A classic economic question is the problem of externalities: my factory pollutes everybody’s air. I reap the reward from the factory, a lot of people pay a penalty in excess of any benefit they might receive from my factory. Charles Hugh Smith chronicles an instance where government stepped in and the overall benefits far exceeded the costs. From Smith at oftwominds.com:
We need a new iteration of economics that advances beyond the obsolete, misleading statistical measurements of bygone eras.
Let’s focus on a largely forgotten history, one within living memory of everyone born in the 1950s, a history of signal importance to our understanding of the forces that will dominate the next decade.
The 1970s in mainstream history is: exaggerated fashions, disco, Watergate, the end of the Vietnam War, the gas crisis, the presidency of Jimmy Carter and stagflation.
Stagflation–inflation plus stagnant growth–is once again in the news, and there are numerous articles comparing the present to the 1970s.
What’s astonishing is none of these comparisons (at least those I’ve seen) even mention the most economically consequential dynamic of the 1970s: the institutionalization of environmental standards that forced the clean-up of America’s pervasive industrial pollution and the re-engineering of the industrial base.
In today’s money, cleaning up the sources of air, water and soil pollution cost trillions of dollars, an investment that didn’t generate profits or productivity as measured in financial terms.
The eventual gains were enormous, but our conventional financial measures of growth–profits and productivity–do not measure improvements in air and water quality or advances in public health due to the sharp reduction in pollution.
Well-being isn’t measured, so it isn’t recognized.
These costs were not fully accounted or properly attributed to reversing decades of industrial pollution and rebuilding America’s aging, obsolete, inefficient, highly polluting industrial base.
