Thank Fathom it's Friday

I’m a negative externality

10 May 2019|

A sideways look at economics

As I forced my way onto the Northern Line from King’s Cross to Old Street this morning, to a muttered chorus of grumbles and coarse epithets from my fellow passengers, and crouched as the too-low train doors jolted shut uncomfortably close to my right ear, while inhaling nauseating amounts of the product in the hair of the man to my right and bringing my heel to rest on the toe of the woman to my left, regretting for the nth time the absence of air-conditioning on that line and wondering whether I smelled as bad to other people as they did to me, I reflected: this is me. This is my life.

The other passengers on that train would certainly have been happier had I not been present.

That is a trivial example. I cross the Atlantic at least twelve times a year for work, in addition to other flights made for pleasure. I commute into work every day. Carbon emissions would be lower if I were not doing those things. I consume calories and nutrition that could be diverted to people whose need is undoubtedly greater than mine. The production of those calories and nutrition creates carbon emissions, reduces biodiversity and increases plastic and other waste — more particularly because I eat meat, lots of it, and fish too. I live in a house that has walls one brick thick, which loses heat at an alarming rate as a result. My house has a garden half of which is devoted to a monoculture of grass and, where it isn’t grass, it’s inhospitable to insect life and wasteful of natural resources like water. Water: I indulge in a long, hot shower every morning and occasionally more frequently if I visit the gym. I overfill the kettle when making tea. I like pasta cooked in loads of water, to avoid stickiness. I own a car that spends 99.9% of its time rotting in the street in front of our house: and yes, it’s a diesel.

And so on.

I don’t think of myself as particularly, unusually selfish, but looked at objectively, it’s hard to avoid concluding that I am. I hoover up scarce global resources like there’s no tomorrow. Let’s face it: since you’re reading this, in all likelihood, so do you.

When I add up all the negatives, it’s hard to see how I could come out, objectively, as a net positive. The world would be better off without me. The negative externalities that I generate exceed the positive ones, with a very high likelihood.

However, I’m not about to take up arms against this sea of negative externalities and by opposing end them. The positive strongly outweighs the negative for me personally (unlike Hamlet) and — I hope and believe — for the people I know and care most about. I do not care equally about all people and, in general, the more I care about people, the greater is the net positive impact I think I have on their lives. So, weighted by how much I care, I believe that I am in strongly net positive territory in terms of my impact on the world — and I think that also holds if I exclude myself from that calculation. Not including my own happiness, I think the degree-to-which-I-care-weighted impact of Erik Britton is net positive. Which is a comfort, to me as it was to James Stewart’s character in It’s a Wonderful Life.

What’s the point of all this?

I can see that I’m responsible for a net negative externality in an objective sense. But as long as I generate a net positive externality in a subjective, care-weighted sense, although I might be induced to feel guilty and to change my behaviour marginally to avoid that guilt, I’m most unlikely to change my behaviour radically and thereby reduce my net negative objective impact to zero or even reverse its sign. It’s just not going to happen.

What applies to me applies a fortiori to the corporate sector, whose sensitivity to guilt is almost certainly lower than my own, notwithstanding the growth in interest in ESG (Environment, Social and Governance) investing and its fellow traveller, CSR (Corporate Social Responsibility).

Appealing to my sense of guilt or responsibility is unlikely to succeed with me or, I would guess, with the corporate sector in the round: I’m not objective about these matters, and neither are they. Injunctions to behave morally and listen to one’s conscience work, but most strongly with respect to the small set of people I care most about. I feel guilt in relation to my impact on other people outside that circle, but my will is weak and I am a mixture of busy, lazy and selfish.

Objective, in this sense, means something like: caring equally about all persons currently alive and all to come. That isn’t even close to the structure of what and who I care about, and the same is true for the typical firm — there’s a clear, unambiguous hierarchy in play in both cases. And the fact is that I’m just too lazy or selfish to change, no matter how guilty I feel about that.

Who among us can view all humanity now and in future with equal weight on every person? No one, and no institution can do that. No one does, and in fact no one should, particularly when it comes to future generations. The future is uncertain, and that uncertainty alone means that even the most enlightened, objective central planner should discount the future to some degree.

However, some institutions might be closer to that objective ideal than are individuals. Governments should have roughly equal regard for all their citizens, and transnational institutions should have at least some weight, if not an equal weight, attached to each of their members. Intergovernmental institutions ought also to place a higher weight on future generations — on posterity — than most individuals do, at least outside their own family.

Put another way, I’m not just selfish, I’m also prescriptive when it comes to other people’s behaviour. If you don’t mind (well, even if you do), it would be helpful if everyone else would kindly refrain from travelling in the rush hour/using so much water/creating so much carbon/despoiling the planet in so many other ways. This position is perfectly logical if you believe, as I do, that macro problems require macro solutions. For example:

  • I am strongly in favour of people voting in elections, even though I recognise that it makes no difference either way whether I personally vote or not
  • I am strongly in favour of levelling the playing field in terms of educational opportunity across the population, even though I would have sent my kids to a private school if I could have afforded it and if I had felt the outcomes would be substantially better for them
  • I believe the tax structure should be strongly redistributive even though I endeavour to pay the minimum legal amount myself

In general, I am in favour of policies that reduce the impact of negative externalities generated by other people on myself. The big question: the biggest of our times, really, is this. Am I ready to accept the same constraints on my own behaviour as I would gladly impose on others (particularly those I don’t care very much about) in order to reduce those negative externalities? A reformulation of Kant’s categorical imperative: if I had to write a rule setting out how I would like everyone to behave in the circumstances I face, what would that rule be? And would I follow that rule myself? No doubt I should; but would I?

There’s a dialogue in Catch-22 between Yossarian and Major Danby in which Yossarian says:

“From now on I’m thinking only of me.”
Major Danby replied indulgently with a superior smile: “But, Yossarian, suppose everyone felt that way.”
“Then,” said Yossarian, “I’d certainly be a damned fool to feel any other way, wouldn’t I?”

There’s the catch — I would like everyone else to think of everyone else but, whether they do so or not, what I personally do makes no odds. The same logic applies for each one of us. As a species, we are caught by this catch — the greatest catch of them all.

The solution, if there is one, is that the institutions that are a little closer to being objective should impose on everyone the constraints that we as individuals (or let me just speak for myself: I as an individual) will not impose on ourselves – or, better, since the most effective macro policies have strong micro foundations, should create the incentives for each of us to change our behaviour in ways that will reduce the negative externalities we generate. Will an increasingly atomistic society permit this increased institutional reach?

The answer in my case is yes, though it’s a qualified yes — I need a modicum of trust in those institutions and that trust comes from accountability. For example, we had our kids vaccinated with the MMR vaccine at the time of peak concerns about the possible negative impacts of that vaccine (concerns that have subsequently been comprehensively refuted). And the population in general did so too — there was sufficient residual trust in the science behind the vaccine, at that time. Consequently, the dangerous disease of measles was all but wiped out in this country and many others. Recently, that trust has been eroded, and measles has reared its ugly head once again in some countries, including the UK.[1]

There are wider and growing concerns relating to trust in institutions — whether these are legal, military, media, scientific, religious, governmental, corporate or other types of institution — and not all of those concerns are misplaced. What are the incentives of the individuals in those organisations, and are those incentives aligned with the objectives of the institution or those of its stakeholders, which is to say everyone? These are principal/agent problems, addressed to some extent in previous TFIFs (such as 52 shades of Brexit). To whom are those institutions accountable, and how? Are the objectives of the institutions themselves clear, and how have they been decided? Where do rights of individuals to make their own choices begin and end? These are not small issues! And they apply with most force to the democratic institutions of government. Joseph Heller again, this time in an interview with Bill Moyer:

“…there are many illusions incorporated in democratic philosophy. They tend to be very pleasing and satisfying, but they are misleading and they are fantasies. And one of them is that the democratic ideal is even possible, that there is such a thing as participatory democracy. I think one of the illusions we have, and it’s very comforting, is that by voting we are participating in government. I maintain that is a delusion, it is a ritual routine. The right to vote, I feel, is indispensable to our contentment; in application it is absolutely useless.”

Though I love Joseph Heller, I don’t agree with him on this point. If I did, then I would be with Yossarian all the way: from now on, thinking only about myself and my close circle — my tribe, so to speak. And, if everyone did that, the negative externalities that we all generate would balloon, and in the end might overwhelm us. We need institutions that extend beyond the tribe, and we need to find a way to trust them: now, more than ever.

 

 

[1] The chart is taken from the following paper: State of vaccine confidence in the EU 2018.

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