Thursday, October 20, 2011

Understanding Externalities

Ed. Note: Been a long time. Keep telling myself I want to blog more. We'll see if it actually happens (probably not). Had a short post to dash out, though.

As I read it, populists movements on both the right and left oppose Wall Street bailouts. They recognize that these banks benefit from an implicit government subsidy while taxpayers bear the burden when the banks fail. They stand in philosophical opposition to these sorts of policies.

Yet populist movements on the right reject arguments for greater environmental regulations in other industries. They, apparently, don't recognize-or care-that these companies benefit from the ability to externalize the environmental costs of production. They find the mere act of government intervention repugnant.

How exactly does one square these views? Tighter regulations of bailouts prevent externalities that would hurt taxpayers' pocketbooks. Tighter environmental regulations prevent externalities that would hurt citizens' health. Both companies profit because they don't internalize the cost to society of their actions. Why does the right find one so more offensive than the other?

One could posit a mere opposition to government action*, or government in general (That is, government is actively bailing out banks and actively implementing environmental regulations). But the underlying opposition to bank bailouts does not appear to be any concern about the government action, but rather the impact it has on citizens. If that's the logic, how does it not also apply to environmental regulations?

*Somewhat of a simplistic view anyway, because you could also view it as a government action to decide not to act.

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