The Ultimate Externality

Economics is a weird study. We have briefly discussed how, according to economics, insurance shouldn't exist due to the assumption of "rationalitiy." But this is hardly the only assumption economics makes.

First, let's talk about externalities, a phenomena that keeps markets from operating optimally. In short, an externality is a cost or benefit that a good or service provides that, for some reason, is not or cannot be reflected in the price. Society at large gets to pick up the tab in either direction.

An example of a "negative" externality is a factory that pollutes a nearby river. The full "true" cost of the item being manufactured includes the damage that is being done to the environment. If the company producing the item does not have to pay to pollute the river, the factory receives a windfall in the form of reduced overhead.

Pictured: An externality.

Not all externalities are negative though. Imagine a baker who operates on a particular street, making all nearby shops smell heavenly with fresh baked goods. Though this is a benefit to society, the baker is not compensated for this, forced to only recoup costs from those who actually buy pastries.

The reason that externalities are considered sub-optimal in economics is that, either way, externalities create perverse incentives. A manufacturer that does not have to pay a negative externality will fight to preserve the status quo rather than have an increased cost. In a similar way, those producing positive externalities have no incentive to continue providing the positive effect (and those enjoying the positive externality won't want to pay for it).

A common way of closing an externality is government intervention: If the government requires a factory to pick up the cleanup costs, then it will have to get factored into the price of the item. Governments also can provide subsidies to help reward those providing positive externalities. Either way, the people who will fight the hardest on preventing a market correction are those that receive the benefit of the externality (the factory wanting to continue polluting for free or the public not wanting to pay taxes for a subsidy).

Pictured: The nice smell of a good coffee shop is also a positive externality.

Shifting gears, another fundamental assumption of economics is that of scarcity and its omnipresence.

There are two levels of scarcity. The first is that, if you took all resources on the planet and distributed them, there would not be enough to go around. The second level is the reality that we live in a world of unlimited wants, but limited resources. Economics typically focuses on the second, which we are unlikely to ever completely overcome (there can always be "more" cool stuff). For the purposes of this post, however, we are going to be focusing on the first, more basic-level of scarcity.

In the past, there was not enough to go around. When every calorie must be toiled over, it has long been an unfortunate reality that there may still not be enough calories. And so, we invented money and economics to help distribute items to (in theory) those who want them the most. But even so, there will be people who want a good that will be priced higher than their willingness (or ability) to pay. The results of this are widespread and obvious.

But we are coming to a point that this may finally be changing. For example, humanity has finally reached the point where there is enough food to go around to everyone; it's just a supply chain issue now.

I would argue that, once we hit the point that there can be enough necessities to go around truly for all, humanity has a duty to completely rethink economics and, well, everything. All current economic distribution systems have been built on the foundation of treating scarcity as an insurmountable constant. If there is a chance of unseating that obstacle, we should take it.

Pictured: Have your cake and eat it too!

Going back to externalities, the people who will fight the hardest against a post-scarcity society are those who are benefiting from the status quo. This is hard to stomach because, in a way, it means that some prefer to have scarcity. That, given a choice between having starving people and not, they would take the former.

Please don't tell me that you thought capitalism was a permanent solution; It's pretty terrible to a lot of people. There will probably be many aspects of current society that will be preserved, but if there was a way that everyone got what they need, you'd prefer that, right? I would hope.

I have no magic bullet to solve this issue. The first step to finding a path forward would be to begin thinking what a post-scarcity world would even look like (perhaps some kind of UN committee?).

How close are we to this new reality? Who can say? But we are close enough to start planning.

To humanity: Good luck. Everyone says they do, but I hope enough people truly don't want to stand by and watch their neighbor suffer. I certainly hope I do too.