Naked Economics by Wheelan, Charles (spanish books to read .txt) 📕

of emitting greenhouse gases in a way that is binding upon all of the earth’s polluters—not the easiest of tasks.

It is worth noting that there can be positive externalities as well; an individual’s behavior can have a positive impact on society for which he or she is not fully compensated. I once had an office window that looked out across the Chicago River at the Wrigley Building and the Tribune Tower, two of the most beautiful buildings in a city renowned for its architecture. On a clear day, the view of the skyline, and of these two buildings in particular, was positively inspiring. But I spent five years in that office without paying for the utility that I derived from this wonderful architecture. I didn’t mail a check to the Tribune Company every time I glanced out the window. Or, in the realm of economic development, a business may invest in a downtrodden neighborhood in a way that attracts other kinds of investment. Yet this business is not compensated for anchoring what may become an economic revitalization, which is why local governments often offer subsidies for such investment.

Some activities have both positive and negative externalities. Cigarettes kill people who smoke them; that is old news. Responsible adults are free to smoke or not smoke as they choose. But cigarette smoke can also harm those who happen to be lingering nearby, which is why most office buildings consider smoking to be slightly less acceptable than running through the halls naked. Meanwhile, all fifty states filed suit against the tobacco industry (and subsequently accepted large settlements) on the grounds that smokers generate extra health care costs that must be borne by state governments. In other words, my taxes go to remove part of some smoker’s lung. (Private insurance companies do not have this problem; they simply recoup the extra cost of insuring smokers by charging them higher premiums.)

At the same time, smokers do provide a benefit to the rest of us. They die young. According to the American Lung Association, the average smoker dies seven years earlier than the average nonsmoker, which means that smokers pay into Social Security and private pension funds for all of their working lives but then don’t stick around very long to collect the benefits. Nonsmokers, on average, get more back relative to what they paid in. The good folks at Philip Morris have even quantified this benefit for us. In 2001, they released a report on the Czech Republic (just as parliament was considering raising cigarette taxes) showing that premature deaths from smoking save the Czech government roughly $28 million a year in pension and old-age housing benefits. The net benefit of smoking to the government, including taxes and subtracting public health costs, was reckoned to be $148 million.3

How does a market economy deal with externalities? Sometimes the government regulates the affected activity. The federal government issues thousands of pages of regulations every year on everything from groundwater contamination to poultry inspection. The states have their own regulatory structures; California, for example, has a strict set of emissions standards for automobiles. Local governments have zoning laws that forbid private property owners from impinging on their neighbors by constructing buildings that may be unsafe, inappropriate for the neighborhood, or simply ugly. The island of Nantucket allows only a few select colors of exterior paint lest irresponsible property owners use neon colors that would destroy the quaint character of the island. I live in a historic neighborhood in which every external change to our homes—from the color of new windows to the size of a flower box—must be approved by an architecture committee.

There is another approach to dealing with externalities that tends to be favored in some cases by economists: taxing the offending behavior rather than banning it. I’ve conceded that my Ford Explorer was a menace to society. As Cornell economist Robert Frank noted in an op-ed for the New York Times, we are locked in an SUV arms race. “Any family can only choose the size of its own vehicle. It cannot dictate what others buy. Any family that unilaterally bought a smaller vehicle might thus put itself at risk by unilaterally disarming,” he wrote.4 Should the Hummer be banned? Should Detroit be ordered to manufacture safer, more fuel-efficient cars?

Economists, including Mr. Frank, would argue not. The primary problem with SUVs—and all vehicles, for that matter—is that they are too cheap to drive. The private cost of driving a Hummer to the grocery store is obviously far lower than the social cost. So raise the private cost. As Mr. Frank writes, “The only practical remedy, given the undeniable fact that driving bulky, polluting vehicles causes damage to others, is to give ourselves an incentive to take this damage into account when deciding what vehicles to buy.” If the real cost to society of having an Explorer on the road is 75 cents a mile instead of the 50 cents a mile that it costs the vehicle’s owner to operate the vehicle, then tack on a tax that equates the two. This might be accomplished with a gas tax, or an emissions tax, or a weight tax, or some combination thereof. The result will make driving a Hummer to the grocery store a lot less attractive.

But now we have entered strange terrain. Is it appropriate to allow some drivers to pay for the privilege of driving a vehicle so bulky that it might run over a Mini Cooper without even spilling the sixty-four-ounce drink in the monster cup holder? Yes, for the same reason that most of us eat ice cream even though it causes heart disease. We weigh the health costs of Starbucks Almond Fudge against that divine, creamy taste and decide to have a pint every once in a while. We don’t quit ice cream entirely, nor do we have it with every meal. Economics tells us that the environment requires the same kinds of trade-offs as everything else in life. We should raise the