The market is in many ways an incredible institution. It allocates
resources with an efficiency that no central planning body
can match and it easily balances supply and demand. The market
has some fundamental weaknesses, however. It does not
incorporate into prices the indirect costs of producing goods. It
does not value nature’s services properly. And it does not respect
the sustainable yield thresholds of natural systems. It also favors
the near term over the long term, showing little concern for
future generations.
One of the best examples of this massive market failure can
be seen in the United States, where the gasoline pump price in
mid-2007 was $3 per gallon. But this price reflects only the cost
of discovering the oil, pumping it to the surface, refining it into
gasoline, and delivering the gas to service stations. It overlooks
the costs of climate change as well as the costs of tax subsidies
to the oil industry (such as the oil depletion allowance), the burgeoning
military costs of protecting access to oil in the politically
unstable Middle East, and the health care costs for treating
respiratory illnesses from breathing polluted air.
Based on a study by the International Center for Technology
Assessment, these costs now total nearly $12 per gallon of gasoline
burned in the United States. If these were added to the $3
cost of the gasoline itself, motorists would pay $15 a gallon for
gas at the pump. In reality, burning gasoline is very costly, but
the market tells us it is cheap, thus grossly distorting the structure
of the economy. The challenge facing governments is to
restructure tax systems by systematically incorporating indirect
costs as a tax to make sure the price of products reflects their
full costs to society and by offsetting this with a reduction in
income taxes.
Editor's note:
Part of the problem of the Earth's environmental crisis is that we have been living a lie not taking responsibility for the true cost of things therefore stealing from the resources of future generations. This happens in Brockport every time we buy a gallon of gas for 3.85 a gallon which actually costs about $16.00 per gallon if the true costs are factored in. The economists have taught us that there is a difference between cost and price. The price of gas is far below the true costs.
The question is what can we do about this in our everyday lives? Leave your ideas in the comments below.
The Brockporter, Brockport's online news magazine, features articles on the environment every Wednesday.
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