My son and I were just returning to civilization after six days in the Boundary Waters Canoe Area. I pulled up to the stop sign where the Sawbill Trail runs into the North Shore Drive at Tofte and looked to the left for traffic.
Bearing down on me was a huge RV towing an SUV, which was followed by a train of other vehicles that seemed to disappear into the Lake Superior mists. My momentary impulse was to floor our old Ford to get ahead of the convoy but better sense prevailed.
If six days in the wilderness does not impart some serenity and acceptance, what will?
This day proved to be a lesson in economic efficiency — or the lack thereof.
We waited for the file of cars to pass then pulled out as the 19th vehicle behind the RV/SUV behemoth. Its driver was very competent. She kept the RV neatly in the center of the southbound lane and maintained 51 mph up hill and down dale. She slowed in time to meet the speed limit at every village and junction. She managed the big vehicle well and obeyed every law in the book.
Even though she had many opportunities, she never pulled over to let any of the steadily growing train of vehicles behind her pass. Some impatient drivers managed it anyway, taking advantage of the few straights with good sight lines and steelier nerves than the rest of us. By the time she finally pulled into a gas station at Two Harbors an hour later there were 31 of us behind her.
This competent, lawful but uncooperative driver was a perfect example of what economists mean by inefficiency. Her attitude provides some insight into why some societies are more successful than others in meeting the needs and wants of their members.
If one institution, method or system uses a given amount of resources and produces greater satisfaction of needs and wants than another institution, system or method that uses an equal amount of resources, then the first is more “efficient” than the second. The problem is you cannot objectively measure how satisfied someone is, nor can you compare levels of satisfaction between different people. So deciding when society is, on balance, better off, is difficult.
Vilfredo Pareto, an Italian economist-sociologist, said that one clear case of efficiency would be if you could use a given set of resources and make at least one person better off without making anyone else worse off.
If the RV driver had bothered to pull over and let 31 of us pass, we would have been better off, but she would have been a little worse off because her trip would have taken a few minutes longer. So the situation was not clearly inefficient, according to Pareto.
But later economists arrived at a more subtle distinction. If the RV driver’s letting us pass increased our satisfaction so much that we would have been willing to compensate her for her trouble, then her pulling over clearly would have improved economic efficiency. And that clearly was the case last week.
For the same number of cars, hours of time and available road, the total satisfaction of our “society” of 31 car drivers and one RV driver would have been higher if the RV driver had let everyone pass. Unfortunately, she was not a cooperative person.
This was a clear case of “market failure.”
Different societies vary in the level of willingness to cooperate embodied in the culture. Sociologists such as Peter Berger and political theorist Francis Fukuyama have written very convincingly about the relationship between culture and how productive economies are.
Unfortunately, this subject is still anathema to many mainstream economists. When I still worked at the Minneapolis Federal Reserve, I reviewed Fukuyama’s 1994 book, “Trust: The Social Virtues and the Creation of Prosperity,” for one of the Minneapolis Fed publications. I made the mistake of arguing that economists should pay more attention to cultural factors such as trust, cooperation, frugality and willingness to take risk, in determining why some economies grow much faster than others.
The researcher who vetted all such publications before they went to press objected to any inference that economists were missing the boat and insisted upon deleting the paragraph. It was the only time in seven years that something I wrote for the Fed was censored for ideological reasons.
Just as Galileo reputedly muttered “but it still moves” after officially recanting his heliocentric theory, even a vacation drive on the North Shore provides me with ample evidence of how the willingness to cooperate can affect efficiency, regardless of whether mainstream economists think it relevant.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.