Optimization

Optimization is only possible on a single metric. In our economy, that metric is money. There is a certain amount of money that a product, produced in a certain way in a specific place, costs to create. There is some specific set of ways and places for which that amount is minimal. To produce that product with any other method, anywhere else, would be a waste of money. A competitive market minimizes these inefficiencies by allowing those producing a product the cheapest to price out their competition.

This allows for incredible system optimization without a central hub for information or processing. The market, as a distributed network of individuals, is able to discover where it is cheapest to produce something, and then make all of it there. Money serves as a heuristic for the amount of time, labor, and materials used, meaning that the cheapest production method should be, roughly, the most efficient one. Thus, by optimizing on money, the economy is able to optimize how efficiently it uses the resources available to it.

As David Fleming points out, this incentivizes “the production of each kind of good and service to be concentrated in the places where it can be done most efficiently and cheaply. According to this principle, the efficient nation will make things for its own use only if there is nothing else (either for home consumption or export) that it could produce more efficiently”. This creates a world of dazzling efficiency. With seven billion people working to spend as little as little as possible, I’d expect nothing less.

An efficient world, however, is not necessarily a flourishing one. Our economic system fails to directly incentivize for human welfare or long term sustainability. The happiness a product brings is not priced in, just the demand for it. The effects of its production process are only sporadically felt through fines and regulations. We’ve convinced millions they must whiten their skin to be beautiful, and millions more that they need a nice big lawn to be successful. The companies profiting off these lies are not paying for the consequences. Instead, destructive actions are implicitly encouraged by the billions of dollars waiting for the first person willing to burn the forests, addict the masses, or pollute the seas.

Similarly, long term sustainability is not necessarily a concern of a 70 year old investor. By making decisions based on humans’ investments, we are biased towards solutions that will work for a few decades. This bias is costly—using a third of our cropland for the growth of a single plant creates a very real risk of failure. Our oil consumption is not renewable, yet we continue to invest billions because it works for now. Circularity, diversity, and flexibility are necessary for long term survival. But the only incentive for companies to consider them seems to be greenwashing. There is no payment required for draining a country’s natural resources or building an infrastructure for exploitation. Instead we reward those responsible with a competitive edge over the rest of the world. We have the ability to factor these concerns into our decisions, but it would require us to fundamentally change what our economy optimizes on. For now, we continue to make the world increasingly fragile and unstable.

These problems affect more than our methods of production. They pervade individual wealth. Just like production must be done where there is a competitive advantage, money must be kept where it’s most efficient. There is no incentive for distributing wealth equally, or fairly, or to optimize happiness. Wealth belongs to those with the most leverage—the rich. Over half of all wealth is held by the top 1% of the world. Meanwhile, 15% of the world—15 times as many people—lives on less than $2 a day. A majority of people in the United States are unable to pay for a $500 emergency. This is not an accident of the system. This is not a failure of character or education. This is the outcome of a system optimizing mercilessly on money over happiness, on speed over stability.

Reversing course requires, tautologically, that we are less efficient, since we will have to incorporate more objectives than money alone. We must build an economy that considers the impacts of its actions, the robustness of its systems, and the welfare of its participants, as fundamental factors for decision making.