A short story about negative externalities
As data capture gets better and more pervasive, it will become easier to appropriately price negative externalities. The environment and healthcare are the two places this will matter the most.
Negative externalities are where indirect costs or harmful effects are not reflected in the market price of goods or services. It’s easy to understand if you picture a company dumping its waste in a river to make something cheap. The citizens downstream of that pay the price, more so than the company, which actually avoids that cost (of illegal dumping). The lower cost drives more business to them which is not good for the community or society at large. This is relevant across many environmental cases. Healthcare is another easy-to-understand example (someone who’s always sick because of lifestyle choices is being subsidized by several taxpayers).
The cost of collecting, transmitting, and now analyzing data (thanks to AI) is falling precipitously. This makes appropriately pricing negative externalities easier. In the long term, this is extremely useful to a society as every every action has a different impact, which even changes by region and time. This is especially true for energy. As the variety of energy sources, and their efficiency evolves, only a full accounting of entire lifecycle emissions will get to the right answers (i.e. a wind turbine with a very low useful life, and high maintenance and material requirements may have a higher ultimate environmental footprint than a region being served by an existing natural gas grid). The time scale of the energy solution is also important and China has been a great example of this. China has been able to get EV costs down to a level where the West is actually blocking EV adoption. They have been able to make these energy transition advances (an EV car is now less than $10k) thanks to cheap manufacturing in part powered by cheap and pervasive fuel and power, largely from fossil fuels. Would expensive oil, coal, and gas have delayed their EV renaissance? Very likely. If fossil fuels had been blocked on emissions grounds in the country would the world now have the cheapest EV to date? No. Can we tell you what inflection point and level of fuel mix vs cost is best going forward? Not yet, but the data is coming.
Below is a short story we originally wrote in While We Dream that captures an example, while absurd, of accounting for negative externalities. We recently bought back the rights to the IP so we can share it now (we will get you a free copy if you are actually interested in the book - don’t buy it). The below is purely here to get you thinking.
Negative externalities are scary. An equally scary part of the story is that negative externalities rarely get accounted for without intervention. Governments, over the course of history, are historically terrible at intervening though, often ultimately using intervention for power. An ideal world, in our view, would be where infinite and free data allows individuals to make more favorable decisions, unique to their situations. People are generally good when well-informed and not afraid, and this symbiosis has been achieved in communities throughout time. We hope to help support that.
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Environment
Nelson walked downstairs as the early morning sun filtered through the windows. His feet were familiar with each step, and he didn’t turn on any lights to avoid waking the family. It was his favorite time of day, and no one else would be up for hours. He made a cup of tea and went to the living room to read. He opened the window and let cold mountain air filter in. That was when he heard the low rumble of the garage opening. Running to the garage door he opened it just in time to see Madison pulling in. She wasn’t in the government issued all-terrain vehicle though; she was in his vintage diesel BMW.
“Oh my god, Madison, what are you doing?”
“Daddy, I was careful, not a scratch. See, you can trust me.”
His voice was shaky. “How long were you driving?”
“It was just a small party and then I stayed over. No big deal. My friends said you have the coolest taste in cars.”
“How much fuel?”
Madison was quiet as she realized what her dad was asking. “I… I don’t know.”
Nelson leaned in and looked at the fuel gauge. It was almost at zero.
He ran back into the house at a sprint.
“Dad?!”
Nelson took the stairs two at a time and ran into his bedroom. “Mary! Wake up. Turn everything off, everything. Madison drove the BMW all night. Cut power remotely to the cottage, I don’t care if it freezes.” Mary slowly woke, and then, realizing the gravity of the situation, jumped on her tablet and made a call. Nelson had already run back out of the room and was now shouting at the kids to wake up.
“Felix! Paige! I need you to get up and power everything down right now. If you have any products you ordered that haven’t been made yet, cancel the order. Same with clothes. Paige, power down any atmosphere controls you have at your college dorm.”
“Dad! All my plants will die.”
“I don’t care. I think we went over.”
Nelson ran through a final check of the house to make sure everything was off. When he returned, his family had silently collected in the kitchen. They all understood what had happened. There was no sound except for the intermittent sniffle out of Madison.
“I’m sorry. I forgot we took those flights this month. I…” Madison’s lips were shaky as she spoke.
Nelson pulled her in. “It’s okay. We are together and okay. That’s all that matters.” His breathing was returning as time passed, and his thoughts got more hopeful. It had already been ten minutes; maybe they were going to be okay. It would be difficult for the rest of the month but there were only three days left. He knew they could do it. They couldn’t eat meat but there were enough vegetables in the garden. He could go without food if he needed to. He was thinking through the solutions when he heard the sirens in the distance.
“That could be anything,” Mary whispered.
No one spoke or moved as the siren grew louder. Nelson knew. He broke from the group and put one foot ahead of the other as he slowly walked down the hallway to the front door. He was almost at the door when the knock came. With one hand on the doorknob, Nelson turned and looked at his family. “I love all of you so much. And I know you feel the same.”
He opened the door to see the bright blue of the police uniform. The officer stepped forward and began to read from his tablet.
“Your residence has exceeded the carbon threshold required to live in this jurisdiction. By orders of the President, we have the right to halt all carbon impact activity, including those related to food and drink. If you need either, you will be provided with a government issued intravenous solution until your new carbon credits are issued. Within five days you are required to relocate to the carbon output jurisdiction that meets your new threshold. We will have ascertained what that level is shortly. Are there any questions before we commence preparations for the assisted relocation program?”
Nelson looked at the officer and back at his family. “It was me alone. I was the reason the threshold was exceeded. I took a joyride in an old diesel car. You will find it registered to me.”
The policeman had his head down, scrolling through his tablet for the requisite paperwork, but he lifted it up and smiled at the news that he now only had one form to complete. “That is perfectly within your rights, sir. It will be only you that is processed then, assuming the family will not be joining you.”
Nelson turned to see Mary clutching Felix and Paige a few steps back. They had their faces pressed against her. Madison stood alone to the side, with tears pouring down her face. It looked as if she was going to open her mouth, but Nelson gave all of them a shake of his head.
“Okay, then,” the officer seemed to be in a hurry. I will be back in a few days, and all the relevant details are in your email. You just need to take a photo for identification.” The officer pulled up his tablet, snapped the photo, nodded, and then closed the door behind him. The family stood in the foyer, staring at the closed door, and no one could find the words.
—— «» ——
Nelson dropped his bags on the ground and collapsed on the bed. It had been two weeks of travel. He looked around the tiny apartment. It felt as if dust or soot had touched everything. He walked to the window and opened the blinds slowly to see the dark red sky. The city stretched for miles ahead of him, and he could see another superstorm forming in the distance. He hadn’t been planning on opening the window but suddenly realized it wasn’t even an option with the way the building was designed. He shook as he spoke the word. “Earth.”
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