The basic idea is that some actions you could perform impose costs on people who aren't consenting parties to the transaction. E.g., if Widgets, Inc. dumps the waste from producing widgets into a river, this imposes a cost on everyone downstream.
This would make their widgets cheaper—they're only paying part of the cost of the widget (the folks downstream are paying the rest). With a lower price, they'll sell more widgets.
Markets thus tend to overproduce (vs. what is socially optimal) things with externalities.
There are a couple of ways we take to solve this problem. When the externality is high enough, we prohibit it. E.g., we prohibit murder.
When the externality effects few enough people, and is of a suitable size, they can actually negotiate and resolve it themselves. E.g., if Widgets, Inc. wanted to take water from that river instead of polluting it, thus depriving the downstream farmers of some irrigation, maybe they'd be OK with that for a payment of $X/mo. By making them consenting parties to the transaction, it is no longer an externality, and Widgets, Inc. is now paying the full cost of producing widgets.
Of course, when the externality hits a lot of people, each for a small amount (e.g., air pollution), negotiation is impossible. That leads to the final option:
Do your best to calculate the size of that externality. Then impose that cost as a tax. This is called a Pigovian tax, and also has the effect of making Widgets, Inc. pay the full cost of producing its widgets.
Externalities do not have to be negative; they can be positive as well (e.g., you could clean up a public park). Markets tend to under-produce these, and a similar argument suggests offering a Pigovian subsidy.
Obviously, administering and complying with taxes is not free, and that limits the applicability of Pigovian taxes and subsidies.
Wikipedia has more: http://en.wikipedia.org/wiki/Pigovian_tax
I would prefer a mechanism without such a centralization of moral authority (ex, Kickstarter rather than taxes). That's the big conflict in free societies: the cohabitation of different moralities. (What is a benefit and what is an externality are decided individually rather than by decree or in the average. I think our desire to average things leads us to think we can work backwards from an average to collective behaviour in cases like these, when not everything is a bijection...)
To your comment below:
> Those 100 people have nowhere near the resources required to take on the company.
I don't see a big difference between appealing to the public for the resources to mount a legal offense and lobbying campaign to revise the law to better support a cause, vs appealing to the government for the same ends. In the former, the individuals affected retain the moral authority and in the latter, the government is cast as a parent figure which I find patronizing and undesirable (not to mention highly susceptible to corruption and self-interest of officials, with access to a bottomless purse). While we may need the latter in times of extreme duress (war), I wouldn't recommend using it that way unless we actually want government interference to be the norm. (IMHO governments should not even have the capacity for selfish behaviour, so I am trying to think of ways to minimize it.)
You made a remark about the government being like a parent figure. For me it was always too easy to focus on government waste and abuse because I grew up with abusive parents. As I learned to separate myself from them as much as possible and heal from the damage, it was easier for me to make some kind of limited peace with the current system, as non-ideal as it is. I now see it as the least bad viable option.
I don't know if that makes sense, but I guess that's why I personally don't really want to go down the road of debating highly alternative societies, libertarian or not. I guess I'm just tired of it.
Collective ownership might be an uncomfortable topic, so i'll go further and say, you're using my air in your car, and I expect to be paid for it. I suspect any feasible plan would look a lot like some large organization charging use fees. But maybe there's some simpler structure I'm overlooking.
The parent is being Mr. weasel word with "seems like" but I'm guessing that's just sloppy writing.
Also, I agree with you. Tax on pollution is probably the best solution. I couldn't think of a way to put pollution tax into a short argument. Fee for "storing your waste" doesn't have quite the same punch as "using my air"
Fixed. Thanks for the input.
We saw 'carbon credits' devolve in to specific-exchange linked, unique entities that were not interchangeable across borders. That made meaningfully adopting them as environmental units to stake a claim for the value of environment in the present-era systems very difficult. That situation perhaps evolved partly because nobody could otherwise agree on an appropriate level of auditing, and partly because .. well .. established interests. (Without nationalizing and centralizing these things, their potential for decentralized issue versus centralized government fiat issue poses a threat to both sovereign currencies worldwide and the vast profits of connected financial services industries.)
Historically, part of the control effected against change within the financial environment is that SIX in Switzerland on behalf of the ISO has controlled the major ISO4217 global currency and commodity registry, locking out innovation and essentially refusing to issue new codes. People have been avoiding that gridlock by making up unofficial codes like 'BTC' for Bitcoin and such. I recently proposed registry of these values via the IETF at https://datatracker.ietf.org/doc/draft-stanish-x-iso4217-a3/ however it's expired pending a new release at the moment (adding Litecoin, etc.)
(On the off chance anyone's hitting OHM2013 later this month in Holland, I'm planning to give a talk there on this subject and related matters at the intersection of politics, finance and technology.)
I think it would be better if individuals (and governments, to the limited degree I can rationalize them) acted pro-actively/responsibly, rather than defensively (tax, tax, tax...). IMHO, a better model would be to grow (to "invest" not "subsidize") what the public deems worthwhile, driven by intelligence and creativity ("leadership"), rather than perpetually trying to put out fires through punitive intervention (tax, tax, tax...). (Why centralize decision-making if not to aid leadership?) Bringing something to the market through collective action doesn't diminish the market - it is the market. I'm not saying punitive measures are ever off the table, but they should be the last act of a desperate will.
This could be as simple as using approaches like Kickstarter more (instead of taxes), but that depends on people keeping the money they already have.
IMHO government is mostly the sum of our negative/fear-based responses (digging in our heals against "threats" leading us to tax, and inspect, and...). That governments are as large as they are - and that we are taxed as much as we are - reflects a culture of fear.
The investment approach assumes there is some technology that either can be added to my car, or replace my car. This technology would need to lower the cost of ownership, and do so at a profit. In my specific case, you've only got about $10k left to work with over the remaining life of the car, and that's coming from gas, insurance, maintenance and repairs budgets.
I'm just skeptical that that much room for improvement exists. Cars are a very mature technology. They have an (unfair?) advantage that a whole bunch of infrastructure is in place to support them. I would guess at least a trillion dollars has been spent optimizing cars and car manufacture. An alternative would need to overcome some pretty big obstacles.
Self driving cars provide enormous potential for underutilization of existing cars, but it's really hard to get around the problem of requiring millions of cars from 8-9 AM and 5-6 PM. There are gains to be had, and all those incremental 1-2% improvements over a hundred years have improved efficiency greatly. The point here, you can use fewer self driving cars to serve the transportion needs - just as much gas would be used, but the environmental savings come from less metal and glass and energy to shape the materials.
I'm just skeptical of even a billion dollar kickstarter moving the needle very much. Your optimism is commendable, but the only solution available to us today is using that billion dollars to somehow discount the purchase of slightly more fuel efficient cars. Even that is only a few percent improvement. Cities like Huston need to move the needle a lot, if they want kids to be able to play outside.
Do you have a bigger problem with central planning, or with taxes? Because taxes aren't going away any time soon, and at least "sin taxes" can reduce bad behavior (while not discouraging hard work and investment). And industry standards are arguably a form of central planning.
Uh, some of us accept the government's patch because we agree with it, or because we want to play the same game that everyone else is and the government happens to be a conveniently centralized entity for deciding which patches go in and which do not. Like Blizzard. We also accept that hacking your own patch in either means you can't play on the ladder with everyone else or that it's an action worth of receiving a ban in response.
It's called "establishing a free market".
There is only a choice if the alternative was actually an option. When the government can force you to eat cake, it hardly matters if you may have enjoyed that first piece. What matters is that you will be eating it one way or another. (That is not what I would call "establishing a free market" - that's not even a free lunch.)
So what? I don't have a problem with that.
I recognize that not having a choice is scary, but I find it foolish to base a worldview off fear.
Justify the need for choice, please.
If not having choice is scary (your word), which I would say is a synonym for "undesirable", I cannot be said to have the right to pursue happiness without it (choice).
> "I find it foolish to base a worldview off fear."
The only sense in which I'm basing my worldview "off of" fear is by asserting the right not to live in it. (In that sense, I am also basing my worldview off of starvation - as I am eating breakfast.)
"Taxes are either an incentive or a threat." -> "Taxes are a threat because I did not choose them." -> "Taxes stymie my pursuit of happiness."