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We’ll Never Count All the Externalities

— October 20, 2016

Externalities are everywhere, once you start looking for them. These are the costs (or, sometimes, the benefits) that accrue to those outside of an economic transaction who likely didn’t consent to pay for them. I’ve written about them before, such as how WalMart profits by not having to pay for security services that are provided by local governments, how immigrant workers are exploited in order to provide products and services more cheaply, and how industry will never completely clean up the problems caused by burning coal, such as children poisoned by lead. The reach of externalities exceeds our grasp of how far their effects can range, but that doesn’t mean we are released from our moral obligation to mitigate the suffering caused in the world for our benefit.

The industrial system that provides us with cheap food is awash in externalities. For example, chicken has become about as cheap as decent bread, because the costs of raising a chicken are paid by others, such as the taxpayer whose money is used to subsidize farmers who supply cheap commodity corn feed and the environment that suffers damage from an oversupply of chicken poop at industrial farms. Farmers who raise chickens in a more responsible way incur more costs that are passed along to the chicken consumer, making their product seem more expensive. Which is the more responsible way to produce chicken? If you ask the shareholders, they’d probably say the responsible farmer is the one who creates the most profit for the shareholders.

Animal suffering and environmental damage are externalities not fully paid for by consumers of cheap industrial food. Photo by Alisha Vargas, courtesy of Wikimedia Commons.
Animal suffering and environmental damage are externalities not fully paid for by consumers of cheap industrial food. Photo by Alisha Vargas, courtesy of Wikimedia Commons.

It’s hard to make companies absorb their externalities if fixing the problems costs more than letting them continue unabated. Natural gas is said to be a more environmentally conscious choice than coal for powering our energy wants, because when it burns, it produces mostly carbon dioxide and water vapor. The problem is that before it is combusted, it consists primarily of methane, which is a powerful greenhouse gas. Methane leaks are a big environmental problem, but since it can cost more to plug a methane leak than the leak costs the gas company in lost methane, they are not incentivized to do so. It is even worse when gas companies are reimbursed by municipalities (that’s you and me) for the cost of the gas that leaks. Leaked methane causes much more damage to the environment (that includes you and me) than it would cost the company to prevent the leak, but absent appropriate regulation, they don’t have to pay for it. We do.

It’s arguable that no major industry would be profitable if they had to internalize all of their externalities. Observed from a certain angle, the entire economy, current and past, is based upon trying to get something for nothing.

Externalities exist because it is more profitable to foist costs off onto other people instead of paying for them ourselves. That includes cultural externalities, like racism. Long ago, before anyone alive now in our country was born, legal chattel slavery (and later, Jim Crow laws) created a social imbalance that has affected every generation since. In a very real way, the cost of building the United States into a major player was borne by enslaved people in the agricultural South (and by the environment and poor industrial workers in the coal-burning North). The existence of institutional racism today is a big reason that people of color do not, on average, have the same opportunities to live up to their human potential as those who benefit from racism. Slavery was, in economic terms, a huge externality, because people who were forced to produce more than they were allowed to consume bore the cost of a class of people who consumed more than they cared to produce. (This still goes on today, in different forms that are not usually called slavery.) And just like other externalities discussed above, it is simultaneously impossible to fully and satisfactorily account for all of the costs that were externalized, or the benefits that accrued to the more privileged, although nobody reading this is directly to blame for the origin of this hot mess. But just like we are responsible for working towards cleaning up lagoons of chicken manure (because we enjoy the benefit of cheap food) or providing medical care to children poisoned by industrial pollution (since we enjoy the benefit of electricity), we are also responsible for doing our best to clean up the poison of our toxic cultural history. People long dead and buried caused problems that they are no longer alive to fix. You might say that they originally enjoyed the benefits, but have externalized the costs of fixing their mess on to you and me.


Externalities are the norm, not the exception
You can buy a cheap chicken today, but we all pay for it in the long run
Why utilities have little incentive to plug leaking natural gas
None of the world’s top industries would be profitable if they paid for the natural capital they use
5 Helpful Answers To Society’s Most Uncomfortable Questions

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