Should We Even Worry About Externalities?

Last week while debating the NEED for government action in the US on car efficiency as part of their energy policy, a good friend of mine wrote the following:

You are worried about externalities? The consequences of using fossils fuels is an almost unimaginable improvement in the quality life for the average person. The average American today lives a better than the richest Medieval Kings of Europe. You are worried oil rigs blowing up? What about the billion or so children that didn’t starve to death before age 10 over the past 200 years? Give me a break. I prefer life.

It was an interesting reply in that he was questioning whether or not we should be concerned at all with the externalities of the market, and simply sees externalities as a cost of doing business.  Which would explain why he was on the side of industry when it came to government intervention, and he position that the US government should have left the business of increasing efficiency standards to the market.

The problem with this belief, as I see it, is that the market does not act in the best interests of the commons. It acts in the best interests of itself as it seeks to maximize profits.  which for much of the last 200 years has worked.

However, with the rising costs of externalities now impacting greater populations, governments around the world are begin forced into action, as I said they would in my recent pitch Beyond Business As Usual, becasue with the global recession decimating economies (and tax revenue) the governments can no longer subsidize the economic externalities.  Direct (subsidies) or indirect (low regulatory barriers).

Which is, and should be, a worry to industry itself. Which should hopefully catalyze firms to act before governments are forced to.


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