Hop on your Unicorn Floaty and take in the world of externalities.
Estimated reading time: 5-10 minutes
If you’re looking for a quick overview (video clip w/ some detail) or to take a deep dive in the subject, visit the following link.
You’re at a food truck event and can’t decide what to get.
There’s a Burger Truck you’ve been wanting to try out, but you’ve heard that their meat comes from questionable sources. You’re aware that they’ve replaced the majority of their jobs with mechanized systems. You know they have a massive carbon footprint.
But alas, that sizzling quarter pounder with cheese wins out.
While you’re waiting for your order you start thinking about the poorly treated cows, the loss of jobs, and the pollution. What you’re thinking about are the unintended consequences of consumption (in economics speak, the externalities)
Externalities are the result of a cost being externalized (an external cost) onto an unknowing third party, typically the environment or society as a whole.
It looks like this. The Burger Truck could have bought their meat from sources that fed their cows a slightly more expensive natural, grass-fed diet. They could have listed additional quality-control jobs. They could have implemented state of the art pollution controls. Instead, these external costs were avoided and we see the resulting externalities (unhealthy animals, unemployment, pollution).
A hidden costs on the other hand is a cost that you personally will end up paying for, but they are either not included, or hidden within the purchase price. If you think of it like an iceberg, the price at the register is the tip of the iceberg, everything under water is a part of the iceberg, but not seen until later. Hidden costs would be things like future doctors visits or medications needed from an unhealthy diet.
Presently, the best ways to avoid negative externalities are to vote in like-minded representatives, advocate for the causes you believe in, and to be a conscious consumer by “voting with your dollar”.
You’re not a fan of the way Burger Truck sources their meat, so you consciously decide to spend your money at a nearby Salad Truck.
But what happens when a conglomerate (in this case Yum…my Brands 😉 ) buys out your favorite organic, non-GMO, free-range, 100% cruelty-free brands and continues their unsustainable practices under the guise of being “green?
Were you aware that there is no legal definition for “Cruelty-Free”? Technically a company could use the term however and whenever they would like.
Did you know the USDA does not have a common standard for “free range”? This allows producers to define the term as they see fit.
When the goods available become nothing more than green gimmicks meant to bamboozle us at the register, you’d expect the government to help out.
And they do, there are systems in place, such as a Pigouvian Tax. Pigouvian taxes were introduced in 1920 by a fella named Arthur Cecil Pigou. Pigou coined the concept of externalities and the idea that externality issues could be corrected with a tax.
Similar to a carbon tax, a Pigouvian Tax taxes the producers of a product for the negative externalities they produce. Issues start surfacing for externalities that are especially difficult to place a price on the effects — like the cost to our healthcare system from feeding animals unnatural diets — they become even more difficult to price when someone in Washington gives you a few bucks to say the externalities aren’t as bad as they are.
And that’s where Econus, our mobile app, comes in. Econus gives consumers the tools to actively engage with the unintended consequences of consumption.
Let’s say you still want that burger over the salad, by all means! But now when you buy that burger, you send your spare change to the Coalition for Clean Air, who in turn use your donation to lobby government to make sure producers are required to pay for the pollution they emit.
You just helped mitigate the externality of pollution!