Externalities can be positive or negative

Len Harding
By Len Harding

Standard economic theory states that any voluntary exchange is mutually beneficial to both parties involved in the trade. It is axiomatic that buyers or sellers would not trade if either thought there were no benefit to themselves. An exchange can, however, cause additional effects on third parties who are not involved in the transaction. This is an “externality,” a term economists use to describe outcomes of activity that are not accounted for in the normal free market equation. Externalities can be positive (bees kept for honey also pollinate crops), or negative(pollution from a factory).

“In the case of both negative and positive externalities, prices in a competitive market do not reflect the full costs or benefits of producing or consuming a product or service” (Wikipedia). Generally, Republicans focus on positive externalities associated with capitalism, while Democrats pay closer heed to negative externalities. Unfortunately, the negative externalities can only be addressed through government regulation, taxes etc., whereas positive externalities are politically “free.” We benefit from modern capitalism in ways far more extensive than just the money involved, which tends to be where Chamber of Commerce paeans start – and stop.

Unfortunately for America, for Ohio, for Clermont County, the equation never stops at the point of sale. That nice air conditioner that enables us to live in comfort has a lot of other costs associated with it that cannot be glibly passed-over. It is this way with everything we buy. Everything!

This is where we are in 2012. The easy burdens of the Bush era ignored the externalities of going shopping while going to war. Barack Obama is the collection agent; a face and situation that is oh-so-wrong for many white Americans.

Naturally those who benefited from Republican dissociation from reality want to keep their benefits. Those who did not benefit, but who think that they are next in line for benefits if things remain as they were, also want to stay the course lest they lose out on their expected rewards. Those who discovered the extent and relentlessness of the cost of negative externalities are greatly in favor of switching things around. Who’s right? Who’s wrong? Who knows? It all depends on whether or not you were satisfied with your economic and social status when the digestive exudates came into contact with the rotating air distribution device. Regardless, we were drastically affected by outcomes of decision making processes from which we were largely excluded. In 2004 Ohio voted against gay marriage and got a recession. In 2008 Ohio voted for change and got still more recession. Not much by way of positive externalities.

Now we are facing choices in 2012 with no clear acknowledgment from either side that there are huge downsides for any path chosen. Will the rest of the world overtake us if Obama is re-elected? Will South Africa’s past become our future if Romney is elected? Either way, the externalities of the past will impose real costs in the future. No questioning of that statement.

Len Harding is a retired consultant, technical writer and historian. He is a Democratic candidate for Clermont County Commissioner.