Random Excerpt: Externalities R Us

Every so often, I open The Local Economy Revolution to a random location and copy down here what I find.  Intrigued by what you read? You can get the whole book here.  

The easiest unintended consequences to figure out are those that will impact me directly – the ones that will come back to bite me in the butt.  If I am thinking about putting an addition on my house that I really can’t afford, and doing so will put me at risk of being unable to pay all my other bills, then the potential unintended consequences of my choice to add onto my house are pretty obvious. Since I will have to deal directly and immediately with those unintended consequences, they are part of my system – that means that these consequences should be relatively easy to see, if I am honest with myself about what all might happen.  I might delude myself into thinking I can have it all, but that’s not failing to think ahead.  That’s just being a dumbass.

The hardest, and potentially most troubling, types of unintended consequences fall into a group that traditional invisible-hand economics call “externalities.”   These are the impacts of a decision that accrue to someone or something else — the impacts are external to the person or organization that made the decision.

Traditional economic theory placed externalities outside of the economy – the externality was experienced by someone other than the economic actors, so it was not part of the economic activity.  Terming something an “externality” was a way to exclude it from the equation.

Of course, it’s not that simple.

As I mentioned, my father and grandfather ran a small paint company in the 1960s and 1970s.  In those days, there were few rules regulating hazardous materials, and most of the compounds in paint hadn’t been officially recognized as hazardous anyways.  Like most paint factories, theirs generated lots of garbage – batches of paint that didn’t come out right, test pots, empty containers, broken equipment, etc.

The company was located on the edge of a steep gorge that ran through town … and standard operating procedure at the factory was to toss the cans, pots and other garbage over the hillside.  This wasn’t uncommon – people used to use that gorge to discard a lot of types of refuse.  I remember 1950s-era car fenders and mattresses in the brush along the hillside farther downriver.

The company closed in the early 1980s, and as far as I know all of the officers and stockholders are dead.  But the old paint cans on the side of the gorge are probably still leaking – my brothers, who still live in the area, have heard friends talk about seeing rainbow-colored scum on the creek surface downstream from the factory site.

When the day comes when that property gets cleaned up, it won’t be my dad’s company doing it.  Instead, it will probably be the state Environmental Protection Agency.  Which means that, even though I didn’t do the polluting, as a taxpayer, I and all of my neighbors across the state will pick up the tab.

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