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The Externality Trap, or, How Progress Commits Suicide

The Externality Trap, or, How Progress Commits Suicide thumbnail

I’ve commented more than once in these essays about the cooperative dimension of writing: the way that even the most solitary of writers inevitably takes part in what Mortimer Adler used to call the Great Conversation, the flow of ideas and insights across the centuries that’s responsible for most of what we call culture. Sometimes that conversation takes place second- or third-hand—for example, when ideas from two old books collide in an author’s mind and give rise to a third book, which will eventually carry the fusion to someone else further down the stream of time—but sometimes it’s far more direct.


Last week’s post here brought an example of the latter kind. My attempt to cut through the ambiguities surrounding that slippery word “progress” sparked a lively discussion on the comments page of my blog about just exactly what counted as progress, what factors made one change “progressive” while another was denied that label. In the midst of it all, one of my readers—tip of the archdruidical hat to Jonathan—proposed an unexpected definition: what makes a change qualify as progress, he suggested, is that it increases the externalization of costs.

I’ve been thinking about that definition since Jonathan proposed it, and it seems to me that it points up a crucial and mostly unrecognized dimension of the crisis of our time. To make sense of it, though, it’s going to be necessary to delve briefly into economic jargon.

Economists use the term “externalities” to refer to the costs of an economic activity that aren’t paid by either party in an exchange, but are pushed off onto somebody else. You won’t hear a lot of talk about externalities these days; it many circles, it’s considered impolite to mention them, but they’re a pervasive presence in contemporary life, and play a very large role in some of the most intractable problems of our age. Some of those problems were discussed by Garret Hardin in his famous essay on the tragedy of the commons, and more recently by Elinor Ostrom in her studies of how that tragedy can be avoided; still, I’m not sure how often it’s recognized that the phenomena they discussed applies not just to commons systems, but to societies as a whole—especially to societies like ours.

An example may be useful here. Let’s imagine a blivet factory, which turns out three-prong, two-slot blivets in pallet loads for customers. The blivet-making process, like manufacturing of every other kind, produces waste as well as blivets, and we’ll assume for the sake of the example that blivet waste is moderately toxic and causes health problems in people who ingest it. The blivet factory produces one barrel of blivet waste for every pallet load of blivets it ships. The cheapest option for dealing with the waste, and thus the option that economists favor, is to dump it into the river that flows past the factory.

Notice what happens as a result of this choice. The blivet manufacturer has maximized his own benefit from the manufacturing process, by avoiding the expense of finding some other way to deal with all those barrels of blivet waste. His customers also benefit, because blivets cost less than they would if the cost of waste disposal was factored into the price. On the other hand, the costs of dealing with the blivet waste don’t vanish like so much twinkle dust; they are imposed on the people downstream who get their drinking water from the river, or from aquifers that receive water from the river, and who suffer from health problems because there’s blivet waste in their water. The blivet manufacturer is externalizing the cost of waste disposal; his increased profits are being paid for at a remove by the increased health care costs of everyone downstream.

That’s how externalities work. Back in the days when people actually talked about the downsides of economic growth, there was a lot of discussion of how to handle externalities, and not just on the leftward end of the spectrum. I recall a thoughtful book titled TANSTAAFL—that’s an acronym, for those who don’t know their Heinlein, for “There Ain’t No Such Thing As A Free Lunch”—which argued, on solid libertarian-conservative grounds, that the environment could best be preserved by making sure that everyone paid full sticker price for the externalities they generated. Today’s crop of pseudoconservatives, of course, turned their back on all this a long time ago, and insist at the top of their lungs on their allegedly God-given right to externalize as many costs as they possibly can. This is all the more ironic in that most pseudoconservatives claim to worship a God who said some very specific things about “what ye do to the least of these,” but that’s a subject for a different post.

Economic life in the industrial world these days can be described, without too much inaccuracy, as an arrangement set up to allow a privileged minority to externalize nearly all their costs onto the rest of society while pocketing as much as possible the benefits themselves. That’s come in for a certain amount of discussion in recent years, but I’m not sure how many of the people who’ve participated in those discussions have given any thought to the role that technological progress plays in facilitating the internalization of benefits and the externalization of costs that drive today’s increasingly inegalitarian societies. Here again, an example will be helpful.

Before the invention of blivet-making machinery, let’s say, blivets were made by old-fashioned blivet makers, who hammered them out on iron blivet anvils in shops that were to be found in every town and village. Like other handicrafts, blivet-making was a living rather than a ticket to wealth; blivet makers invested their own time and muscular effort in their craft, and turned out enough in the way of blivets to meet the demand. Notice also the effect on the production of blivet waste. Since blivets were being made one at a time rather than in pallet loads, the total amount of waste was smaller; the conditions of handicraft production also meant that blivet makers and their families were more likely to be exposed to the blivet waste than anyone else, and so had an incentive to invest the extra effort and expense to dispose of it properly. Since blivet makers were ordinary craftspeople rather than millionaires, furthermore, they weren’t as likely to be able to buy exemption from local health laws.

The invention of the mechanical blivet press changed that picture completely. Since one blivet press could do as much work as fifty blivet makers, the income that would have gone to those fifty blivet makers and their families went instead to one factory owner and his stockholders, with as small a share as possible set aside for the wage laborers who operate the blivet press. The factory owner and stockholders had no incentive to pay for the proper disposal of the blivet waste, either—quite the contrary, since having to meet the disposal costs cut into their profit, buying off local governments was much cheaper, and if the harmful effects of blivet waste were known, you can bet that the owner and shareholders all lived well upstream from the factory.

Notice also that a blivet manufacturer who paid a living wage to his workers and covered the costs of proper waste disposal would have to charge a higher price for blivets than one who did neither, and thus would be driven out of business by his more ruthless competitor. Externalities aren’t simply made possible by technological progress, in other words; they’re the inevitable result of technological progress in a market economy, because externalizing the costs of production is in most cases the most effective way to outcompete rival firms, and the firm that succeeds in externalizing the largest share of its costs is the most likely to prosper and survive.

Each further step in the progress of blivet manufacturing, in turn, tightened the same screw another turn. Today, to finish up the metaphor, the entire global supply of blivets is made in a dozen factories in distant Slobbovia, where sweatshop labor under ghastly working conditions and the utter absence of environmental regulations make the business of blivet fabrication more profitable than anywhere else. The blivets are as shoddily made as possible; the entire blivet supply chain from the open-pit mines worked by slave labor that provide the raw materials to the big box stores with part-time, poorly paid staff selling blivetronic technology to the masses is a human and environmental disaster. Every possible cost has been externalized, so that the two multinational corporations that dominate the global blivet industry can maintain their profit margins and pay absurdly high salaries to their CEOs.

That in itself is bad enough, but let’s broaden the focus to include the whole systems in which blivet fabrication takes place: the economy as a whole, society as a whole, and the biosphere as a whole. The impact of technology on blivet fabrication in a market economy has predictable and well understood consequences for each of these whole systems, which can be summed up precisely in the language we’ve already used. In order to maximize its own profitability and return on shareholder investment, the blivet industry externalizes costs in every available direction. Since nobody else wants to bear those costs, either, most of them end up being passed onto the whole systems just named, because the economy, society, and the biosphere have no voice in today’s economic decisions.

Like the costs of dealing with blivet waste, though, the other externalized costs of blivet manufacture don’t go away just because they’re externalized. As externalities increase, they tend to degrade the whole systems onto which they’re dumped—the economy, society, and the biosphere. This is where the trap closes tight, because blivet manufacturing exists within those whole systems, and can’t be carried out unless all three systems are sufficiently intact to function in their usual way. As those systems degrade, their ability to function degrades also, and eventually one or more of them breaks down—the economy plunges into a depression, the society disintegrates into anarchy or totalitarianism, the biosphere shifts abruptly into a new mode that lacks adequate rainfall for crops—and the manufacture of blivets stops because the whole system that once supported it has stopped doing so.

Notice how this works out from the perspective of someone who’s benefiting from the externalization of costs by the blivet industry—the executives and stockholders in a blivet corporation, let’s say. As far as they’re concerned, until very late in the process, everything is fine and dandy: each new round of technological improvements in blivet fabrication increases their profits, and if each such step in the onward march of progress also means that working class jobs are eliminated or offshored, democratic institutions implode, toxic waste builds up in the food chain, or what have you, hey, that’s not their problem—and after all, that’s just the normal creative destruction of capitalism, right?

That sort of insouciance is easy for at least three reasons. First, the impacts of externalities on whole systems can pop up a very long way from the blivet factories. Second, in a market economy, everyone else is externalizing their costs as enthusiastically as the blivet industry, and so it’s easy for blivet manufacturers (and everyone else) to insist that whatever’s going wrong is not their fault. Third, and most crucially, whole systems as stable and enduring as economies, societies, and biospheres can absorb a lot of damage before they tip over into instability. The process of externalization of costs can thus run for a very long time, and become entrenched as a basic economic habit, long before it becomes clear to anyone that continuing along the same route is a recipe for disaster.

Even when externalized costs have begun to take a visible toll on the economy, society, and the biosphere, furthermore, any attempt to reverse course faces nearly insurmountable obstacles. Those who profit from the existing order of things can be counted on to fight tooth and nail for the right to keep externalizing their costs: after all, they have to pay the full price for any reduction in their ability to externalize costs, while the benefits created by not imposing those costs on whole systems are shared among all participants in the economy, society, and the biosphere respectively. Nor is it necessarily easy to trace back the causes of any given whole-system disruption to specific externalities benefiting specific people or industries. It’s rather like loading hanging weights onto a chain; sooner or later, as the amount of weight hung on the chain goes up, the chain is going to break, but the link that breaks may be far from the last weight that pushed things over the edge, and every other weight on the chain made its own contribution to the end result

A society that’s approaching collapse because too many externalized costs have been loaded onto on the whole systems that support it thus shows certain highly distinctive symptoms. Things are going wrong with the economy, society, and the biosphere, but nobody seems to be able to figure out why; the measurements economists use to determine prosperity show contradictory results, with those that measure the profitability of individual corporations and industries giving much better readings those that measure the performance of whole systems; the rich are convinced that everything is fine, while outside the narrowing circles of wealth and privilege, people talk in low voices about the rising spiral of problems that beset them from every side. If this doesn’t sound familiar to you, dear reader, you probably need to get out more.

At this point it may be helpful to sum up the argument I’ve developed here:

  1. a) Every increase in technological complexity tends also to increase the opportunities for externalizing the costs of economic activity;
  1. b) Market forces make the externalization of costs mandatory rather than optional, since economic actors that fail to externalize costs will tend to be outcompeted by those that do;
  1. c) In a market economy, as all economic actors attempt to externalize as many costs as possible, externalized costs will tend to be passed on preferentially and progressively to whole systems such as the economy, society, and the biosphere, which provide necessary support for economic activity but have no voice in economic decisions;
  1. d) Given unlimited increases in technological complexity, there is no necessary limit to the loading of externalized costs onto whole systems short of systemic collapse;
  1. e) Unlimited increases in technological complexity in a market economy thus necessarily lead to the progressive degradation of the whole systems that support economic activity;
  1. f) Technological progress in a market economy is therefore self-terminating, and ends in collapse.

Now of course there are plenty of arguments that could be deployed against this modest proposal. For example, it could be argued that progress doesn’t have to generate a rising tide of externalities. The difficulty with this argument is that externalization of costs isn’t an accidental side effect of technology but an essential aspect—it’s not a bug, it’s a feature. Every technology is a means of externalizing some cost that would otherwise be borne by a human body. Even something as simple as a hammer takes the wear and tear that would otherwise affect the heel of your hand, let’s say, and transfers it to something else: directly, to the hammer; indirectly, to the biosphere, by way of the trees that had to be cut down to make the charcoal to smelt the iron, the plants that were shoveled aside to get the ore, and so on.

For reasons that are ultimately thermodynamic in nature, the more complex a technology becomes, the more costs it generates. In order to outcompete a simpler technology, each more complex technology has to externalize a significant proportion of its additional costs, in order to compete against the simpler technology. In the case of such contemporary hypercomplex technosystems as the internet, the process of externalizing costs has gone so far, through so many tangled interrelationships, that it’s remarkably difficult to figure out exactly who’s paying for how much of the gargantuan inputs needed to keep the thing running. This lack of transparency feeds the illusion that large systems are cheaper than small ones, by making externalities of scale look like economies of scale.

It might be argued instead that a sufficiently stringent regulatory environment, forcing economic actors to absorb all the costs of their activities instead of externalizing them onto others, would be able to stop the degradation of whole systems while still allowing technological progress to continue. The difficulty here is that increased externalization of costs is what makes progress profitable. As just noted, all other things being equal, a complex technology will on average be more expensive in real terms than a simpler technology, for the simple fact that each additional increment of complexity has to be paid for by an investment of energy and other forms of real capital.

Strip complex technologies of the subsidies that transfer some of their costs to the government, the perverse regulations that transfer some of their costs to the rest of the economy, the bad habits of environmental abuse and neglect that transfer some of their costs to the biosphere, and so on, and pretty soon you’re looking at hard economic limits to technological complexity, as people forced to pay the full sticker price for complex technologies maximize their benefits by choosing simpler, more affordable options instead. A regulatory environment sufficiently strict to keep technology from accelerating to collapse would thus bring technological progress to a halt by making it unprofitable.

Notice, however, the flipside of the same argument: a society that chose to stop progressing technologically could maintain itself indefinitely, so long as its technologies weren’t dependent on nonrenewable resources or the like. The costs imposed by a stable technology on the economy, society, and the biosphere would be more or less stable, rather than increasing over time, and it would therefore be much easier to figure out how to balance out the negative effects of those externalities and maintain the whole system in a steady state. Societies that treated technological progress as an option rather than a requirement, and recognized the downsides to increasing complexity, could also choose to reduce complexity in one area in order to increase it in another, and so on—or they could just raise a monument to the age of progress, and go do something else instead.

The logic suggested here requires a comprehensive rethinking of most of the contemporary world’s notions about technology, progress, and the good society. We’ll begin that discussion in future posts—after, that is, we discuss a second dimension of progress that came out of last week’s discussion.

The Archdruid Report by John Michael Greer

16 Comments on "The Externality Trap, or, How Progress Commits Suicide"

  1. J-Gav on Thu, 26th Feb 2015 3:47 am 

    Good post by JMG. As long as the externality hot potato keeps getting passed around we won’t be able to change the definition of ‘progress.’

  2. Richard Ralph Roehl on Thu, 26th Feb 2015 5:43 am 

    In terms of economics… progress seems connected to mindless perpetual growth in a closed looped system of finite resources and finite space.

    And in terms of politics… it means better and more clever ways to commit crime. And too often… better and more clever ways to be a racist and a bigot.

    Hopefully… I’m not becoming too cynical.

  3. Davy on Thu, 26th Feb 2015 6:47 am 

    JMG has brought up a good point of the cost to technology, complexity, and energy intensity all the hallmarks of industrial man. We know that the laws of nature talk about conservation of energy and every action has an equal and opposite reaction. It is the unintended consequences of our technological efforts that our coming back to haunt us. We have proceeded so quick into a world of ever greater complexity that is now hitting diminishing returns from limits and dangerous feedbacks.

    We really can’t actively degrowth modern man even if we wanted and many of us want to. The BAUtopians are in control and exceptionalism of technology, complexity, markets, and energy intensity rule. Growth and progress underlie most societal actions. Even when we want to degrowth a technology it is usually with another technology.

    The important point to realize currently is we are entering the paradigm shift of descent. Complexity, energy intensity and technology will suffer entropic decay from limits and diminishing returns of these exceptionalist tools. The descent will force economic abandonment, dysfunctional decay of systems, and rapidly declining energy intensity from depletion. Nature will begin the process of degrowth. This descent will be a trap if we continue to fight nature. There are those efforts that will be working with nature and those efforts against her. Who will win? Pretty obvious.

    We have deceived ourselves with a perfect combination of a large brain and a huge and dense source of energy. We have conditioned many generations to growth and progress. It is understandable that modern man can’t think out of that box. The whole system is oriented away from those pre-modern efforts that utilized natural solar energy. These technologies are the technologies of the future. Mechanical, thermos, and biological energy is what must be embraced and quick. Mechanical like puleys, ropes, water wheels, windmills, and sails. Thermal energy like steam power, natural heating, and natural cooling. Much of this effort will have to be directed to food production.

    We will have the hybridization of these pre-modern efforts with all those modern technologies by default. They are the low hanging fruit of a transformed BAU world. Some of these technologies are simple and highly effective. Some of our knowledge especially with basic health and sanitation highly important in a postmodern world ahead.

    We are in a trap now of our own making. This trap is the type of trap that the harder we fight it the more entangled we become. It reminds me here on the farm when I get a tractor stuck. One must know when it is hopeless and stop the effort because it is just making it worse. Nature will push us out of modern life with us kicking and yelling or with acquiescence. If we embrace a natural process that ecosystems go through we will find ourselves in a new ecosystem that is natural and sustainable.

    Don’t get joyful yet because this will require our population in overshoot to return to a natural carrying capacity in the vicinity of 1BIL or less. We cannot escape the fact that we are now bottleneck man. We can fight that or go with the flow. The fighting of this reality will probably mean that at some point we will have a rapid die off of easily 1BIL people then the relentless attrition of on average 200MIL a year for a generation or less. We must get back to this point. There is no other option. There is no future for complexity, energy intensity, and technology of modern man. This process has started and soon will begin speeding up. Hang on for the shit storm.

  4. dave thompson on Thu, 26th Feb 2015 7:56 am 

    “Let’s imagine a blivet factory, which turns out three-prong, two-slot blivets in pallet loads for customers.”
    Lets imagine humans stop making worthless crap in the first place. LOL

  5. Northwest Resident on Thu, 26th Feb 2015 10:05 am 

    “Technological progress in a market economy is therefore self-terminating, and ends in collapse.”

    Sure looks that way.

    “…driven out of business by his more ruthless competitor.”

    The most ruthless parasite wins. Darwin’s Law?

  6. farmboy on Thu, 26th Feb 2015 10:05 am 

    Yes I hear; But these blivets make it so nice . I grew up on a farm without electricity so I know a thing or two about life with less blivets.

    If you or one of the kids needs to go to the bathroom whatever time of the night, whether it’s raining or snow piled up 3 feet you head out to a dark outhouse with a cold seat. Having refrigeration makes it so much easier to manage food. and taking a bath just doesnt happen as often. washing clothes is almost a full time job.

    And this is only living with a few less blivets. I find it difficult to imagine living with no blivets. Imagine cutting up firewood with say just an axe, because even a crooscut saw requires a significant amount of fossil fuel energy and a cooperative society to produce compared to an axe. Well I for one would soon decide to do with less heat. And a log cabin with no glass windows would be the best house I could hope to living in, in a no blivet world.

    And not much of a chance to ever learn from peak oil experts.

  7. GregT on Thu, 26th Feb 2015 10:56 am 


    Human beings lived comfortable, productive lives for tens of thousands of years on this planet without blivets. If you had have asked them if their lives would have been better WITH blivets, they wouldn’t have known the difference.

  8. ghung on Thu, 26th Feb 2015 11:25 am 

    Good news, Farmboy, you were born into the age of peak blivets. No point in fighting that. We have a wide selection of useful and useless blivets from which to choose, along with their associated externalized costs, and I plan to leverage some of these things as bridges to the blivet-limited future we face.

    Choose your blivets carefully.

  9. Northwest Resident on Thu, 26th Feb 2015 11:38 am 

    Having blivets is just fine. Let the local craftsmen produce them and minimize the external costs. Having some super wealthy fat cat sitting at the top of a huge corporation that produces millions of blivets, produces advertising that creates more “demand” for blivits, unemploys all the former local craftsmen making a decent living wage by creating blivits locally, and externalizing all blivit mass-production costs onto society is exactly where we are right now, and exactly why we are faced with DOOM.

  10. Mike989 on Thu, 26th Feb 2015 7:25 pm 

    What we’re born into is a world of: Carbon output, Coal pollution that is exploding mercury in the fish population to unhealthy levels,
    Fracking poisoning our water supply,
    With farming waste creating dead zones in our oceans,
    Our fish population die off of 95%.
    We are in the midst of our own Extinction Event,
    and with an Oil Industry controlled congress,
    we’ve chosen to commit Suicide.

  11. Mike989 on Thu, 26th Feb 2015 7:29 pm 

    This is the “leadership” you get when your country is controlled by corporate power:

    How is someone this stupid still in congress? Coal Lobby.

    We will be destroyed, Not by Communism, but by Capitalism.

  12. dubya on Thu, 26th Feb 2015 10:10 pm 

    I recently read an analysis of business competitiveness, and it appears that the most profitable are the ones breaking laws the most efficiently.

    Given that all industries are constrained by the same regulation the company that gets ahead is the one that dumps their garbage under cover of dark.

    Which, of course, is the company that gets to sell at MallWart, the poster child of inequality.

  13. Davy on Fri, 27th Feb 2015 4:43 am 

    Dub, that is most apparent in the financial services industry. These folks at the top of the food chain in this industry are truly nasty concerns. This is true globally not just WS & DC. If you read ZH everyday like I do for years now you see the pattern. Disregard for rule of law, market manipulation, corrupted business model, lobbyist making law, large political campaign donations and seeding the political system with cronies. That is just the short list. Then you have money laundering across the board from drugs to mafias. This industry has expanded to around 10% of the US economy. That is a parasitic number.

    It is plain to see when we hear about the bonuses these folks are paid for basically running a skim operation from an economy wide casino. This sector will suffer entropic decay in the descent very quickly. These will be the folks jumping out the windows again. These will also be the folks refusing to allow the much needed plan B’s. They will suck blood from BAU as long as possible because where else are they going to get their VIG except from the centralization of so much power and wealth in BAU. There has always been wealth centers but never like today. So much and so many skimming in such a concentrated area. Our needed localism and dispersion of production is hindered by these folks. These are thieves whose very survival is BAU

  14. J-Gav on Fri, 27th Feb 2015 4:23 pm 

    Northwest – I know it’s not exactly what you’re saying but I’ll bounce off your comment to state the following as regards Darwin: “The most ruthless parasite wins” is certainly not his law; no, that would be more like: ‘Those species which demonstrate the greatest adaptability to their ecological surroundings are those most likely to survive the longest.’

    So, “The survival of the fittest” is not a phrase to be found in his book “The Origin of Species.”

    Now,from there to ruthless parasites “winning,” there’s no doubt that at present that seems to be the case. Ain’t Darwin’s fault. Guess it all depends on our definition of ‘winning’ and whether or not we’re willing to take more than a short-term electoral mandate to frame these issues, wouldn’t you agree?

  15. Northwest Resident on Fri, 27th Feb 2015 4:46 pm 

    J-Gav — All you say is true. I was definitely being a little sarcastic and cynical when I wrote “The most ruthless parasite wins. Darwin’s law?”

    Although, short term, like you say, the most ruthless parasites do seem to frequently appear to be winning. Long term, I doubt that they will, for the same reason that any predator who over-predates his environment will ultimately go extinct or be forced to adapt. I actually have a hope that some future version of humanity will have adapted and matured to a point where the “most ruthless parasites” are identified and removed from society before they can breed and reek havoc. But I’m not holding my breath!

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