POLITICS Externality Challenged

Pollute stream and you might profit from the business you do while polluting. But the pollution costs someone.
The cost is an externality and some say the polluter alone should bear it.
Policymakers must now figure out how to measure the cost and apportion it. polluting dairy farmer, for instance, generates profits and exports which the rest of us feed on. The cost, therefore, is not the dairy farmer’s alone.
Turn this round. Taxpayers pay to educate people, process with positive externality: the student gains marketable knowledge and foundation skills (even if only the skill to think) and employers gain knowledgeable and foundation-skilled prospective employees without directly paying for their education – though, of course, they must then get them job-ready.
Externalities were once the domain of those who wished to protect the environment from rapacious industrialists. Now, despite difficulties of measurement and apportionment, externalities are conventional economics.
But they weren’t when National Party leader Don Brash studied economics 40 years ago. It is not surprising, therefore, that he says he will pump all our petrol tax into making roads.
It’s good populist stuff for politician: Brash the car driver’s friend, promoted in brilliant billboards contrasting the frivolities and fripperies on which Helen Clark is spending petrol tax with Brash’s single focus on “roads”.
Opposition parties always scratch itches and tickle fancies. Under Brash the National party has been upskilling in populism and honing techniques. As Winston Peters has shown for 15 years, the technique can do wonders on election day.
But what about the externalities?
People die and are maimed on roads – many thousands year. It costs mega-millions to repair those who can be fixed, keep wheelchair-bound those who can’t and to fill gaps in the workforce left by those who’ll never work again because they are incapacitated or deceased.
That is the Accident Compensation Corporation’s task. Income for this part of its work comes from levy on car registrations and share of the petrol tax.
If Brash diverts the petrol tax portion into building roads, the lost income would need to come from somewhere. It is, after all, unimaginable that Brash, the son of noble socialist minister, would leave the maimed lying on the road or in the ditch when ACC runs short.
Either general taxes would increase or other health care would not be delivered or something else the government currently does would not be done. Alternatively, individuals would be forced to insure themselves against accidents over and above their ACC levies.
None of this takes into account the indirect health costs of fumes polluted roads which ACC doesn’t pay for anyway.
This reasoning doesn’t paint Brash in positive light.
But what about the fine print? He would, he said, dedicate all the petrol tax that goes to the consolidated fund to building roads. The logic of that qualification is that the ACC portion would still go to ACC.
And there are, as Brash mentioned, positive externalities from building roads – or rather, reduction in negative externalities from inadequate roads. Those negative externalities include lost productive business time, higher freight transport costs and higher fuel consumption fed by sitting motionless or in slow motion in traffic, not to mention more crashes on bad rather than good roads.
Talking about health, there would be less stress.
So is Brash on the right side of the externalities ledger? Who knows?
So what is the political rather than the economic point of all this? This is not an economics column. Nor is it designed to analyse National’s legitimate manoeuvre to score point over its tax-hungry Labour opponent.
It is simply to show that politics has externalities, too. Promising to do may mean shortfall in B.
Peters’ promises have grand externalities. For example, he would push up superannuation and slash health bills for the old.
Sounds generous. But other services would be cut, which is cost to those who miss out on something they now have or need. Alternatively, taxes would increase, slowing the economy and diminishing the general ability to deliver goodies to oldies. The same goes for Brash’s diversion of revenue to roads.
This is what elections are about: making promises to some voters which other voters must pay for. There will be lot of this over the next few weeks. But who cares? They are just externalities.

Colin James is Management’s regular political writer.
Email: [email protected]

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