I was visiting my urogeologist, Dr. Benny Boulder, about my kidney stones, when he suddenly asked, “What do economists mean when they talk about ‘externalities?’”
Quickly, not to lose a teaching moment, I replied, “Last week at the symphony, two women sitting next to me were talking while the orchestra was playing. This annoyed me and, roughly, I signaled my displeasure to them. They stopped.
“Their talking caused a negative externality, an undesirable effect on another person (me) who was not involved in their transaction (talking).”
“Hmmm,” Benny hemmed, “sort of like those coal-fired power generating plants down in southwestern Indiana?”
“Yes,” I agreed, “but a far less serious matter. Those plants have been and continue to be a health hazard. They are not just a nuisance, but a danger to thousands in the state.”
Benny said, “Progress has been made in cleaning up much of the emissions from those plants.”
Again I agreed, “Indeed, but there is still much work to be done. It’s not just closing those plants or substituting a non-fossil fuel to generate electricity. There are widespread consequences for many employees working at or supplying the needs of those plants. There may also be major costs borne by consumers and shareholders.”
“Coal miners,” Benny interjected.
“Among others,” I said. “When our government demands changes for better health and safety, are we as citizens required to assume responsibility for the consequences of those changes? How are we going to help workers, businesses and households adjust?
“Are we willing to support research and training for new jobs? Will we help families move, if that is necessary? How likely is it that we will accept responsibilities which may last decades?”
“It’s like the fuel economy regulations on trucks,” Benny said.
“Somewhat,” I replied, surprised by the conversational leap. “The federal government has come out with new regulations for the 2021-27 model-year heavy trucks.
“That and the economics of the trucking industry are moving us toward improved efficiency with less pollution.”
Benny said, “Yeah, long-haul truck owners and manufacturers are treated as villains in the pollution wars. Diesel-guzzlers pound the roads and fill the air with noxious fumes.”
“Exactly,” I said. “But trucks of the future will get more miles per gallon and produce fewer fumes. However, we can expect those trucks to cost more to buy as they become more sophisticated. Ultimately, who’s going to pay for that?”
“Why is that even a question?” Benny asked. “Won’t the market take care of it?”
“Maybe,” I said. “But everyone will want government to step in and protect his/her interest. Remember, patent protection is the American way to pass along the costs of innovation to the end user. That’s what we do with pharmaceuticals in your business. Patent sharing is rare.”
“Which reminds me,” Benny said, “back to a solid topic, your stones.”
Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to [email protected].
