More Thoughts on Pecuniary Externality
Again go wild, go wiki and check out pecuniary externality.
Now then. I’ve been giving some thought to this idea and what impact it has on all of us. The wiki definition got me thinking…how do we pay attention to this economic principle as it plays out over time? And how do we assess the positive and/or negative outcomes? And positive and/or negative for whom?
One externality I thought of was...
Proposition 13 here in California that was passed in the ‘70s. At the time, as I recall, Jerry Brown (now Attorney General) was governor. Also at the time the state enjoyed a $5 billion budget surplus. Brown wanted to save the money for a rainy day that he expected to be coming. He also wanted to look at the possibility of creating a computer networking connecting all the public schools in the state. For that absurd idea the press labeled him “Governor Moonbeam”. Go figure.
Back to Prop 13. (BTW The Cato Institute has a more positive take on this here.)A number of conservative wanted that money to be returned to taxpayers through tax rebates and caps on property taxes. They won. Over time what occurred was a measurable decline in the quality of public education (paid extensively through property taxes at the time). Prop 13 also made it less likely for couples in the suburbs to move after their kids had grown because their property taxes were so low. That meant that young couples had to buy homes farther away from metro hubs like San Francisco and Silicon Valley increasing the need for wider freeways and so more traffic. This led to more pollution and of course more respiratory ailments among suburban children and so on and so on.
I guess if you are a developer out on the outer ring of suburbia, or a pediatric pulmonary specialist, or a civil engineer with a contract with CalTrans these externalities turned out to be good things. For the rest of us…
Any econ majors out there care to comment?