Here in Singapore, we are currently in the so-called haze season. It’s a time of year when corporate and some small farmers in Indonesia use fire to clear oil palm fields for planting. The smoke from the fields – and other non-farm areas where the fire spreads – blows across the water to mainly Singapore and Malaysia, leading to significant air pollution. For example, as I write this, a measure of air quality called PSI is reading 239. One hundred is considered the top of the safe range.
The countries in southeast Asia have debated how to fix the problem for decades. The talks are a complex mix of national economic interests, national sovereignty, and national pride. While I wish it would get resolved once and for all, at least the haze provides an opportunity to highlight what I think is one of the more powerful ideas in economics: externalities.
No, no, come back! Stick with me. It’s more interesting than it seems.
Externalities crop up when people besides the participants in an economic exchange either benefit or are harmed by that exchange. In other words, the costs or benefits end up being separate from – external to – the people who made the deal.
When a third party benefits, it’s called a positive externality. One example is when parents pay to get their children inoculated against contagious diseases. The parents pay the direct price, but everyone benefits from having a healthier community. Another example is college education. The student (or more likely the parents, again) pays the price, but everyone benefits to some degree from having a well-educated workforce. There are plenty of other important examples, like public K-12 education and roads.
But for this post, I want to focus on negative externalities. That’s when someone else bears the cost of an exchange two other people make. The haze we’re living under right now is a perfect example.
The oil palms grown in Indonesia are processed into palm oil (oddly enough), which is used in a wide variety of products, from pizza dough and ice cream to lipstick and shampoo. The profits made from selling these products go, in part, to the palm oil producers. However, nobody is paying me as I run our portable air cleaner to keep the air in our condo free of haze particulates. No one is paying me as I wipe particulates off the flat surfaces in our kitchen that the air cleaner doesn’t capture. No one is paying me for the hassle of being stuck inside, unable to enjoy the day.
Does that sound like whining? Okay, let’s think of the Indonesians themselves, who are living right next to the fires and bearing the brunt of the pollution. PSI levels in one of the effected areas almost hit 2,000 recently. Remember, 100 is the top of the safe range. The health problems they will suffer now and in the future are bound to be significant. Who will pay for the medical care?
In a world without externalities, the corporate and small farmers and all of the food and personal care product companies and their customers would. But that’s unlikely. Instead, the people themselves will pay. Or the cost will be picked up by government, which is covered by everyone paying taxes. It’s privatized profits, but socialized costs. In other words, an unaddressed externality.
This dynamic, by the way, is the logic behind some taxes and regulation. If the market won’t capture the costs, the government has to step in with a system for doing so. It’s one way government makes capitalism function properly.
So, that’s externalities. Once you know about the idea, you start seeing it everywhere. Just the like the haze.
For more than 15 years now, much of the world’s attention has been focused on the danger posed by Islamic extremists. That threat is real, of course. But it will not end up being the defining ideological conflict of our time. Despite the apocalyptic fantasies of both Islamic and Christian fundamentalists, we won’t see any mass conversions, either peacefully or by the sword. And we’re not truly engaged in an Islamic/western clash, either. No, the real ideological battle for the 21st century will be between liberal republicanism and illiberal authoritarianism.
Let me define some terms. By liberal, I mean a system that prizes individual liberty and promises a set of equally and impartially applied individual rights – free speech, freedom of religion, freedom of association, etc. By republicanism, I mean a system in which power is considered legitimate when it somehow enjoys the consent of the people, mainly through elections. This combination broadly describes the political systems of most of the leading nations of the world.
However, one leading nation doesn’t have a system like this: China.
Don’t get me wrong here. I’m not talking about Communism. Yes, that was the motivating ideology that led to the establishment of the People’s Republic. However, for millennia before that, Chinese culture was defined by other ideologies. One, in particular – Confucianism – was highlighted recently in the Wall Street Journal:
“Mr. Xi (Jinping, President of the People’s Republic) appears to be seeking to inoculate Chinese people against the spread of Western political ideals of individual freedom and democracy, part of what some political insiders say he views as a long-term contest of values and ideology with the U.S.”
While no ideology can be simply summarized, I would describe Confucianism in this way: Everyone has a place. Those in power have two duties: to be the best and the brightest and to use their gifts and power to serve the interests of the people. The people, meanwhile, have two duties, as well: to not question the powerful and to do as they’re told.
Often Confucianism also gets joined to another ancient Chinese ideological traditional called legalism. Under legalism, the laws – the rules – are clearly set out, and should they be broken, harsh punishments will follow.
In other words, instead of being liberal and republican, Confucianism and legalism combined tend toward illiberalism and top-down authoritarianism. They worked pretty well to sustain imperial China for a couple thousand years.
And with the 21st century potenially set to become the Chinese century, this should be the primary ideological concern of the liberal republics of the world.
Let me clear: I don’t think Confucianism is all bad. It is not some sort of fascism. There is a required reciprocity between the rulers and the ruled that has, at its core, the interests of all the citizens and desires for a balanced and harmonious society. Not too much to complain about there.
But, obviously, it also runs counter to the predominant western perspective on the rights and duties of citizens – even if it does sync up nicely with the idea that a single party should run the show without question.
I keep hearing about how freedom in the United States is under attack.
I couldn’t agree more.
Let’s just look at the many ways our freedom is threatened.
The freedom to vote: We have efforts underway in many states to make it harder to vote, and two years ago the U.S. Supreme Court made it more difficult to block these efforts. If we take our tradition as a republic seriously, we should be moving in the opposite direction, with expanded and easier opportunities for all citizens to vote.
The freedom to participate as an equal in our democracy: Money has always played a large part in our politics, but thanks to a variety of U.S. Supreme Court and lower court decisions in recent years, billionaires and millionaires hold more sway today than in more than a century. In the U.S., you do have the freedom to get rich, but that does not give you the right to rule. That’s not democracy. It’s plutocracy. And defenders of freedom shouldn’t stand for it. A Constitutionalamendment should be passed overturning the Citizens United decision, that defined money as speech and corporations as people. That will allow us to pass meaningful campaign finance reform that puts all Americans on a more equal political playing field. In the meantime, transparency and disclosure laws and penalties should be toughened and aggressively policed. It’s our republic, after all, so we have every right to know who’s buying our politicians.
The freedom that comes from a decent livelihood: We often hear that freedom isn’t free. That’s exactly right. It costs money. And if you’re poor or struggling or in debt, you’re not truly free.
Yes, people need to work for what they get, but for the last forty years, we’ve seen the fruits of most Americans’ labor flow to a tiny sliver of the population, even though Americans are more productive than ever before. Economics involves many trade-offs, and we can debate which proposals are best to address this problem. But we certainly can’t do what we’ve been doing and expect a different result. Cutting taxes even more for the wealthy won’t get us there. Instead, we should be expanding programs like the Earned Income Tax Credit and preserving Social Security. There appears to be some room to expand the minimum wage without harming employment. If you want private market solutions, allow people to form unions as easily as they form corporations. And if we want to think big, we should consider consolidating and eliminating many social support programs and replacing them with a Universal BasicIncome.
The freedom that comes from having good health: As the old saying goes, if you don’t have your health, you don’t have anything. Thanks to the Affordable Care Act, the U.S. is expanding Americans access to health insurance. This will increase freedom by helping participants to get needed medical care and avoid a leading cause of personal bankruptcy. Efforts to repeal the ACA are a direct assault on this freedom. Many more improvements are still needed in the American health care system. We still have terrible health outcomes for the amount we spend. And perhaps we would be better off with a single-payer health insurance system – for basic services, at least. But until we have agreement around a different solution, the ACA is better than what we had before.
The freedom of safety from gun violence: The United States is an absolute outlier in the amount of gun deaths. And rather than address the problem, we have allowed a group of gun rights extremists, who have incredible savvy when it comes to manipulating our political process, to pollute our public square with their idiosyncratic interpretation of the 2nd amendment. A society filled with the fear of gun violence is not free. While there can be reasonable debate as to what would work to reduce gun violence in America, the fact that we can do nothing – especially as first-graders are slaughtered – is a travesty.
Freedom from state-sanctioned violence: A bedrock principle of western political theory is that the government exists to help protect the lives and property of its citizens. But recently, thanks to the Black Lives Matter movement, we have been reminded that blacks face disproportionate violence from our police. And this bias extends into how we treat criminality in the U.S., as well. Errant police and a biased legal system need to be brought to justice.
Freedom from religious interference in the operation of our public institutions: When a law is duly passed in this country, it is up to the officials in the government to implement that law without bias or favor. Now, with Kim Davis, we have the spectacle of a government official saying that she has the right to decide the law of the land unilaterally based on her particular religious interpretations and not perform her duties in office. Don’t like the law? Quit and get a new job changing it. Even go to jail to change it if need be. But until such time, keep our government out of it. It belongs to all of us and is not your personal soapbox.
Freedom from bigotry: Bigotry of many kinds – racist, sexist, religious, etc. – is running rampant. Again, blacks have to fear for their lives from the police. We have leading presidential candidates whipping up anti-immigrant sentiment. Women face sexist comments and long-standing inequalities in pay. We have teenagers profiled for their religion. Neo-confederates are marching in the street. The gay community has seen great strides with revised marriage laws and public acceptance, but must still face active hostility. And despite the fact that Christians think they are hated and persecuted, try being an atheist. Being judged for the circumstances of your birth – skin color, sex, sexual orientation – is a direct assault on your freedom to live your life. Ideas, like those that come from religious and ideological beliefs, are more open to debate and attack, especially when they lead to murderous behavior. But that debate – that free expression – is perhaps the crowing achievement of our American tradition. But to use those beliefs to justify mindless bigotry does not expand freedom. Instead, it destroys it.
Freedom from ignorance: Medical science has brought us huge advances in public health, yet there are still those who think their anecdotes on treatments like vaccines trump solid research. So much so, that well-managed diseases are making a comeback. And despite solid evidence that has been amassed now over decades, we have no action on global warming, the leading environmental threat to many communities the U.S. and across the world.
Yes, our freedom is indeed under threat. And Americans everywhere are standing up to do their part to oppose those who would strip us of our liberty. I have a word for them: patriots.