The externalities in politics

Pollute a stream and you might profit from the business you do while polluting. But the pollution costs someone.

That is called an externality and some say the polluter should bear the cost.

The questions for policymakers are how to measure the cost and how to apportion it? When a polluting dairy farm makes profits, it also makes exports which the rest of the country feeds on. So the cost is not the dairy farmer’s alone.

Turn this round. The taxpayers pay to educate people, which has a positive externality: the student gains marketable knowledge and at least foundation skills (even if only the skill to think) and then employers gain knowledgeable and foundation-skilled prospective employees without having to pay directly for their education (though, of course, they then have to get them job-ready)..

Externalities were once the preserve of those who wanted to preserve the environment from rapacious industrialists. Now, despite difficulties of measurement and apportionment, externalities are conventional economics.

But they weren’t when Don Brash studied economics 40 years ago.

So it is not surprising Brash says he will devote all the petrol tax to making roads.

That is good populist stuff: 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 sole focus on “roads”.

All oppositions scratch itches and tickle fancies and under Brash the National party has been upskilling itself in populism and honing techniques. As Winston Peters has shown for 15 years, that can do wonders on election day.

But what about the externalities?

People die and are maimed on roads — many thousands a year. It costs a lot to fix up those who can be fixed up, keep in wheelchairs the ones who can’t and fill gaps in the workforce left by those who can’t work again because they are incapacitated or dead.

That is ACC’s task. ACC gets its money for this part of its work wholly from a levy on car registrations and a portion of the petrol tax.

If Brash diverts the petrol tax portion into building roads, the lost income would have to come from somewhere, since it is unimaginable that Brash, the son of a noble socialist minister, would leave the maimed lying on the road or in the ditch when ACC runs short.

Either general taxes would have to go up, or other health care would not be delivered or something else the government does would not be done — or individuals would need to insure themselves against accidents over and above their ACC levies.

And that doesn’t take into account the indirect health costs of roads by way of poisonous fumes, which ACC doesn’t pay for anyway.

This doesn’t paint Brash in a glowing light.

Except that in the fine print he said he would dedicate to road building all the petrol tax that goes to the consolidated fund. The logic of that qualification is that the ACC portion would still go to ACC.

Moreover, there are positive externalities (which Brash did mention) from building roads — or rather, a reduction of negative externalities from inadequate roads. Those negative externalities include lost business time, higher freight transport costs and higher fuel consumption sitting motionless or in slow motion in traffic, not to mention more crashes on bad roads than on good ones.

And, if we are talking about health, there would be less stress.

So is Brash over or under on the externalities? Who can know?

The political point of all this not the economics: this is not an economics column. Nor is it to analyse National’s legitimate manoeuvre to score a point over its tax-hungry opponent.

The point is that politics has externalities, too. Promising to do A may mean a 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 have to be cut, which is a cost to those who miss out on something they would have had. Or, if not, taxes would have to go up, which would slow the economy and diminish 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 have to pay for. There will be a lot of that over the next few weeks. But who cares? They are just externalities.