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Tag: externalities

The High Price of Non-regulation

Posted in society by Adam
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The cost of slashing regulation must account for the cost of paying for the things that regulation would prevent.

The Republican Unified Government (RUG), high off the fumes of kerosene they have bathed over the regulatory state, should open a window and call their accountants.

Regulation has a cost (nearly $900 billion for the past eight years, according to one study). But burning the check on externalities and leaving consumers unprotected has a cost, too. The RUG should be wary of its plan to abolish the sensible regulation alongside the onerous.

Consider the concept of healthcare, of medicine. When doctors diagnose an illness, it incurs a cost. That worker may need time off to recover, or may suffer under the side-effects of their prescription. The business may pay out some money to cover treatments. They may have to make accommodations for the worker’s weakened state, temporarily or permanently.

But the alternative, a worker dying on the job, the fear of other workers that they will arrive in the same state, is untenable. Worse, to fire someone for an illness, undermines the argument that employment is a stable, dependable method for allocating value to the individual.

Or consider food regulations, whether from the FDA or the USDA. Those hard-won protections of food quality arose from public outrage at the contaminated foodstuffs that people were buying. Maggoty bread and spoiled meat may fit with the latest RUG-endorsed diet fad (“The That Food Looks Rancid Diet”), but most Americans want wholesome meals for them and theirs.

No. Slash-and-burn regulatory policy will result not in record gains, record wealth, but will instead only hasten the adoption of stricter regulation in the years that follow. It will hasten migration to the states that hold fast to their own regulations, as millions in places like Flint, Michigan start to recognize that it’s not worth it to live somewhere with poison water.

The cost of incompetent government is too high, and the Muralists are teeing themselves up to be a memory that will echo for generations against the emergence of any future RUG.

Things that are properly regulated stipulate a “pay me now or pay me (more) later” arrangement. Just like with health insurance, paying up front is cheaper and easier than paying in the rear-view. The RUG would do well to study the problem and only eliminate or recast regulations that fail the obvious test of appropriateness.

Exernalities and Products

Posted in biz by Adam
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Externalities are largely ignored by opponents of regulation and government intervention, to their detriment.

Externalities are costs in a market not borne by the consumers of the products or services. Pollution is the common example. Waste management (be it unused excess or things like packaging) is another. Anti-competitive practices are a third. In general, they are marked by market distortion.

For example, take waste management rather than some system where corporations have to directly account for product waste. Call a company LeafRing Inc. They manufacture decorative jewelry for you to put on your trees’ leaves. Each piece is sold for $1 and comes in a throw-away wrapper.

Let’s say that suddenly LeafRing had to pay for the waste, all those wrappers, plus damaged LeafRings, plus ones that people quit using. That might raise their unit price to $2, but people will only pay $1. They can’t sell LeafRings, so they go bust.

Instead, we have the externality system, where the true cost is still $2, but LeafRing only cares about the first dollar. The other dollar is up to the whole system (which, it isn’t, due to the way certain government and business funding actually works) to bear.

Basically, the system is designed such that a product that might otherwise be unviable can exist by everyone else paying for certain costs.

Now, that’s not to say society isn’t better off for having LeafRing. Nor to say it is. It’s a tradeoff people can disagree about. And they might choose to call it an effective subsidy instead of an externality.

The problem comes when, in response to externalities, people expect the solution to be free or profit-making.

Take public transportation, for example. The semi-private automobile system is too expensive or otherwise exclusive for some people, and so they need alternative transportation. But enough people get past the velvet rope that public transport is underutilized (a form of de facto segregation, though not entirely along racial lines). The fact that some people are not able to use the dominant transportation is an externality caused by high prices of cars and fuel, plus the demands placed upon operators.

Public transport is effectively the cost of the system we have, but critics often pretend that it should pay for itself. They want a free lunch: cars not having to account for the costs they impose on society, plus the therapy coming at no cost. Indeed, there are car drivers who look at a bus and think they’re paying for transportation twice: once for the car, and once when they pay taxes that support the busline.

In fact, the latter is just paying the hidden costs in the former. And the fact that’s not made clear, that politicians and media portray costs of externalities as though they’re facts of life, rather than as a problem of market distortion, only distorts the political system further.