Living in a World Where Everything is an Externality

     Nicholas Kristoff, an editorial writer for the NYT has recently written an opinion piece calling on President-elect Obama to take the bold step of changing the name of the Department of Agriculture to the Department of Food. 

     The main reason behind his recommendation is to unseat the powerful agri-business lobby from controlling government policy, that among other things has favored factory farms raising as many as 5,000 hogs and that these "large operations receive, in effect, a $24 subsidy for each hog raised. We face an obesity crisis and a budget crisis, and we subsidize bacon?"

     We are moving into an era where all productive activity in the once celebrated American agricultural is being increasingly cast as a bucket load of externalities.  Remember that externalities (cost related ones at least) occur when a cost incurred by the farm is not paid by the farm and is therefore forced out onto someone else or to everyone.  American agriculture is increasingly accused of serious externalities that either must be internalized (read taxed), regulated or prohibited altogether. 

     For instance, the United Nations intergovernmental panel related to the climate has stated that animal production contributes more to global warming through the release of greenhouse gases than the sum of all the cars and trucks in the world.  Antibiotic use is said to be threatening the building of resistence by microbes responsible for some human diseases, a so-called "corn-based" agriculture is causing obesity and an alarming increase in type II diabetes, and in addition, Kristoff mentions that the 5,000 hogs previously mentioned produce more waste than a town of 20,000 (the latter required to have a sewage treatment plant) etc., etc.

     You should know that in economic theory, markets do not normally correct externalities so they are the province of government regulation, usually in the form of taxation but other control measures can be employed all the way up to a ban.  Once you convince everyone that we live in a world where externalities are hiding under every rock, you can logically invite government in to "fix" them all.