In economics, it’s important to have a measure of “better” versus “worse” outcomes. Even someone with a very narrow definition of “better” would most likely agree that an outcome is made better if it makes some people better off and doesn’t make anyone else worse off. As such, some old Italian economist named Vilfredo Pareto defined a “Pareto improvement” to be a change where some parties are made better off and no parties are made worse off. Furthermore, an outcome is said to be “Pareto optimal” or “Pareto efficient” if there are no Pareto improvements available to be made- i.e. that it’s no longer possible to make anyone better off without making somebody else worse off.
Many changes in the world, however, are efficient in a lot of ways even if they are not technically Pareto improvements. For example, when markets are opened up to international trade, there are winners and losers- either consumers win and producers lose, or producers win and consumers lose. The efficiency of these changes comes from the fact that in each of these situations the winners win more than the losers lose, so the overall size of the economic pie gets bigger.
In other words, this:
For a long time, I didn’t know that there was a term for this, but a few years back a professor I TA’d for at the Kennedy School described such situations as “potentially Pareto improving.” The rationale is that, if one party is helped more than the other is hurt, there is some theoretical after the fact transfer that can make everyone better off. (On some level, this is the crux of the Coase Theorem.) The difficulty in these transfers, however, is that they are difficult to implement without reintroducing inefficiency into the system.
Personally, I encourage people to take a wider view and realize that sometimes they are the losers and sometimes they are the winners in the quest for efficiency, but hopefully gains and losses are distributed such that everyone ends up a winner overall.* You know, the economic equivalent of this:
I can only hope that I am the windshield more often than I am the bug.
* That said, this rather utilitarian principle does not necessarily hold when it would violate certain fundamental rights of the losers- for example, while it might be efficient for society to sacrifice me so that my organs can be used to save multiple other lives, I wouldn’t expect people to sit back and think that this proposal was entirely reasonable. And, with that lovely image, I will leave you to the rest of your Saturday afternoon.