Water Pollution … Just the Transfer of My Costs to You (the unsuspecting downstreamer)

Polluting PipesRegulations are a real annoyance, costing the manufacturer more money and annoying the workers in their toils (think having to wear particle filtering masks in an already hot coal mine). But then the workers, consumers, or the neighbors to the plant need the results of the regulation…

 

 

“[A] local shoemaking company, Wolverine Worldwide, the maker of popular footwear brands like Hush Puppies and Merrell and a mainstay in this area since 1883.

Decades ago, Wolverine dumped sludge and leather from its tannery in the woods around here. For years, the company and the government stayed mostly silent about the trash piles, even as developers built houses and a golf course near them and even as researchers documented serious health risks from chemicals in the sludge.

Ms. Schweinzger’s well water is among at least 30 to have been found to exceed the federal government’s recommended lifetime exposure levels for PFAS, also known as perfluoroalkyl and polyfluoroalkyl substances. She lives on the same street where Wolverine once dumped sludge that included Scotchgard, the waterproofing chemical used in Hush Puppies shoes that contained PFAS.”

Regulation is merely the making explicit the true cost of the manufacture, distribution, and sale of a product – the true costs that have previously been hidden as externalities and often born by unsuspecting outsiders to the transaction.

NYTimes article 11/25/17.

Economic Externalities

Economic externalities explain how society works when the market fails.

Externalities, quoting Wikipedia, are:

In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit.[1] Economists often urge governments to adopt policies that “internalize” an externality, so that costs and benefits will affect mainly parties who choose to incur them.[2]

For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society, whereas the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses. If external costs exist, such as pollution, the producer may choose to produce more of the product than would be produced if the producer were required to pay all associated environmental costs. Because responsibility or consequence for self-directed action lies partly outside the self, an element of externalization is involved. If there are external benefits, such as in public safety, less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others. For the purpose of these statements, overall cost and benefit to society is defined as the sum of the imputed monetary value of benefits and costs to all parties involved.  Thus, unregulated markets in goods or services with significant externalities generate prices that do not reflect the full social cost or benefit of their transactions; such markets are therefore inefficient.

Externalities are pricing mechanism (market) failures. When the market fails, another entity must step in to correct the pricing distortions.  Typically, this other entity is government.