[Subtitle.] Econ 101 Needs More Progress Studies

This is a crosspost for Most Externalities are Solved with Technology, Not Coordination by Maxwell Tabarrok, which was originally published on Maximum Progress on 14 March 2025.

The basic externalities story goes like this: Some things, like air quality or scientific discoveries, have effects which spread to millions of people without cost or reward to the creator. Actions with unpunished costs are over-produced and actions with uncompensated benefits are left undone.

The story continues that if only we could coordinate, we could fix the misallocation caused by externalities. We might get the government to tax and subsidize externalities or else we might try to lower transaction costs so that people can bargain to solve externalities on their own.

The basic story over-focuses on social coordination as the solution to externalities. Our institutions cannot be relied on to optimally correct externalities or even to avoid making them worse. Usually, the costs of an externality subside only after we’ve invented a technology which makes it cheap or privately beneficial to do the socially optimal thing. Most importantly, technology shifts out the production possibilities frontier making it possible to get outcomes [...]

---

Outline:

(01:53) The Smoky City

(05:25) Airborne Disease

(06:49) Firefighting

(08:02) Over-farming and Guano Depletion

(09:21) Malthusian Externalities and The Industrial/Green Revolutions

(11:00) Counterexamples

(12:18) More Examples

---

First published:

Source:

Linkpost URL:
https://www.maximum-progress.com/p/most-externalities-are-solved-with

---

Narrated by TYPE III AUDIO.

---

Images from the article:

Apple Podcasts and Spotify do not show images in the episode description. Try Pocket Casts, or another podcast app.