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The Social Cost of Capitalism

August 12, 2015

The Social Cost of Capitalism

Few, if any, corporations absorb the full cost of their operations. Corporations shove many of their costs onto the environment, the public sector, and distant third parties. For example, currently 3 million gallons of toxic waste water from a Colorado mine has escaped and is working its way down two rivers into Utah and Lake Powell. At least seven city water systems dependent on the rivers have been shut down. The waste was left by private enterprise, and the waste was accidentally released by the Environmental Protection Agency, which might be true or might be a coverup for the mine. If the Lake Powell reservoir ends up polluted, it is likely that the cost of the mine imposed on third parties exceeds the total value of the mine’s output over its entire life.

Economists call these costs “external costs” or “social costs.” The mine made its profits by creating pollutants, the cost of which is born by those who had no share in the profits.

As this is the way regulated capitalism works, you can imagine how bad unregulated capitalism would be. Just think about the unregulated financial system, the consequences we are still suffering with more to come.

Despite massive evidence to the contrary, libertarians hold tight to their romantic concept of capitalism, which, freed from government interference, serves the consumer with the best products at the lowest prices.

If only.

Progressives have their own counterpart to the libertarians’ romanticism. Progressives regard government as the white knight that protects the public from the greed of capitalists.

If only.

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The High Cost of Capitalism

February 2, 2015

The High Cost of Capitalism

In my book, The Failure of Laissez Faire Capitalism, I explain the concept of external or social costs. These are the costs associated with production that are not incurred by the producer but are inflicted on outside third parties, most often the environment, such as land, air, and water resources on which humanity is dependent. In models demonstrating the efficiency of capitalism in allocating resources, economists include assumptions that move external costs out of the picture.

Finian Cunningham describes external costs associated with fracking.

If the cost of earthquakes to homeowners and owners of commercial buildings and damaged and ruined water resources had to be covered by the fracking companies, the total cost of production would exceed the value of the oil and gas recovered. As long as the oil price was high, the frackers made money by imposing what could well be the largest production costs on people who do not participate in the profits of the enterprise.

 

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