Externalities is a concept in economics that I have written about here before but is rapidly becoming the lynchpin argument behind efforts to curb capitalism on a global scale. It is the primary focus of the attack on modern swine production at the present time at almost every level and across almost any dimension of production (from antibiotic use to shipping products across the ocean).
Externalities can be either positive or negative. Positive externalities occur when products, services or benefits created by a production process cannot be charged for in the normal course of business. Negative externalities occur when all of the costs which the firm generates are not paid since they do not involve a vendor.
When externalities occur, the firm will not produce at the competitive or societally optimal level of production and the price will not be the same as it would be when all benefits and costs are accounted.
The global politicizer crowd loves to point to the global costs of generating greenhouse gases when products are shipped across the ocean in free trade. To date, and I do mean to date, since global taxing authorities are already in the organizing mode, firms do not have to pay for these emissions and are therefore not reflected in the final cost of the product. I forgot about Schipol airport (Amsterdam) which either already or will soon levy an average $45/person charge on tickets for people using this airport to mitigate their exhaust costs on humanity.
Nevermind the argument that there are no such costs associated with cargo or passenger jet exhaust and that there may actually be a positive externality there too. But the current argument says therefore people buy too much product (price is artificially low due to not paying all costs) and firms produce more than the societal optimal.
Even though there is a lot of talk about externalities these days by those trying to contain global growth they NEVER mention the positive externalities...benefits firms create for society but cannot charge for, therefore underproducing the optimal level of their product.
Swine production according to them is a unique production process in all of history since it produces not a single positive externality (according to the global anti's). That is passing strange...
The classic case in any freshman economics lesson for a positive externality is bees pollinating orchards. They run around wherever they want to go, but do not leave little bills on the flowers, flowers that absolutely require their intervention to produce any fruit. Therefore, the beekeeper normally only gets revenue from the honey and pollen sales etc. Since he is shorted on income, he underproduces the number of hives which would be optimal. Of course some beekeepers take their hives to orchards for a fee but the bees do not confine themselves to paying customers.
Now consider the billions upon billions of gallons of swine effluent that over the years have been simply provided free to corn producers in this country thereby lowering their cost of commercial fertilizer dramatically and lowering the nation's dependence on foreign energy sources used to create commercial fertilizer. Not to mention the soil tilth improvement from using swine effluent vs. those nasty chemical alternatives. This is especially so in recent times when the annual effluent from a single 2,400 head W-F building is approaching $65,000 of commercial fertilizer offset and will be more next year by all forecasts.
If the economic value to society were to be calculated from the "free inputs" provided to corn producers I suspect it would dwarf by a monumental amount the offsetting cost of every spill that has ever occurred, the cost of every "minnow species less than 1 inch in length" tallyed up by regulatory authorities etc. from all producers and users of swine manure throughout history.
The price of corn has been lowered substantially by this externality and more of it has been produced than would be if all costs were borne by the corn producers. Never mind that they still take this gift (which many producers have given ungrudgingly assuming more corn would be produced for their use) and dropped 40% of their production into fuel.
The reduction in the price of corn has meant that everyone buying anything with corn in it has gotten a real, cash benefit from just one of the many positive externalities generated by pork production that never get mentioned by the naysayers or the pork producers.
However, since we now know from the ethanol scholars that the corn price is completely absent of any effect in the final retail cost of any product which uses it as an input, I suppose there is no impact afterall.
Nevermind.
