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Externalities

Market capitalism’s two biggest problems is exploitation and externalities, where externalities is the worst of the two. Time to talk about it.

What it is

An externality is a side-effect to a transaction. It’s “external”, as in “outside”, the transaction.

A classic example is pollution. Alice agrees to drive Bob to the airport in exchange for 50 gems. On the way there, her taxi emits some toxic fumes. Those fumes aren’t something that Bob or Alice are paying for.

It’s something that the people in the neighborhood she drove through are going to suffer for. Car pollution (both fumes from the exhaust pipe, and particles from the asphalt roads and tires) kills hundreds of people every year just here in Stockholm alone.

Sometimes, an externality can end up involving the original transactors indirectly. For example, if Alice or Bob also lives in that neighborhood they’re driving through. The “sawing of the branch we are sitting on” effect. (Climate change is an example, where we all live on this planet so if the Earth dies, in a way all effects that mess up the climate are eventually going to affect those who were involved in those transactions. Along with everyone else.)

The two types of waste are the same

When you throw garbage in the forest, you are wasting two things.

When I say these types of waste are the same, I don’t mean that they are equal in quantity. A few dollars worth of mercury can be used to poison a priceless water supply. Or we could be talking about worthless radioactive poison that you have to pay people in order to take because no-one wants it.

What I mean is just that the “type” of waste is similar, from a systems perspective, in the following way:

It’s stuff that’s unaccounted for by the market capitalist system.

It’s a bug

No programmer would willingly leave memory leaks in their code. This is the same thing.

Game designers wouldn’t happily have major interactions left ambiguous and unaccounted for by the rules.

Bakers and cooks wouldn’t proudly wanna serve food with some “unknown gray stuff I found under the couch” mixed in. Instead, they know what the hell they are doing.

Anyone who makes systems, from schedulers to engineers to chefs to tailors to authors to radio hosts, would balk at the way externalities act in market capitalism.

It’s a bug.

Sure, it’s bad that it’s a bug that’s literally destroying the planet Earth, but the fact that the system just has all these unmanaged entities is enough of a bug that capitalism is a complete trainwreck of a non-system. It’s ridiculous.

The bug that causes other bugs

In market capitalism, the “network effect” is a kind of externality. For example, if you’ve ever faced pressure to be on Android, iPhone, Facebook or similar, then you’ve faced the network effect. Your friends are on Netflix and they want you to be, too, so you can talk about the same shows.

Copyright is inherently network-effect–ridden: Anyone can write a compiler but there can only be one “Star Wars”.

Market capitalism has one job: to distribute resources and tasks. To do that, it sets prices. It is completely clueless when it comes to values (how much good something can do) and costs (how much pain something caused to create). It instead uses “prices” to approximate both of those things, and uses markets to set prices.

Where supply meets demand, there’s the price.

Markets and prices are a really, really, bad approximation of costs and values. As in horribly, awfully bad.

Even so: the network effect interferes with both of those things, and makes them even worse. This is why monopolies are bad (and network effects is what causes monopolies).

Emissions tax now

As a side note (this isn’t the main point of this article), this is why I support an emission’s tax that’s through the roof. Pollution needs to become accounted for. “Cap and trade” is a sick joke: the Earth and the wind and the rain belongs to all of us and it’s not for sale.