The following is from the environmental themed advice column EarthTalk®, by the Editors of the non-profit publication E/The Environmental Magazine, that we be regularly feature here on CL’s Green Community.
Dear EarthTalk: In my business courses in college, we were taught that ecological degradation was an “externality”—something outside the purview of economic analyses. Now that the environment is of such concern, are economists beginning to rethink this? — Josh Dawson, Flagstaff, AZ
By definition, economic externalities are the indirect negative (or positive) side effects, considered un-quantifiable in dollar terms, of other economic acts. For example, a negative externality of a power plant that is otherwise producing a useful good (electricity) is the air pollution it generates. In traditional economics, the harmful effect of the pollution (smog, acid rain, global warming) on human health and the environment is not factored in as a cost in the overall economic equation. And as the economists go, so go the governments that rely on them. The result is that most nations do not consider environmental and other externalities in their calculations of gross domestic product (GDP) and other key economic indicators (which by extension are supposed to be indicators of public health and well-being).
For decades environmentalists have argued that economics should take into account the costs borne by such externalities in order to discern the true overall value to society of any given action or activity. The company or utility that operates the polluting factory, for instance, should be required to compensate the larger society by paying for the pollution it produces so as to offset the harm it does.
