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EXTERNALITIES AND COMMON PROPERTY RESOURCES (PART I)

June 27, 2017

EXTERNALITIES AND COMMON PROPERTY RESOURCES (PART I)

Don’t be put off by the title of this essay; these are just words and phrases economists use and I am not an economist but rather a lawyer who happened to take a degree in economics before going to law school. Economics is known by some as “the dismal science,” and some experts argue whether it is a science at all or a mere set of rules which any society needs in order to function is some orderly way. That “order” can vary from ancient barter systems to wars of expansion all the way to socialism of varying shades and to laissez faire capitalism such as that practiced today in America.

The Constitution is silent as to what form of economy we were to have. We chose capitalism, and were indeed practicing that form of economic order both before and after gaining our release from British  tyranny. Results of such a choice have been mixed; we have had periods of panic/recession/depression as well as prosperity since then, including a panic Washington experienced after only two years in his first term as president. This was followed by a pattern of panics and recessions leading to The Great Depression on an average of every twenty years or so before FDR inserted government regulation of corporate and financial excesses with his SEC, FSLIC.,FDIC and other such agencies.

We had a few minor downturns after that but largely experienced unprecedented prosperity and a rapidly expanding middle class for some forty years before Reagan and his trickledown economics and tax cuts for the rich and corporate class reinstated the pre-FDR days with a return to recession culminating in Bush’s Great Recession, a recession marked by bailouts, trillions lost in home equities, millions of foreclosures, massive mortgage fraud by Wall Street banks (the same ones who were insolvent and we saved from bankruptcy) in a recession whose effects are still with us today as we constantly remain on the edge of recession due, mostly, to tepid demand as a result of wage inequality and lopsided tax policy slanted to favor the capitalists who fund those who make such tax policy with what are known, euphemistically, as “campaign contributions,” or in my book and better described, “bribes.”

The foregoing is prologue and is intended to set the stage for a discussion of just how far laissez faire economics and lack of enforcement of laws and regulations can go before the system of capitalism we are now practicing (unless reformed) either collapses or puts us in a perpetual state of near-recession, the latter mainly due to wage inequality and tax policies favoring the rich and corporate class. In this essay I will discuss a largely unexamined ancillary product of a further negative to economic justice for all of us. This negative is playing out in a world of laissez faire capitalism (U.S.) and state capitalism (China, Russia et al.) and has both national and international implications, as we shall see.

I refer to common property resources, that is, property held by all of us in common, including where applicable to all of those who inhabit the planet. Air, water and land are the property all of us who hold such properties in common. As noted by American University Professor Robin Hahnel in his book “Economic Justice and Democracy, from Competition to Cooperation”: “By the end of the twentieth century, many of us fighting against the economics of competition and greed had added to our litany of complaints of capitalism that it leads us to abuse the natural environment in ever more frightening ways. But prior to the first Earth Day in 1970, with few exceptions, anti-capitalists were missing in action in the battle to protect the environment.” Hahnel further notes while we still criticize capitalism because it disfranchises the majority from economic decision making, distributes burdens and rewards unfairly and wastes human productive potential, that we need to get up to speed about the threat capitalism poses to the environment.

Take fisheries, for instance. Individual fishers catch all the fish they can in a given year without a consideration of what fewer fish mean for future populations. They have no incentive to consider the externality of how such overfishing affects all the fishers in the future, including themselves. Overfishing becomes exploitation of a resource held in common, and with less and less fish such a resource eventually withers away, and perhaps with the accelerating  increases in human population who eat fish, sooner rather than later.

So what does overfishing have to do with capitalism? This. It is not just fish but a large part of our natural environment that is a “common property resource” and is now being exploited by corporations and individuals who are free to do so in the name of maximizing profits. As Hahnel rightly notes: “The air we breathe, the upper atmosphere where greenhouse gases accumulate, much of the world’s tropical forests, and most aquifers are common property resources, too, so when users motivated by individual concerns have free access, they predictably overexploit these and other crucial resources as well. While capitalism has always stimulated humans to overexploit nature’s commons, the consequences have now reached critical levels. Current population levels, current technological levels, and the extent to which capitalism has now penetrated every society and threaten to turn overexploitation into global ecocide in the twenty-first century.”

So who pays for the cleanup (if there is to be one)? What is the cost, for instance, of the runoff of Scott’s chemicals to make lawns green and toxic mountaintops in West Virginia coal mines drained into the Ohio-Missouri-Mississippi basin that have given us a 150 mile “dead zone” in the Gulf of Mexico? Is this an “externality” (i.e.) unintended consequence? When does an unintended externality after the facts are known turn into an “intended consequence” in the nature of a tort against all of us who are owners of the common property? By what criteria do we gauge such costs and assess those who make lawn chemicals and mine coal or, due to political pressure paid for by such polluters and the difficulty in figuring such costs, don’t bother?

These practical questions and many such others have roots in history, but it has been a history we have largely ignored but must now consider if we are to survive, especially given the increase in human population we are experiencing.  Since bought politicians and lobbyists with campaign contribution checks in hand have failed us, perhaps economics and sociology can guide us to a solution; perhaps not. Perhaps survival over profit will finally and necessarily become our choice in a reorganization of the current capitalist system of profit at all costs and though they are not paying “all costs,” perhaps not. I will explore such possibilities in Part II beginning with Adam Smith (the “father” of modern economics) and a look at history of buyer-seller exchanges which impact the rest of us as though were mere bystanders.  Stay tuned.     GERALD      E

 

 

 

 

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