Citizen Action Monitor

Our current market system puts no price on harmful external socio-ecological impacts – Nate Hagens (18)

Trade-off — There’s a case to be made for pricing ecological externalities — but we’d be poorer, work harder, be less comfortable.

No 2301 Posted by fw, June 14, 2018

To access links to all other posts in this series, click on the Tab titled “Where Are We Going? by Dr. Nate Hagens” in the top left margin. 

Externalities

“Given that it’s Earth Day, I’m going to mention some facts about our environment, which are not in the evening news, but they probably should be. Perhaps the reason they’re not is because they’re pretty depressing. I think we need to be aware of them if we’re going to engage with them. … a lot of the costs, a lot of the negatives, a lot of the bad things in the environment were external, they were outside of the market system. We [society] didn’t put prices on the bad things. We internalize profits and we externalize losses. … For instance, coal costs around 4-cents per kilowatt hour of electricity generated. If you were to account for all the negative environmental consequences of coal, it would be around 38-cents a kilowatt hour.”Nate Hagens

This is the first in a series of Hagens’ continuums related to our environmental crises. As Hagens points out, he quit Wall Street 20 years ago because “I realized that a lot of the costs, a lot of the negatives, a lot of the bad things in the environment were external, they were outside of the market system.”

Below is the embedded video of Hagens’ 60-minute address, followed by an 18-minute Q&A session. My transcript of Pt. 18, continuum 17, runs from 28:12 to 29:46.

Alternatively, a video of Hagens’ talk, along with a “loosely related” essay on the talk, are available by clicking on the following linked title. This version, published by Resilience.org, also includes excellent readers’ comments, including responses by Hagens.

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Where are we going? by Nate Hagens, Resilience.org, May 8, 2018

TRANSCRIPT (from 28:12 to 29:46)

[THE ENVIRONMENT]

28:12[Continuum 17: Internal vs External] – Given that it’s Earth Day, I’m going to mention some facts about our environment, which are not in the evening news, but they probably should be. Perhaps the reason they’re not is because they’re pretty depressing. I think we need to be aware of them if we’re going to engage with them.

28:34 – One [fact] is internal versus external. This is why I left Wall Street 20 years ago. I realized that a lot of the costs, a lot of the negatives, a lot of the bad things in the environment were external, they were outside of the market system. We [society] didn’t put prices on the bad things. We internalize profits and we externalize losses. The bad things we put to the public comments or to future generations or to the environment. For instance, coal costs around 4-cents per kilowatt hour of electricity generated. If you were to account for all the negative environmental consequences of coal, it would be around 38-cents a kilowatt hour.

29:24 – So, yes, I would like to see more environmental damages included in the pricing of the things that we buy at the store. But if we do that, we’re going to be far less rich than we are today, we’re going to have to work harder, we’re not going to be as comfortable. So, there’s a trade-off there.

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[Resilience.org Supplement] — Internal vs External – In the modern formulation of the market system, we internalize profits and externalize costs.  The costs — of pollution and negative social impacts — are born by the commons and the public, which includes other generations and other species.  No industry in the world would be profitable if full-cost pricing were to include all externalized costs (e.g. damaging impacts of coal ($0.38 kWh full cost instead of $0.04). But most other species don’t care at all about externalities, and as we become socially aware of our downstream* effects, we have done more to respond to the costs. Relevant examples include DDT, chlorofluorocarbons, polluted rivers, and unleaded gasoline. But CO2 remains an impact that can’t easily be ‘internalized’. [*downstream – effects related to output processes of production and distribution].

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About Dr. Nathan John Hagens – Hagens, 51, worked on Wall Street at Lehman Brothers and Salomon Brothers for 10 years before closing his own hedge fund in 2003 to develop a systems synthesis approach to the human predicament. At present, Dr. Hagens is a professor at the University of Minnesota where he teaches a systems synthesis Honors seminar called Reality 101, A Survey of Human Predicament. The readings and lectures cover literature in systems ecology, energy and natural resources, thermodynamics, history, anthropology, human behavior, neuroscience, environmental science, sociology, economics, globalization/trade, and finance/debt with an overarching goal to give students a general understanding of how our human ecosystem functions as a whole.

Visit Nate Hagens’ personal website at The Monkey Trap.

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