Monday, September 26, 2011

Efficiency and Inefficiency in Economics

When you make plans you have to balance income with expenditure while making sure your plans for growth exclude inefficiencies that would make your economic policy ineffective on a small or large level depending on the size of the inefficiency.

Dictionary Definition of Efficiency;

1: the quality or degree of being efficient
2a : efficient operation b (1) : effective operation as measured by a comparison of production with cost (as in energy, time, and money) (2) : the ratio of the useful energy delivered by a dynamic system to the energy supplied to it

Definition from Investopedia:

What Does Efficiency Mean?

A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs. Efficiency relates to the use of all inputs in producing any given output, including personal time and energy.

Investopedia explains Efficiency

Efficiency is an important attribute because all inputs are scarce. Time, money and raw materials are limited, so it makes sense to try to conserve them while maintaining an acceptable level of output or a general production level.

Being efficient simply means reducing the amount of wasted inputs.

Read more.

When a project is efficient you minimize waste. You put in money into a project and attain specific short-term and long-term goals. In some cases, efficiency and inefficiency is difficult to estimate, however in other cases it is easy.

Here is an example of gross inefficiency from Greece (money wasted into unfulfilled projects):

In the southern suburbs of Athens, the abandoned terminal building at the city's old international airport stands as a symbol of promises unfulfilled.

Closed down a decade ago, the site includes 170 acres of prime coastal land on the shores of the Aegean sea and for some time there have been ambitious plans to sell it for redevelopment to the Gulf state of Qatar.

But so far they are just that - plans. And that makes the rest of the eurozone jumpy.

Here is another example of gross inefficiency (money wasted by putting it into a project that was known to fail - a level of inefficiency that really is impressive);

Note: 4 mins and 30 seconds into the video above you discover that a report actually shows that this project would run out of money this month of this year. Clear sign of inefficiency.

The following is an extract from a news report about the same inefficiency in the video above:


Note: Oct 5 '11
An example of government inefficiency in tax implementation (and spin associated with corporate journalism):


Added Oct 25, '11 - More incredible inefficiencies...

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