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Hyperfocusing on negative externalities

Much of human activity is focused on the quest for efficiency — getting the most out of our resources so that we can improve our standard of living. Problem is, what we perceive as efficient is often making us worse off in ways that are difficult for the human mind to grasp.

He goes on to discuss honeybees’ declining population — a fact he blames on pesticide use. Pesticides, of course, are a primary reason for increased crop yields, which are good for everyone and the result of entrepreneurs pursuing maximum efficiency. But their effect on honeybee populations is bad for everyone.

This means, says Buchanan, that efficiency can’t be the only guide for our economic activity. Instead, he argues for “greater flexibility” and a “diversity of approaches” instead of only efficiency. He writes,

So we need a different approach, demoting efficiency as the only goal and instead pursuing greater flexibility. If we can’t know what will happen in the long term, then we need to maintain a diversity of approaches over time and avoid getting “locked in” to any one crop or industry.

I understand what’s he’s trying to say. Even though I suspect he’s pushing a hidden big-government agenda, such thoughts are vital to the health of even the freest of economies. Entrepreneurs can make mistakes.

But my problem with comments like these is that we don’t need anyone else saying things like this. Many are those who push for more regulation and who paint the free market as full of only failures. We’re already too quick to inflate the alleged failures of the free market outside the context of a cost-benefit analysis, whereby these failures are weighed against the targeted industry’s many uses and benefits.

For instance, pesticides may very well diminish the population of honeybees. But they also, of course, vastly increase crop yields, allowing farmers to feed more mouths with less land. In turn, some of the mouths fed belong to innovative people who devise ways of reversing negative externalities created by efficiency-seeking entrepreneurs — people who who owe their lives to pesticides. The result: A thriving economy, growing population and an ever-increasing number of solvable problems to keep us busy.

I’m not saying it’s wrong to identify negative externalities. Indeed, such an exercise has been the catalyst for many inventions we modern people couldn’t imagine living without. But for people who care about economic progress and not just pushing a pro-regulatory agenda, an industry’s negative externalities should be compared with the value it creates (in the case of pesticides: less hunger, longer life expectancy and higher GDP per capita). Only then do we get an accurate view of just how our collective efforts to do more with less are coming along.