[ExI] External costs (was Re: are all cultures equivalent?)

[Brent Neal]

On 13 Apr, 2009, at 4:54, Rafal Smigrodzki wrote:

> ### "Externalities" is just the kind of baloney that economists
> invented when their own research started going too far against their
> own prejudices. The anti-market bias afflicts most economists, too,
> they just learned how to clothe their antipathy in jargon.
>
> Rafal


Externalities, or externalized costs, are very real, not made-up  
jargon. Let me give you an example: Let's say I own a bit of land  
upstream from you. I can poop in the river and for me, waste disposal  
is free. Much cheaper than digging a latrine or building some hippie  
composting system. The water just carries it downstream.  Of course,  
by doing so, I've imposed some costs on you.  You now have to install  
a catch system to remove my waste from your drinking water, and boil  
everything to kill the coliform bacteria. Of course, it doesn't matter  
to ME, since I've externalized that cost. :)

Economically, it makes a lot of sense for me to push that cost onto  
you. What can compete with free, after all? But it doesn't mean that  
its the right thing to do, so you are well within your rights to make  
sure there is a Clean Water Act preventing me from pooping in the  
river and thus making sure that I'm paying for my own waste disposal,  
rather than using the fortunate happenstance of the river to force you  
to pay for it.

There's a very good reason economists care about externalities, one  
that seems obvious to me: precision. If you don't account for external  
costs, then there is no consistency in your measurement system. It's  
like using a balance without taring it each time. You have no idea how  
one thing compares to anything in terms of its real cost, because  
you're not measuring the same thing each time.  Which, contrary to  
your assertion, means that understanding externalities is vital to  
market economics - how can an agent in the market make the best choice  
if there is no precise or accurate counting of the cost?

B

--
Brent Neal, Ph.D.
http://brentn.freeshell.org
<brentn at freeshell.org>