5
Externalities
Economists believe that everything has a price. Everything.
Your family, the air, the oceans, eyesight: they all have a price.
Truly, this is what makes economics a dismal science. It’s cold and calculating. It is, though, pretty much right. Economists point out that when we don’t put the correct price on something, bad things happen.
Look, for instance, at the atmosphere. Nobody owns it, of course. And how much does it cost to pollute it with CO2? Nothing.
Polluters, then, get something (a garbage dump) for nothing. And, in a very real sense, the rest of us pay–we pay good, hard dollars to deal with the pollution.
Clearly, there is something wrong here. We need, as economists and politicians say, “to get the prices right”. If we put a price on dumping CO2, polluters would have the incentive to do a lot less of it.
Remember, too, that this is controversial: putting a price on water, air, oceans, and trees drives some environmentalists crazy. Read about the debate here. Read about a successful implementation of economists’ ideas here.
Read Krugman to figure it all out.