Taking Ownership of “Externalities”

Economics.

Ewww, gross! I know, I know. If you’re like most people you probably don’t want to think, hear, see, or say the term.

I think it’s funny, not so much that the study of economics is inherently humorous, but rather that we have taken something so nuanced and complex and simplified our understanding of it to nothing more than “supply and demand.” It’s about time we became more critical of a system that has such wide-ranging effects in our lives and helps shape the way we see and interact with the world. It’s about time we became more creative in the ways we address the economic issues that have plagued us for so long that the terminology has infiltrated common language (e.g., market, globalization, economy, interest rates, taxes, etc.).

After losing interest in economics during my undergraduate studies, it was renewed the moment I discovered Steven Levitt’s Freakonomics (I definitely recommend the book and the podcast, Freakanomics Radio). As I read the book I kept thinking, “Yeah, this is an economic analysis of this situation.” Although I enjoyed the book, I couldn’t put my finger on quite what it was that made it feel like such an important read. Of course the author kept the narrative interesting—in it he writes about sex, drugs, crime, and poverty. If he had added gummy bears I’d be all in. I finally realized, though, I found his relentless questioning of established institutions the most important constant. Many of us have lost our childlike drive to ask questions. After being told something so many times, we eventually believe “it is what it is.”

The problem with passively accepting what we’re told is that, in doing so, we perpetuate and excuse a lack of understanding and appreciation of the subject matter. We often see this lack of understanding manifested as stereotypes. Now, sure, the average person needs to know exactly how a Lorenz curve describes equality about as much as the average person needs to be able to explain every part of the process that makes your hair stand up when you drag your feet across carpet or play with balloons. However, we do need a basic understanding of economic concepts. The oversimplification of economics is detrimental because it allows us to be complacent when we should be active. We tend to accept things to be true just because we have been told that in some way, shape, or form we will inevitably reach equilibrium. We believe that it will all just work itself out. This thinking is dangerous.

We live in a society where unemployment, deaths of workers, and irreversible environmental and economic damage are considered externalities (which means a secondary or unintended consequence) that need to be internalized by paying settlements and fees rather than providing a system of change to prevent them from occurring in the first place.

Let’s delve a little deeper into the concept of externalities. Wikipedia says: “In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost.”

According to this definition, if we must reduce potable water in a rural town by 30 percent, subject marginalized communities to inhumane working conditions, or convert once lush lands into toxic waste dumps in order to produce goods for our ever-increasing consumption diet, then it just “is what it is.” What’s ironic is that this concept only truly applies to industrial and commercial organizations. If, for example, I caused half as much damage in the pursuit my own success, those “incurred costs” wouldn’t be called externalities—they’d be called crimes. While some of those crimes might only require I pay a fine or commit to community service, many would call for my incarceration. The real difference is that I wouldn’t be permitted to repeatedly commit those crimes, whereas businesses are. Now, I am not anti-business or anti-corporation. I think that a lot of companies are doing a lot of good things. I think, for the most part, we are doing the best with what we know.  But there is always room for improvement, always a reason to strive for better.

The preliminary count of fatal work injuries in the U.S. in 2010 was 4,547 (Bureau of Labor Statistics). I think we owe it to at least 4,547 families to keep working. They’re not externalities. They’re people. Let’s really look at the economic systems we have in place and make them better. Take action. Make changes. Make them work for us.

 

The opinions expressed in this post and throughout RedBrownandBlue.com are intended to encourage civil discussion and invite well-reasoned alternatives. To join in, please visit our Contact Us page and drop us a line. Your contribution may be highlighted as a selected response and posted to the site at a later date.

Michael Maine is the founder and chief strategy officer of Menrva Labs, consulting with small businesses and non-profit organizations to build sustainable social change by increasing social consciousness, helping realize their potential by working with them to identify goals, build strategies, and carry out those strategies. Follow Michael on Twitter at @michaelbmaine and @menrvalabs.


Comments are closed.