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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.  


Content Partner: Global Development and Environment Institute
Contributing Author: Tom Tietenberg
Lead Author: Neva R. Goodwin
Article Topic: Environmental economics
Last Updated: November 20, 2008

-- A negative externality (sometimes referred to as an "external cost") exists when an economic actor produces an economic cost but does not fully pay that cost. A well-known example is the manufacturing firm that dumps pollutants in a river, decreasing water quality downstream.

-- A positive externality (sometimes referred to as an "external benefit") exists when an economic actor produces an economic benefit but does not reap the full reward from that benefit. Positive externalities are less well-known, but can be vitally important to individual and societal well-being. A landowner, for example, by choosing not to develop her land might preserve a water recharge source for an aquifer shared by the entire local community.

When a market transaction affects the welfare of third parties who are not involved in the transaction, the market behavior of the economic actors will not reflect all the preferences of, or all the costs to, everyone affected. This is because the costs or benefits affecting the particular actors differ from the costs or benefits to society as a whole. For example:

-- If the cost of polluting is not borne by the polluters, they will not feel an economic motivation to reduce their creation and discharge of wastes.

-- If the price of water or of petroleum is set below the true cost to society of using these resources, this will produce an incentive to use too much of them.

In general, each of these examples involves a situation in which there is a difference between private and social costs (or benefits); as a result, the monetary incentives of the marketplace encourage socially undesirable behavior.

[...] But we live in a social and ecological world, in which actions, interactions, and consequences are generally both widespread and interknit. If decisions are left purely to individual self-interest, then from a societal point of view too many negative externalities will be created, and too few positive externalities [...]

Relying on markets alone to coordinate economic activities allows many activities to happen that damage or deplete the natural environment, because the damage often does not carry a price tag, and because people in future generations, who will be most affected, are not direct parties to the decision-making.

Negative "Externalities" (Social Costs) have a way of creeping up on you, and "extracting payment", sometimes when you least expect it.  

Sometimes it even skips a generation ... BUT someone always ends up paying the long-term price ... (it could even end up being "someone", in some "future generation" that you might care about.)

SO what kind of the External Costs, will that "Future US", be looking forward to, assuming we continue on the "Status Quo" Path, of too little, too late?  

ie. What IS the Real Cost of Inaction, with regards to Climate Change?

Climate Change – the Costs of Inaction (pdf)
Report to Friends of the Earth England, Wales and Northern Ireland
Frank Ackerman and Elizabeth Stanton
Global Development and Environment Institute,
Tufts University - -October 11, 2006

Executive Summary

This report examines the costs of inaction – the worsening damages that will result from allowing climate change to continue unabated. Economic models have estimated damages as great as US$74 trillion, but even these numbers fail to convey the multiple harms that lie in store for the world.

The climate system, and our economic activities that affect it, have enormous momentum. It is not possible to wait until the world begins to get uncomfortably warm, and then suddenly decide to stop. Because of its momentum, a supertanker has to turn off its engines 25 km before it comes to a stop. Likewise, we have to achieve a drastic reduction in carbon emissions several decades before we can bring climate change under control. In other words, we have to take action long before we experience the full severity of the problem. The world as a whole can, just barely, cope with the impacts of the first 2° of warming, but only if there are immediate, large-scale, and creative approaches to international equity and cooperation.

Categorizing climate risks

Scientists' models of climate change predict not only increases in average temperature, but also increased variability of weather conditions and more extreme events, including more droughts and floods, more heat waves, more powerful storms:

-- Recent climate change has already made extreme heat waves two to four times more likely, and over the next 40 years, extreme heat events will become 100 times more likely than in the late 20th century.

-- Climate change is increasing the frequency and intensity of extreme weather, causing a sharp upswing in damages. In 2005, natural catastrophes caused US$220 billion worth of damage worldwide.

-- In addition to property damages, there are losses of income for months or years after extreme weather events. The U.S. state of Louisiana, the area hardest hit by the extraordinary hurricanes of 2005, suffered a 15 percent loss of income for the post-hurricane months.

Lurking beyond the problem of extreme weather events is the risk of a climate catastrophe:

-- Increasing temperatures raise the probability of collapse, followed by rapid melting, of gigantic ice sheets in Greenland and/or Antarctica, which could cause a devastating sea-level rise.

-- Even more moderate melting in Greenland and the Arctic could potentially disrupt the circulation of ocean currents in the North Atlantic, which is responsible for the relatively mild temperatures of Northern Europe.

-- In addition, there is a danger that gradual warming could lead to abrupt releases of large quantities of the methane – a greenhouse gas more powerful than carbon dioxide – that is currently stored in frozen, but quickly thawing, tundra; this would greatly accelerate the process of warming.

Sounds Expensive.

In the long run, someone -- the Future Citizens of Earth -- will end up paying in the neighborhood of US$74 Trillion -- if we OUR Economic system, continues to fail to "account for" the Environmental damage, our economic transactions, continue to pile up, each and every day.

Sooner or later someone will Pay the Price.

Kind of puts into perspective that EURO400 Billion Price Tag, of the Europe's Desertec project [pdf], to tap the Sun, Wind, and Earth.

It's peanuts really.  One could call it a very shrewd, long-term Economic Investment.  

Spend     $536,000,000,000  Now,  [400 Euro x 1.3204 U.S. dollars]

Avoid $74,000,000,000,000 in External Hidden Costs, later.

Europe is taking "costly" steps to "course correct" its Energy Vessel. These enlightened Citizens of Earth see the "value" of creating some Positive Externalities (Social Benefits), for their long run future well-being:

DESERTEC gets serious -- Teams up with First Solar

by jamess -- Mar 20, 2010

And the USA is grudgingly following suit, dipping a few toes in the water, in a fledgling attempt to "slow down", and re-direct OUR giantic Energy "ship" of state:

Solar Zones on the US Energy Drawing Boards

by jamess -- Mar 18, 2010

Let's hope those DOE and DOI efforts are more than token gestures. Let's hope its not "too little, too late", which has been far too typcial of America's near-sighted "capitalistic me-first investments".

Because "inaction" has a Real Cost too.  And an Energy Economy cannot be turned on a dime. It takes planning, and innovation, and leadership.   Above all it takes foresight to see the Hidden Costs, that lie waiting in our path ... and taking ACTION NOW to avoid those "unseen" Economic Icebergs and Reefs, in our path.

It's a pay now or pay later scenario.  Guess which choice, third-level tier players make?

Until true Cost Accounting is applied to our Global (and Local) Economies, the inevitable planetary "reconciling of the books", will keep getting postponed til "some later date".  Until it's much too late to adequately "Minimize those Costs, while Maximizing the Benefits", for the World at large.  Momentum is funny that way. It takes significant lead time, to change the inertia of a ship like the Titanic or the Exxon Valdez, as experience has shown.  

Spaceship Earth has such a long run Momentum trajectory too.   It can not be turned on a dime.  It's time we all put in our oars.  Pull our own "energy" weight.

It's time to go further, faster ...  daylight is a burning ...

We had better start calculating conversing in the terms of long run Social Costs vs long run Social Benefits, if we are to have any hope of avoiding the numerous Ecologic Icebergs and Reefs, lying in wait, just around that next economic bend.

Originally posted to Digging up those Facts ... for over 8 years. on Wed Apr 28, 2010 at 03:46 PM PDT.

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Comment Preferences

  •  Tip Jar (13+ / 0-)

    The press is impotent when it abandons itself to falsehood. --Thomas Jefferson to Thomas Seymour, 1807

    by jamess on Wed Apr 28, 2010 at 03:46:42 PM PDT

    •  This is a big step in the Positive Direction (6+ / 0-)

      U.S. Approves First Offshore Wind Farm Near Cape Cod (Update3)

      April 28 (Bloomberg) -- Interior Secretary Ken Salazar approved the first wind farm in U.S. waters, a project of more than $1 billion off the Massachusetts coast that was opposed by the late Senator Edward Kennedy.

      Cape Wind, 130 wind-powered turbines to be placed in the shallow waters of Nantucket Sound, will have to be reconfigured to "reduce the visual impact" from land in order to go forward, Salazar said in a statement today. When completed the wind farm may generate enough power for more than 200,000 average U.S. homes, the Interior Department said.

      the Social Benefits from projects like this, will last for generations.

      I hope this positive trend continues.

      The press is impotent when it abandons itself to falsehood. --Thomas Jefferson to Thomas Seymour, 1807

      by jamess on Wed Apr 28, 2010 at 03:57:50 PM PDT

      [ Parent ]

  •  Well done, as always, (5+ / 0-)


    Pooties and Woozles unite; you have nothing to lose but your leashes!

    by TomP on Wed Apr 28, 2010 at 03:49:05 PM PDT

  •  Fantastic work. Keep it up. (1+ / 0-)
    Recommended by:

    We need more discussion about the failures of markets (in certain situations), the shortcomings of capitalism and profit motive, and the long term sustainability issues inherent in a system dependent on infinitely increasing consumption.

    In particular, this strain of corporate economy that generates wealth over the short term by conducting business in a way that harms, rather than helps, the society at large completely flies in the face of common sense and the whole raison d'etre for capitalism in the first place (better result for more people).

    •  thanks for the feedback Pericles (0+ / 0-)

      if our Capitalistic system, were as wonderful,
      as its advocates make it out to be --

      Why then do we see so many Social Problems on every front?

      They stretch out in front of us,
      as far as the Future may reach.

      "Not My Problem" should not an acceptable rationalization, any longer.

      The press is impotent when it abandons itself to falsehood. --Thomas Jefferson to Thomas Seymour, 1807

      by jamess on Wed Apr 28, 2010 at 05:30:41 PM PDT

      [ Parent ]

      •  Wealth is a social construct, what is it (1+ / 0-)
        Recommended by:

        Right now wealth is frequently cited as an output of capitalism, or non capitalist participation in an industrial market economy. But what is this thing called wealth? It seems to  me that it is defined almost exclusively in terms of the output of market processes. This focus immediately excludes valuation of human time and biological time that isn't part of the industrial process and all of the interconnections of biological and social systems that are not included in the original definition of wealth.

        If you take a perspective on what wealth is that is includes things, processes and interconnections that people value that fall outside the purview of industrial production the value of industrial production takes on a different meaning. As part of a whole system of valuation it looks like our current process of industrial production creates more industrial product but at the expense of significant portions of human social and biological time that is consumed and never replenished.

        The time consumed can be viewed as the time it takes biological systems to absorb the waste of industrial production and replenish the natural resources used in industrial production. Even a simple look at this issue indicates that we are creating a narrowly defined wealth by creating a huge deficit of resources that will not be replaced quickly enough to enable more production. We have a biological time deficit bubble of epic proportions and on that level we are creating impoverishment, not an enduring accumulation of wealth.

        The human social time consumption involved in our current industrial production system of narrowly defined ""wealth"" creation is also increasing. Participants in this economic process seem to have less and less time that is free of the process of participating in production. More people working more hours and having less time for family and social connecting, less time for education, less time for art. This is not making me feel more wealthy.

        When we attribute the creation of ""wealth"" to the activity of the industrial growth economy (both capitalist and non capitalist forms) we unwittingly reinforce a zero valuation of most of what makes life possible and most worth living from a human personal/social perspective.

        Nice article about economic externalities, keep up the good work.

        Love = Awareness of mutually beneficial exchange across semi-permeable boundaries. Political and economic systems either amplify or inhibit Love.

        by Bob Guyer on Thu Apr 29, 2010 at 07:21:05 AM PDT

        [ Parent ]

  •  Sort of serious issue ... (2+ / 0-)
    Recommended by:
    frandor55, jamess

    Spend     $536,000,000,000  Now,  [400 Euro x 1.3204 U.S. dollars]

    Avoid $74,000,000,000,000 in External Hidden Costs, later.

    The 400 million Euros is not a "Cost" like the external hidden costs. The investment in Desertec provides many direct and indirect benefits; electricity, jobs, agriculture (perhaps), reduced costs for immigration, security & confidence building (reduced military / police costs?), etc ...  Thus, you are comparing the fiscal upfront 'costs' of the DESERTEC investment with the totally lost costs due to catastrophic climate chaos. This is comparing (juicy) Apples with (spoiled, rotten) Oranges.

    •  excellent points A Siegel (1+ / 0-)
      Recommended by:
      A Siegel

      On one hand they're investing in untold Social Benefits,

      On the other hand, they'd also be AVOIDING,
      much of the "yet to be realized" Social Costs.

      It's like 2 for the price of one.

      It's like growing an Apple Orchard,
      right next to the Orange Orchard,
      that they just managed to rescue.

      thanks for the feedback,
      much appreciated,
      especially since your diary today,
      Contaminated "American Fuel"

      was my motivation for this one!

      The press is impotent when it abandons itself to falsehood. --Thomas Jefferson to Thomas Seymour, 1807

      by jamess on Wed Apr 28, 2010 at 05:38:01 PM PDT

      [ Parent ]

  •  I tagged this diary for eKos, and I'll add it, (1+ / 0-)
    Recommended by:

    it deserves more eyeballs. Good work, jamess

    "Interesting. No, wait, the other thing: tedious." -Bender

    by patrickz on Wed Apr 28, 2010 at 07:14:54 PM PDT

  •  Invest in a future (1+ / 0-)
    Recommended by:

    for everyone! What a concept. But isn't it more important to figure out the art of gaming wall street in microseconds?

    Great to see Europe moving forward!

    The art of listening is the ability to pay attention to that which is most difficult to hear

    by dRefractor on Wed Apr 28, 2010 at 08:39:44 PM PDT

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