Negative Externalities

One example of the influence of human interconnectedness on economic dynamics is called “negative externalities.” This term describes the cost inflicted upon others by an action to which those affected have no connection. Thus, if a factory pollutes a nearby lake, killing the fish in that lake, it inflicts harm on the fishermen whose livelihoods depend on the fish in the lake. This is a negative externality.

The traditional solution involves supervision by authorities. Yet, overproduction and over- pollution abound despite the supervision and the mounting evidence that we are living in an interconnected and interdependent world. The methods that leaders and decision-makers are trying to apply to deal with the problems of our interconnected world are the same methods they have used for decades, when the world was far less interconnected.

The question, then, is not whether decision-makers will have to revamp their approaches to solving the global crisis, but how much taxpayers will have to pay before they realize it and act on it.