Tag: Externalities

Externalities, Momentum, and the Cost of Inaction

Healthy Economies are based on Minimizing Costs, while Maximizing the Social Benefits.   Or at least they should be.

Yet our Corporate-driven Economic system, far too often focuses on Discounting the Costs, while Maximizing their Profits.   Profits for the enlightened owners, NOT for Society at large. Both the long-term and local Costs, generally get swept under the rug, in such a competitive landscape.

And that is a recipe for long-term Planetary Disaster.

Every economic transaction is some sort of trade-off between Cost vs Benefits.   Problems arise however, when most of those Costs (to the Planet and to Society) remain Hidden, just below the surface — completely “External” to any quick-hit P&L calculations and Statements.

The accurate Pricing of such “External” factors — both short-term and long-term — is KEY to whether or not, WE leave the world a better place than we found it.

“Externalities” have a way of creeping up on you, and “extracting payment”, sometimes when you least expect it.  

The Invisible Hand: Too Big to Fail, vs Too Small to Notice

The Invisible Hand

The Nobel Prize-winning economist Joseph E. Stiglitz, says: “the reason that the invisible hand often seems invisible is that it is often not there.” [7][8] Stiglitz explains his position:

Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.