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The Almighty Buck

Journal Morosoph's Journal: Efficiency in Economics 9

Journal by Morosoph

There seems to be a bug in conventional economics: our measure of efficiency.

It must be obvious that $100 is worth more to someone with $1000 than to someone with $100,000. So here's an idea: Rather than totting up total income/wealth, we could (to a first approximation) take logs first, so that 10% of one's income means the same to one person as another.

Why logs? If one's time is worth $20 per hour, then something worth $2 is worth to us six minutes of one's time. If one were instead earning $60 per hour, something worth $6 is worth six minutes of our time, so everything scales: we've measured equal propensity to want to do stuff. It is precisely this that we're wanting to optimise when we're considering efficiency.

Any thoughts, criticisms, comments, improvements?

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Efficiency in Economics More

Efficiency in Economics

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  • Because of an intermittent bug stopping me posting long comments, I've added a few notes here.

    This measure is envy-free: If I create wealth so as to earn $1,000,000 (from $1000) where everyone else gets what they did before, our measure is increased. Leftist assumptions [slashdot.org] about wealth coming from someone else are not built into it.

    Naturally, wealth is not monetary, but resides in terms of what money buys and other side-benefits. The availability of oxygen is a form of wealth, as is water, food, clothing,
    • Interesting, but not practical.

      My employer cannot pay me in gasoline, which I need to drive to places and visit people to satisify my requires for happiness.

      So instead, he supplied with me gold. Everyone wants gold. But unfortunately, there is a finite supply of it. As gold becomes worth more, people who have more of it become richer by doing nothing. No risk, but lots of reward.

      So the government says, this piece of paper is worth gold. And that worked for a while, until people realized there wer

      • Hmmm. I didn't actually make a point, did I?

        The point of my ramblings - It doesn't matter what you actually do to money. Folks are going to do what they want to anyway.

        • Sometimes, but this might have some influence upon the more "rational" amoungst us! Taking the eye off GDP might even chage a few influential individual's politics!
          • More fully, some people start from some conception of justice, or how things should be. Some of them are highly influential. It is worth getting such people to see thinks differently.

            If you don't believe me (I'm not saying that you don't), consider the great poets, philosophers, America's founding fathers, the various ammendments in the American constitution...

      • Interesting, but not practical.

        Damned life. Always gets in the way of a good theory.

        I think that it very much depends upon who's doing the optimising. If you or I or the govt. (govt is a four-letter word) are seriously attempting to judge an action by the good it'll do, it's important to realise that happiness and other good qualities are not proportional to money value. This is what I'm really trying to do; the measure itself is really merely in hope that someone can pick in up and adapt it, realis

        • For a business, they still want to be maximising market value, and that is a linear proposition, but for predictive purposes, idiot economists notwithstanding, people adjust to their circumstances, and value their time proportionally to their income; the finiteness of the day (some of which is used for work, some for leasure) forces this. Although each business is likely to be acting linearly, valuing each dollar equally, the value that they put on the next dollar itself has to depend upon the employees'

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