On Externalities and Noise

I hate noise. It doesn’t matter if it’s the high-pitched screams of kids playing outside or the phony concerned voices of loud news anchors, they all make me mad. Same with the relentless humming of construction machines doing maintenance on the road outside and the repetitive hum of tires against cobblestone when cars are passing on said road; with every inch of my body, I hate them. I hate the obnoxiously invasive sound of vacuum cleaners and the piercing cries of industrial grinders. Whenever I hear any of these sounds, I want to scream and throw things at this invasion of my existence. 

Being trained in economics, my second thought is to pay a decent amount of money for all of these noises to go away – were it even possible to negotiate such transactions. 

But if people want to move about, they occasionally need cars to do so and roads to drive on. If people want to have hedges and lawns, they must occasionally trim and mow them. If people want kids, those kids must sometimes play outside, and if people want houses to live in, houses must be built and maintained. The annoying noise that comes from these activities, to butcher Oliver Wendell Holmes’ quote, is the price we pay for living in a civilized society. 

Living in an intertwined and specialized society with other people – particularly in cities, and more so the larger and denser the city – means accepting the noises of other people and the things they do that might annoy you. 

This is what economists call “externalities,” and are some of the most well-understood phenomena, yet one of the most abused and selectively invoked. An externality is anything that others do that impose a cost on you. While almost everything that humans do are externalities to somebody, the principle is mostly invoked on environmental topics: my pollution of a river causes your downstream drinking water to be poisoned; my consumption of gasoline imposes costs on others through the exhaust I emit and the climate change damages that my consumption gives rise to. 

Across the economics profession, we have some typical ways to deal with externalities: publicly mandate limits; privatize the commons such that ownership rights over the external effect can be traded; or tax the transaction such that the parties involved internalize others’ costs to their behavior. Some common examples here are taxes on gasoline, on smoking, and more recently on sugary drinks; the idea is to use market prices both to dissuade use of these products and to support the financing of harms that emerge (e.g. second-hand smoking, health care expenses for diabetes). 

Embracing the wealth explosion of our times means expanding the global division of labor, which also requires us to rely more on others to supply us with the things we want and need, while our specialized competences in turn produce value for them. Often this means coexisting with many other people, whose interests, desires, and actions rarely intersect with yours. 

Living in proximity with others means accepting the costs of their presence – the noise of their lawn mowers, the high-pitched cries of their children, the noise from roads and construction of houses that block your view. If I want the benefits of living in a city, these are the nuisances I must put up with. 

I am reminded of all this when I read Robert Bryce’s chapter on land-use in his recent A Question of Power: Electricity and the Wealth of Nations. It’s an excellent chapter that contrasts protests over natural gas extractions and oil pipelines with protests over wind turbines or solar farms. Across the Western world, there are protests over conserving green areas and protests over not building enough houses (or too many); there are bans on wind farms and legal requirements to source more electricity from renewable sources. 

Reading the chapter, I walk away with the impression that whatever you wish to construct, someone will oppose it. Whatever energy source you use or raw material you mine such that people can enjoy the power they need and goods they want, someone – somewhere – will be upset. As Bryce convincingly writes, there is no endlessly unoccupied amount of land “ready and waiting to be covered with forests of renewable-energy stuff.” 

In a protest against the Welsh government’s plans for wind farms in the central and southern parts of Wales, Bryce quotes a particularly noticeable comment by a protester: 

“Some people in this rather attractive building here want to destroy magnificent mid Wales. […] Are we going to let them turn rural Wales into one gigantic power plant?”

This protester’s NIMBYism (Not in My Back Yard) is very telling. Most people think that their place of home is nice, even if it’s not as magnificent as rural Wales. Almost everyone thinks their immediate surroundings are worthy of conserving the way it is. Worthy of special consideration. 

The very same people also want cheap, reliable, and scalable energy such that they can live their lives in prosperity and comfort. 

These demands are contradictory. Maybe rural Wales shouldn’t become a gigantic power plant, but if the rural Welsh want the goodies that come from power plants, power generation and transmission lines must go up somewhere. If we are to source electricity from renewable sources, massive numbers of wind farms and solar plants must go up somewhere; if we want the benefits that come from reliable electricity, we need oil and gas and uranium to be extracted, transported, and put to use. 

There is no empty patch of land where we can set up the power-generating plants to supply our cities and homes; someone’s scenic view will inevitably be upended. Everything anybody does – the things we want and the things we don’t want – are externalities to somebody, somewhere. There are no free lunches, economists say, only trade-offs.  

To hammer home the point, let me cite another example, this time from the much-hyped climate documentary Anthropocene: The Human Epoch. Ranging from the heavily polluted Russian city of Norilsk to the vast expanse of bright-green lithium-producing sand beds in Chile, to an enormous open-pit lignite mine in Germany and the gigantic Dandora dumping site in Kenya, the producers try to shock the audience into horror of how we humans alter the face of the Earth. In every place, the filmmakers find somebody to interview about the environmental or human damage caused. 

The only thing I could contemplate was awe at the amazing world we humans created – and the hypocrisy of the filmmakers. 

If you want electric cars and phones and computers running on long-lasting lithium batteries, someone, somewhere, has to produce those batteries and the metals they contain; if you want 8 billion people to have access to those extraordinary devices, we must make a lot of them. If you want to close nuclear power plants in Germany, yet use the same amount of electricity, some amount of coal must be dug out of the ground and burned for electricity and heat. 

Trade-offs, Society and Externalities

A few weeks ago, while I was in the middle of a productive writing session, my neighbor began trimming his overgrown hedge with that horribly piercing sound from a hedge trimmer. I screamed loudly before I slammed my windows shut and searched desperately for my noise-cancelling earphones. How dare he?

Not before some sweet melodic psytrance was drowning out every other sound did I begin to regain my sanity. The price we pay for living in a rich society, safe from the elements, and with the world’s technology at our command, is to sometimes endure the awful noises of your neighbor, the destructive transformation of some part of nature, the mining of raw materials. 

If you want the riches that come with modern life, this is how we make them. Given that we want nice things, there are many other options. Expanding property rights over the commons only works so far: quite often, they can’t readily be assigned or enforced – and even if they could, most people would viciously disagree with them (tradeable noise permits? Child taxes, redistributed to neighbors?).

Nobody likes traffic jams, sirens, or endless supermarket lines, but living in cities means enduring them. We don’t want to ruin the scenic Welsh hills, but we do want people in adjacent cities to be able to heat their homes and charge their phones. Even if we powered our societies with nuclear only, somebody’s scenic river view will be interrupted, just like some noise-sensitive writer’s peace of mind might be disturbed by kids and cars and lawnmowers. 

I’m sure that there are better ways that humanity can produce things and negotiate social relations. We might even be able to make better trade-offs between nature and ways of living. Perhaps even find better power plant sites. To believe otherwise amounts to thinking that we’re in the best of all possible worlds, which few people do.  

But there is no world where trade-offs don’t apply, where we can have all the nice things we want without anybody, anywhere, getting upset. Externalities are everywhere, but if we want to live prosperous lives, some part of those lives will be impacted by others. Get over it.

Related Articles – Capitalism, Economic Education, Free Markets