Chris Dillow has blogged that efficiency is a contestable value. No disagreement there, but his argument seems a little odd: he argues that efficiency is contestable because it conflicts with something he calls “sanctity”, which he never really defines.
In his first example he argues that a mansion tax would promote efficiency by persuading widows to give up large houses to those with larger families, but that this would conflict with the sanctity of widows wanting to stay in the houses where their memories are*.
But this has got efficiency all wrong. The mansion tax doesn’t promote efficiency, the market does**. Sanctity is presumably the reason widows have resisted market pressure to sell: they value the house more than others do. Economic efficiency incorporates the value that widows place on sanctity. A mansion tax would lead to an under-supply of sanctity, relative to the market, precisely because it distorts the market away from economic efficiency***. The market is willing to trade off sanctity only when the widow is willing to do so.
Of the other examples Chris discusses, most are also problematic****: markets in surrogate wombs, organs, prostitution. Again he argues that markets in such things conflicts with their “sanctity”. But, as he admits, they only conflict with people’s feelings about the sanctity of someone else’s womb or organs. And again, markets offer a solution. If I don’t want you to sell your womb, I can out bid the person who does. Sure I won’t always get my way, efficiency is about balancing multiple values. But that seems a pretty minor problem with efficiency: that it doesn’t allow sanctimonious dictatorships?
Welcome to the first post on the blog. Sorry it’s a bit rough and ready, I’m still working on it.
* I think Chris knows that this is a spurious argument against a tax, since the widows could mortgage their house to pay for the tax.
** Of course, the market doesn’t always promote economic efficiency (externalities etc). But in this case, it does. The mansion tax isn’t aimed at reducing a distortion, it’s aimed at raising revenue.
*** I’m ignoring, as Chris didn’t mention them, other market distortions like stamp duty, which would act in the opposite direction.
**** I’ll leave his example of immigration, for now, since it’s a little different – it has rather different public good/bad characteristics.
Neal Hockley 