Dealing with Negative Externalities in a Free Market

I go over the concept of "negative externalities" and how it is dealt with in a free market.

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Transcript

Dealing with Negative Externalities in a Free Market

“Negative externalities” is an economic concept that is often used to describe actions people take in productive creation that may lead to harmful consequences for others without consequence for the actor.

For example, a factory with a smokestack that shoots soot in the air which then settles onto houses is a common visualization of “negative externalities,” especially, when looking at historical complaints about early industrialization.

People may also think of things like dumping toxic waste chemicals, or polluting rivers with plastics, with an unscrupulous company getting away with it.

To understand the root problem though, we must first root ourselves in property rights.

When people have clearly defined property rights, then the question of whether any activity is definitively harmful becomes clear.

Assigning responsibility for harm requires that one party has a duty to not harm others, and another party has property that has a negative right to be free of harm through intrusion.

Harm, in libertarian terms, means that someone’s property rights are violated by physical intrusion through trespass, and that trespass may lead to damage of one’s body or outer property in either hurting function or rightful occupation.

To help you understand this, think about an unowned tree in a wild forest.

If a tree is not owned, then carving your name into the tree with a pocket knife cannot be said to be a harm because no one owns the tree and, thus, you have a right to carve into the tree as the act harms no other person’s property.

However, if you took your own toxic chemicals, poured those chemicals next to the tree, and those chemicals then ran down into a river that then poisoned someone else’s private well, that would be a clear example of how your actions, using your property rights, caused harm to a third party directly and discernibly.

Negative externalities must be defined within these bounds of property rights for there to be justice, otherwise, people are just complaining about things they don’t like with no discernible, specific harm to property rights.

Libertarian theory limits what is constituted as a harm to unique intrusions of physical trespass with direct causation from the property rights of others.

To be a harmful intrusion for negative externality purposes, the action must directly cause damage or be the proximate cause of damage, without which the harm could not have taken place.

It also must be specific and not just a general aspect of human civilization that all partake in.

To help you see what this means, let’s look at a few examples.

If a private company stores a toxic chemical on their land, but that chemical leaks out and gets into people’s water, causing them to get sick, that is a property rights violation for which justice can be metered.

This is because the private company owners have a duty to not cause harm with their toxic chemical by allowing it to trespass onto others’ properties.

If someone hits a baseball with a bat, and the ball crashes into someone else’s window, then the proximate cause of the window’s destruction is from the person hitting the ball.

It doesn’t matter that the ball is flying out of contact with the person after being hit. The person who hits the ball is proximately responsible for the harm because of the direct relationship to making the ball fly into and break another’s window.

If someone litters with their plastic trash into water, and the trash comes up onto another’s private property, that person’s litter would be a violation of the property owner’s rights, whose land was trespassed by the plastic trash.
When harmful trespass gets trickier to assign is when harm is done by things not readily visible or only visible in cumulative result.
For example, if a factory produces a byproduct that leaves visible soot on houses surrounding, the soot is a clear, physical property rights infringement that is distinguishable from general life circumstances.

The soot byproduct is a physical intrusion on the home, visible and concerning.

If a factory produced a byproduct that was not readily visible, but caused clear and unique harm to health, that would be a property rights violation as well.

For example, if the company released a toxic gas that was not visible to the human eye, but the gas caused people surrounding to become sick, that would be a clear causation of property rights intrusion causing harm from the unique toxic chemical released.

On the other hand, sound waves, which are vibrations of air molecules, are not automatically a violation even if there is ripple effect from hearing sound.

The reason why is that sound is vibrating around us generally and general vibrations that are audible are not automatically destructive of property.

For sound to be destructive, it would have to cause physical changes, such as vibrating items in a home, or cause unique harm to the eardrum, such as playing a sound loud enough to sustain hearing damage to another who is on their own property.

In this way, people are limited to dealing with nuisance through property rights, whether it is choosing to live on land with buffer room, choosing better insulation, or choosing to try to deescalate a nuisance sound if needed through request or retaliation in kind in case the sound-making party does not get the message.

And this limitation pairs with the general idea that nothing can be counted as a negative externality of “pollution” if it is something all people generally share in.

For example, some try to claim that carbon dioxide emissions are property rights violations.

The problem with this reasoning is that carbon dioxide is a natural byproduct of the animal and plant respiratory cycle, and carbon dioxide is a wide byproduct of industrialization that all share in in modernity.

All people, by virtue of breathing out, are breathing out carbon dioxide after oxygen is processed in the body.

This principle applies to any byproduct that is common, whether a wave on the magnetic spectrum, or an industrial byproduct that is not causing a unique harm to discernible actors.

All desire to reduce output of a particular byproduct that has no unique harm requires social and cultural change.

Carbon emissions would thus not be fit for a legal claim of action.

With all this in mind, you can clearly see that robust property rights are what’s key to dealing with negative externalities.

The more privatization we have with clearly assignable responsibility, the easier it is to point to which actor is responsible for causing what harm.

If a remnant government is still dealing with these claims, the ethical path forward is to increase privatization and respect of private property to make it so that legal claims for distinct property rights violations are actionable.

If dealing with market-based dispute resolution, those same principles would apply for any private arbitration or mediation service.

And when people start mentioning the “What abouts?” don’t forget to show them the “compared-to-what.”

The government does not provide perfect restitution or protection now, as we’ve seen from the 2010 BP oil spill liability caps on certain damages, to the EPA releasing over 3 million gallons of contaminated wastewater into the Colorado River system in 2015.

Privatization with clear boundaries for responsibility solves these problems.

Anything less continues to shift around the blame.