. Salmon return yearly to streams. This means that all the fish have to pass through a natural bottleneck. Before statehood companies built large fish traps to catch and process salmon. These were basically giant walls with huge industrial baskets that would lift the fish out of the water by the truckload. It took only a handful of individuals to operate and caught as many fish as the operators wanted.

    Efficient. But this meant obscene profits for the owner/operators, and minimal jobs for locals. Making fishtraps illegal was a large part of the push for statehood (taking resource management away from the Feds). The result was introducing artificial inefficiency by giving fishing permits to the operators of boats that had a maximum size. The boats had to go out to see to try to catch the fish.

    I'm sure there are many other examples (including demands made by most unions). But, the problem with these systems is their inability to adjust to change that requires more efficiency. Salmon fishing in Alaska was decimated by competition from farmed salmon, and it continues to be difficult to adjust the legal framework to re-introduce necessary efficiency, and still maintain the level of jobs.

    I really think this is a strong argument for 'socialism' in the form of strong social safety nets and higher taxes on the wealthy. If we all efficiency in the system then that means more profits at the top, the wealthiest get wealthier. So if we don't want to force inefficiencies as a method for spreading the wealth then we have to do it through taxes and social safety net.