Hidden costs, despite being hidden, are costs
Harold Pollack has a post on gold mining making the familiar point that there are all sorts of market failures that support destructive environmental practices. If the mine in question actually had to pay for the costs it imposes — or even pay fair price for the land it occupies — it could never compete in an open market. In short, the gold mine survives by privatizing profits and externalizing costs.
Like I said, this point about “externalities” is familiar to greens the world over. But Pollack says something in his last line that’s worth expanding on:
When companies actually have to pay the full costs by buying mining land outright or leasing it, “that can become expensive.” Isn’t this is another way of saying: “Someplace else, taxpayers are getting ripped off?”
That’s a great way of putting it. For every dollar of external cost that is internalized, that’s a dollar less the the public is being forced to pay. Costs are being transferred, not created.
To expand on that a bit: Though the basic notion of externalities is familiar in public dialogue, I don’t think they’re actually taken seriously. When you talk about externalities, people think of things like “health” or “environmental damage” — fuzzy, squishy notions, about do-gooder values rather than real (cold, hard, monetary) costs.
This dynamic was evident in the recent debate (such as it was) over pricing carbon. Proponents of pricing carbon pointed to health and environmental benefits. Opponents talked about costs imposed on energy producers, which would then be passed to consumers. It became about liberal values vs. real money. (Not a favorable debate to have during a massive recession.)
Lost in the debate, as usual, is the fact that those externalized costs are, well, real. They are actual costs, actual money, not just things that give liberals a sad. When air pollution gives a kid asthma and his mom has to take him to the emergency room, that’s real money coming out of public coffers. The insane weather that climate change is already making more common? It costs actual public money to rebuild after that stuff. Externalized costs are money too, they’re just dispersed throughout general taxes and expenditures, making their source difficult to trace and giving rational consumers no opportunity to calculate whether the costs are worth paying.
So in the carbon pricing debate, when opponents protested that it would raise costs for energy businesses, the response should have been as simple as Pollack’s: every dollar of new costs for energy companies was a dollar that was being ripped off from taxpayers! To price externalities is not to create costs, it is to shift costs from the public to the private actors that created them. When that’s done — when consumers see the real price on the price tag — markets work.
Anyway, this is just a random hobby horse of mine. Watch for it next time you see a discussion of pricing externalities.