Arguing against effeciency

Day 57: Wednesday

Morning, Tim!

You may know, but I’m a big fan of efficiency. My first job out of college was nearly half dedicated to automating inefficient processes throughout the department. The other half of my job fed that half too, as I was to design new processes to help us better forecast volume and then match those with pricing strategies. Most of the time these projects were done in a rapid-fire, quick test kind of way, and, if successful, would warrant a more standard, automated approach as applied in the first half.

In arriving at my second job, though not tasked with it, I did much of the same. I’ve since moved on to other things, but for the most part, I have a thorough passion for efficiency. It’s why I made my sandwiches with homemade bread when I realized the savings it would have. It’s why I ate sandwiches in the first place, thinking it a waste to spend money going out to eat for lunch every day. Eliminate waste, wisely use resources. Makes a ton of sense.

Yet efficiency isn’t an end goal (obviously), and it isn’t even always the best one.

It’s also really hard to know what’s efficient.

Let’s look at health insurance. If we look at one end of the spectrum, we’ll call it the “market theory” we have individuals who are each responsible for their own insurance and savings. In this, they often buy insurance to some degree and have dollars out of pocket for what insurance doesn’t cover. Each individual has to save so that they can cover their costs. Two observations:

First, this means individuals should save more than they would if they pooled resources. If something happens to them (and in healthcare, it’s literally a matter of life and death), they will spend all of their resources on that health. Without health, their resources aren’t worth anything to them, because they would be unable to reap their rewards (can’t go on the fancy trip if you’re in a hospital bed…). So they are incentivized to save more in case of catastrophe — either through their savings or through buying much higher coverage in insurance. Notice that if resources were pooled, the total for the whole system is lessened, because the impact of even a rare risk happening and costing dollars is borne by a large, collective group (this is how insurance companies can make money).

Second, in practice, individuals are not good about saving enough to be covered. Because it is a very unknown risk (we don’t have great information on risk scores for e.g. cancer, heart disease at an individualized level), and because people discount the possibility it happens to them and not a neighbor, they often buy crappier insurance and/or don’t save enough to cover the out-of-pocket costs. This is also a bad outcome because you have individuals who need access to care in order to live but do not have a way to pay for said care.

As human beings, there is moral responsibility to help life flourish, and it would seem that one way to do so is setting up systems that encourage flourishing. This is why those who do argue for a “market theory” can’t just be cast aside – having incentives to save money, spend it wisely, make ongoing healthy choices, etc. can be remarkably valuable. If in a system where all resources are pooled, the incentives to overuse, for example, creep in. It’s simply not clear cut.

I’m a little all over the place. I’ll likely try again Friday. I’m trying to get at the idea that efficiency isn’t always the best goal; that there are, at times, externalities with inefficiency that are worthwhile and create a better system.

Until tomorrow,

Zak

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