We need a New Economics. We need to take account of externalities. What are externalities?
We need to look at new ways of measuring economic performance.
Externalities are causing our planetary woes. This isn’t a political issue in any way shape or form, we deal here only in fact and science.
So a little bit of history ……….
A free market economy mean that consumers buy stuff at a price fixed by the market. Competition forces prices down. Except, it isn’t that simple. For example a litre of water that comes through a water meter at your address has a fixed cost per litre. However some of the costs of supply of that litre of water are not included in the price you, the consumer, pays. One such cost is cleaning up pollution.
The water company charges you per litre. They make a profit and pay their shareholders. That’s fine, that’s how the world works.
The UK is a worldwide rarity in that water companies are private companies. There are lots of them as well, but the customer cannot choose which company to buy from. That is not free market economics. That is a geographical problem. That issue was solved in the electricity market by separating the wiring out into a single national grid.
Externalities are hidden costs. They are social costs, environmental costs and financial costs that are not included in the true price of a “good or service”.
Pollution is a great example.
A quick example of true cost accounting puts the “real” cost of food at three times the actual cost.
GDP is not set in stone. As a measurement it is a social construction. It needs to be flexible so that it can change with the times. TCA is that change. TCA is True Cost Accounting. Externalities will become Internalities. Pollution costs will be included in the price of food.
The FAO is starting to take TCA seriously. Watch this space!
New Scientist, 2 December 2023, The Hidden Cost of Everything, Graham Lawton.