Externalities, good and bad

“Greenhouses set up next to carbon-dioxide emitting factories give food producers easy access to the gas their plants love…. Everyone on the planet eats food, so perhaps a tax should be imposed on every global citizen to remunerate the creators of carbon dioxide.”

I doubt this suggestion will find much support; I don’t even believe in it! But the reason that I don’t believe in it has nothing to do with my feelings over the goodness or badness of the externalities in question. Instead it stems from a recognition that we just don’t know what the relevant externalities are.

Many interventions in the economy come as a result of externalities – uncompensated effects of an action on another. (Think, second-hand smoke.) In a recent post at MasterResource, I attack the argument head on and add two key Austrian insights: 1) Whether an externality is beneficial or harmful is fundamentally subjective and thus different for all individuals, 2) Since we don’t know what the relevant externalities are, nor even whether they are good or bad, we cannot draft effect policies to combat them.

Read more here.

One Response to “Externalities, good and bad”

  1. I read David's full article. It is a masterful explanation that all interventionists should consider (although they probably won't!).

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