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Exernalities and Products

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.

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biz

Recycling Oil

Lots of stories lately about how manufacturing costs are going up as a result of the rising price of a bucket of oil. To recap those in short:

Oil is in damn near everything. From dildos to dvds, skyscrapers to backscratchers. They make up a lot of packaging even when they aren’t in products themselves. That new thing you bought last week was nestled in an mold specially made for it. And since all this crap is made out of or with oil, their prices go up. Since they have to be transported from the manufacturer to the distributor to the store to your house, the price goes up.

Enter: recycling…

EXT. ANONYMOUS SUBURBAN CURBSIDE — MORNING

Sun shining down at a low angle breaking across the street with house shadows long. Dew on the grass. A trashcan sits next to a driveway. We HEAR light, whimsical music gradually increasing in pace.

We HEAR the ROAR of a truck MIXED with an increased FERVOR in the music.

A recycling truck enters the frame. We HEAR: “DUN DUN DUUUNNNNN” and music HALTS.

As the price of oil rises, we will find it more and more desirable to reclaim oil that was used to make packaging and other products and recycle them. We’ll also see recycling become available in more places and of more types. Currently, for instance, the company that collects my recyclables does not recycle most of the types of plastic. That will likely change as they become more valuable and as recycling methods are streamlined.

That is all.