When you buy something, you naturally look at the price. While you may not like the price, you are reasonably confident that the price is 'fair" because it has been drummed into all of us that capitalism, through the magic of supply and demand, usually comes out with a fair price for goods and services, unless something - government interference, profiteers, lack of competition, etc - distorts it. But the actual truth is that most prices are completely wrong, and the reason for this is a flaw that capitalism has never been able to resolve: externalities.
Externalities are the side effects from some economic activity that affect third parties and are therefore excluded from the cost of those same goods and services. The obvious example is pollution. For more than a decade, the Love Canal neighbourhood was treated as a dumping ground for toxic waste by the Hooker Chemical Co. By the 1970s, the health damage suffered by residents became evident and undeniable. Those residents bore the horrific costs of that pollution and then taxpayers bore the additional cost - some 400 million dollars - to clean the mess up. This is a textbook case of how externalities cause market failure - neither the polluter (Hooker) nor its customers bore the full, real cost of its products.
A subset of externalities is the Tragedy of the Commons, in which individuals with access to a shared resource act in their own interest and, in doing so, deplete the resource. Take the price of something like tuna. You can get a can of tuna for less than two bucks. This price includes only the tangible costs of making a can of tuna. With technology, labour and time at sea have been drastically reduced. Fishing trawlers with sophisticated sonar and gargantuan nets steam into the ocean and catch tons of fish very quickly. Much of the processing of the catch takes place on the boat, leaving little more than packaging and transport to market as the remaining costs. The system is so efficient that tuna is cheap to consume. But how much should a can of tuna really cost? An accurate price would reflect the fact that tuna are finite. A recent study put the decline in Pacific bluefin tuna at a staggering 97.4 percent, meaning the population is only 2.6 percent of its original size. This reality is not reflected in the price and never has been. If it was, the cost of a can of tuna would obviously be many times higher than it is.
The only way to include externalities in prices is for the government to force them to be internalized. A carbon tax is a perfect example. Once the government penalizes CO2 emissions, business is forced to put them into the price equation as another cost. Of course, conservatives generally don't believe in externalities and maintain that the market is always right. Faced with evidence of market failure, they simply deny reality, which is their default condition on pretty much everything. Or even if they concede there is a market failure, they moan about the cost of fixing it, which is breathtakingly stupid. The real and catastrophic costs come if we do nothing. This is what has happened with climate change, where the Right is divided between outright deniers (Hey it's really cold today, it must be a hoax!) and those who kind of accept it but deny that anything can or should be done about it.
This "it's too expensive to change" argument is a pathetic attempt at deflection. Over the long term, renewable energy in whatever form it takes will be a huge boon to the economy. Think of what happens now and how laughably inefficient it is: Some people drill an oil well somewhere in the middle of nowhere, then they have to truck or pipe it to a battery, where water and sediment is removed, then they have to pipe it a long way to a refinery, where it is processed into finished products like gasoline, and then they have to transport the gas to myriad gas stations, and then you have to drive to the station to fill up. This is an 1800's industrial age process, completely centralized, which leaves it highly vulnerable to attacks, accidents, manipulation (if OPEC were a group of companies instead of countries, it would be shut down as an illegal cartel) and weather disruptions.
The deniers never talk about how truly expensive our current energy system is. Fossil fuel production is not only subsidized by free CO2 pollution, its subsidized by government handouts. The total amount spend by various governments around the world on fossil fuel subsidies totals 400 billion USD per year. This amount doesn't even include unpaid environmental liabilities for cleaning up old sites; here in Alberta, the bill for abandoned well and facilities clean up is at least $58 billion (some estimates are far higher). This bill will mostly have to be paid by the mean old federal government, who should not expect any gratitude for this from delusional Albertans. Fossil fuels are also subsidized by the military, as the US has propped up authoritarian criminals in places like Saudi Arabia and Kuwait in exchange for keeping oil prices reasonable. The US has spent $6.4 trillion on Mid-East wars since 2001, which is about 19,000 bucks for every man, woman and child in the US. How about we start adding a chunk of that to every tank of gas or airline ticket?
It's this mispricing that gives the illusion that our economy is healthy and growing. But it really isn't because degrading our environment and stripping the earth is not viable in the long run. It's annoying to hear people talk about government debt as "borrowing money from future generations." Yet you never hear these same people talk about how extracting natural resources actually is borrowing from future generations, and in this case there really is no way to pay the loans back. Furthermore, mispriced energy has helped other changes happen that will in the long term prove unworkable. Relatively low energy costs were one of the things that made globalized manufacturing possible. Companies could take advantage of low labour costs by manufacturing stuff in places like China and then cheaply shipping them to all the places where their buyers resided. If oil had been properly priced 30 years ago, it's likely that the offshoring frenzy and all its associated problems wouldn't have happened, or at least not to the degree it has.
These price distortions are particularly applicable to Canada, where natural resources make up about 17 percent of GDP. Canada is a large country and it can seem like our resources are endless, but they aren't. For example, only 2.7 percent of remaining forests in BC are old growth, a horrifying stat that even that hypocrite John Horgan should find alarming. It doesn't help that we do very little value added processing to our resources, leaving us completely at the mercy of volatile world commodity prices. Simply selling precious natural resources at whatever price someone will pay you at the time is short-sighted and irresponsible. Alberta compounded this failure by dropping oil and gas royalties to a pittance and now has almost nothing saved up for the inevitable transition away from fossil fuels. We could've been like Norway, but now we're looking more like West Virginia.
It's pretty clear the world won't make the targets on CO2 emissions in time to avoid the two degree threshold, which is considered a tipping point. While we are rightly focused on climate change, that's really only one problem - overfishing, the polluting and damaging of our oceans, deforestation, soil damage from over reliance on chemical fertilizers, mass extinction and lack of potable water in many places are all coming at us at the same time. The further we go down this path, the harder it becomes to get out of our predicament. We have entered a negative feedback loop where each problem exacerbates other problems. Lack of arable land leads to more deforestation, which accelerates climate change, which then causes more water shortages.
We will see much more damage from storms, flooding, drought, etc., as well as more displacement of people, especially along low-lying coastal regions. As critical resources like fish and water dwindle away in certain places, you think the people affected are going to die quietly in a corner? The migrant problem we are seeing in Europe and the US is likely going to get worse. There will also be an increase in violence as people fight for scarce resources. There will be more failed states that disintegrate into anarchy. Even if you're a sicko with the morality of a Goldman Sachs trader and can just shrug off the human toll, the costs imposed on the world economy by mass migration, violence and societal breakdown will be enormous. Environmental disasters will make each and every one of us significantly poorer, even if they occur halfway around the globe from your house. We have a global economy in which everyone and everything is interrelated. The market will never solve this problem on its own, governments have to get together and figure out workable solutions. Externalities are the bug in our economic system and this fact can't be ignored any longer.
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