The Innate Nature of Economics - Economics and Ecology: United for a Sustainable World - page 48

EXAMPLE 3.1
Suppose we observe a serious issue of water pollution emanating from
a manufacturing plant in some city, which in turn has impaired recre-
ation, fishing, wildlife, and even water supply for downstream commu-
nities. Imagine a bare-bones conversation between an environmentalist
and an economist:
Environmentalist: Your discipline blindly recommends producing more
goods and services as the key to social welfare, no matter
what the consequences. Now look at the mess we have as a
result of so-called “unintended consequences” of these pri-
vate-production activities.
Economist: No, we recommend that in a system of private ownership and
production, all costs of production must be borne by the pro-
ducer, and then incorporated into price of the product. What
we have here is a failure to do that. Degradation of the water
quality is clearly a cost, and it is not being shouldered by the
firm but passed on to other innocent bystanders. Our theory
recommends internalization of all costs; so the problem is
really the failure to follow our theory, not the theory itself.
Environmentalist: But your theory calls these types of things externalities,
as if they're an unimportant side issue to the main business of
producing and consuming. In effect, you're urging society to
ignore or minimize their impact.
Economist: But we give clear guidelines for internalizing these externali-
ties. If this is not done, then they clearly are overproducing
that product, since the price to consumers is artificially low
because it does not include all 'production' costs. If internal-
ization were to occur, the price would accurately reflect these
costs (and also profits would be lower), and the result would
be socially optimal.
Environmentalist: Given the quantitative measurement fetish of your dis-
cipline, it's fine to say loftily that all costs, such as air or water
pollution, should be incorporated, but those are difficult or
impossible to price accurately. Especially when compared to
profits, jobs, prices for products, and similar “hard” economic
quantities, the intangible environmental factors, which erode
quality of life for everyone, tend to be minimized or even for-
gotten completely.
Economist: Give us time. We're working on better measurement
techniques.
This hypothetical exchange has taken place, in one form or another, in
virtually every community. The root cause of some problem is ascribed
to economics, and the discipline is defended through a contention that
the real problem is the inappropriate application of the theory, and not
the theory, which may even be defended as the solution, if only it were
followed correctly. The self-image of the economist is even probably as
an environmentalist.