Externalities Save You Money

You don't want to know this. Gasoline is artificially cheap in the American economy.  That's because the cost to clean up after burning it is not built into the price of the product.   

That's called a negative externality.

We allow this negative externality to go uncompensated for many reasons.  Here are two big ones.

First, It's hard to calculate the cost of cleaning it up.  How much would you charge me if I asked you to remove a kilogram of carbon from the atmosphere?  After I paid you, how would you do it?  I'm going to blog later about carbon offsets, but for now let me just say that there's no "clean up the atmosphere" market. If we were required to clean up after our cars, an industry devoted to removing greenhouse gasses would be created.  If I were a Luddite, I would go to the yellow pages. Otherwise, I would search the web and find a company that I could pay to clean up my mess.  

The practical solution would be to build the cost of cleanup into the price of the gas in the form of an excise tax, which the government could use to fund clean up efforts.

Second, people don't really notice the accumulation of these toxins. Five minutes after you get blasted in the face from bus exhaust, you can't even smell it any more. Imagine a world where the by-product of internal combustion was foul-smelling sludge. How long would we allow cars to leave this detritus on driving surfaces before we demanded that cars clean up after themselves?

More on this subject later...