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Externalites Are External Aren’t They?



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Iain makes a striking claim :

…the market has considered the externalities and decided it’s not worried about them.

As ever I’m willing to be corrected but I was under the impression that we called these things externalities because they were in fact external to the considerations of the market.

For example, one study found that a $5 per ton carbon tax would entail social welfare losses of $25 a ton. Driving and energy use are that valuable to the economy. So it is quite possible that the optimal tax on energy use should be negative, to encourage more of them.

Quite possibly but then raising tax revenue from anywhere has a deadweight cost, entails social welfare losses. As we’re none of us conservative anarchists we all agree that the money has to be raised somewhere: why not in correcting a market imperfection rather than on labor or capital?



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