Excellent Summary of Cost Externalization

At Social Memory Complex:

Markets are fair only to the extent that liability is conserved inside every activity. People act responsibly because there are consequences for irresponsibility. Adam Smith pointed out the productive power of markets when he said, “It is not the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” In the same sense, we don’t rely on their benevolence to protect us from the harms they might visit on us through corner-cutting, pollution, etc.

If we start unbalancing the picture by taking away the need for some actors to fully account for the costs of their actions, it’s not hard to see that you’ve provided an incentive for them to rack up costs - benevolent though they may seem. There is a vast array of “intangible” interests that the market moderates - but it can only effectively account for them if they are actually worked into the decision making process of economic actors. The market makes these intangible interests tangible through the calculation of costs in the production of goods and services.

Of course, these costs - intangible as they may be - don’t disappear from reality just because they don’t go on the corporate ledger. Rather, the costs are simply shifted to another party - usually, the public. So think about it: first, you socialize the costs by legal fiat, and try to distract people from the root of the decision making process that creates them. Then, when these intangible effects that are supposedly so hard to quantify percolate into the tangibility of affecting actual humans and their lives, it’s left to the environmentally and socially conscious among us to try and refashion these intangible effects into terms movers and shakers - you know, politicians, lobbyists, corporate big-wigs - can understand. And yet, it’s the left who’s accused of having no economic sense!...

Truly productive enterprises don’t need gimmicks to function.... If investors had never had a blanket grant of immunity from fully calculating their true costs, how much cleaner or balanced would industry be? Would we have these huge inequalities of wealth if large scale capitalization didn’t get a sweetheart deal? Would we have more competitive sectors of industry if everybody had to compete, not just on the price of their widget, but the full risks of producing that widget - including dumping waste, emissions, etc.? We’ll never know....