The Library

Efficiency vs. Equity: The Central Trade-Off in Economic Policy

Most policy fights are really one fight: a bigger pie versus a more evenly shared one. Arthur Okun's leaky bucket makes the trade-off visible.

• Efficiency is about the size of the pie; equity is about how it's divided — and the two often pull against each other
• Arthur Okun's leaky bucket captures the core idea: moving money from rich to poor loses some along the way
• The leak comes from administrative costs and from the behavioral responses that taxes and transfers trigger