Sang-Hoon K. answered • 03/29/24
Columbia University Alumnus Tutor Specializing in Standardized Exams
Economic efficiency is defined by pareto efficiency, and that's defined as the point where no change could be made to improve the economics of a person without degrading the economics of another person. Its a way to measure if economic resources are used optimally and at capacity. A way to easily get an idea of impact of economic inefficiency, which includes welfare payments, is by looking at United States of America actual GDP and potential GDP, where the potential GDP measures a theoretical GDP if economy was at pareto efficiency. A historical and empirical way to get a similar assessment is by comparing the United States versus Soviet Union GDP during the cold war era 1970 - 1990. Population was somewhat similar during those years:
Population, 1970 - 1990
USA, 205 million - 250 million approximately 50 million growth
USSR, 240 million - 290 million approximately 50 million growth
$GDP, 1977 - 1990
USA, 2 Trillion - 5.96 Trillion approximately $4 Trillion GDP growth
USSR, 0.82 Trillion - 2.66 Trillion approximately $1 Trillion GDP growth
USA and USSR basic difference was type of economy, capitalism versus a command economy. That's a reasonable comparison of what occurs from a welfare economic dynamics as described primarily as a symptom of economic inefficiency and misallocation of resources to sub-optimal uses from its theoretical potential GDP. USA functioned as the potential GDP in this comparison and USSR was operating at below its potential. USA was 4X more economically efficient than USSR during those years, 50 million people produced 4X more in the USA than in the USSR. High unemployment is typically required with a similar count of people as described in the USSR, and is associated with low overall economic output and also is not coincidental that its also associated with welfare economics in a chicken or the egg dynamic - "what came first".
