Thursday, November 19, 2009



When I studied property law, I learned the word "externality." Before law school, I understood the word to mean what it says: "external to something else." But I soon found out that in the law, words do not always mean what they say in plain English. No, they function as shorthand for other concepts. And sometimes those concepts bear no relationship at all to the word that signifies them.

In both legal and economic terms, an "externality" refers to the effect on others when two people conduct a lawful transaction. It also refers to the effect on others when one person lawfully uses his land. To be blunt, "externalities" mean the shit everyone else has to endure because others act within their legal rights. After all, the law empowers certain people to act in more sweeping ways than others. An oil company has much more power to act in sweeping ways than some private farmer next door. And when more powerful people act within their rights, they can produce an enormous--though not intentional--effect on others' lives.

In property law, "externalities" are both obvious and subtle. As a general rule, our society holds up land ownership as a talisman. Everyone strives to own his own patch of earth to do as he wills with it. Yet by "doing what he wills" with his own land, our archetypal landowner may unintentionally injure someone else. How can this be? Well, what if he wants to open an industrial tannery on his land? He's master of his land, right? He wants to make money on his land, right? Isn't that what we're supposed to do in America, make as much money as possible from our land?

If he opens a tannery, he exercises his rights as a property owner. Yet he makes noise, produces foul odors and makes life miserable for everyone else around him. Those are externalities that flow from his lawful land use.

He's not breaking the law; he's living the American dream. Problem is, when some people live their American dream, they give people around them nightmares. That's what externalities are all about.

But I'm not writing today to put down property owners. As a cynic, I am prepared to believe that most people will use their land only to enrich themselves. If they make everyone else's life difficult in the process, they could care less. As long as they don't face a nuisance suit for using their land as they wish (ie, that would cost more money than merely continuing the objectionable land use), they will keep on using it in a way that brings in the most cash. That's American life: Cost-benefit analysis. Effects on others rarely come into the equation unless those effects would result in greater costs than benefits. Even courts subscribe to this view. They won't let a few poor neighbors complain about pollution from a nearby auto plant because the auto plant keeps people employed. Sure, the land use might be horrible--and it might make the neighbors' existence miserable--but their suffering is a "bearable cost" given the "ultimate benefits" that flow from it. Shutting down the auto plant might solve the neighbors' ills, but it would cost hundreds more their jobs. So the law lets the more powerful landowner use his land as he pleases, externalities or not. That's just the way our society values things.

But externalities do not just exist in property law. They are all over our lives. After all, we are consuming animals. There are not enough resources to go around. By living well for ourselves--even innocently--we might deny others the chance to live well. For example, if a person gets sick, he becomes an externality on everyone who must care for him. His life drags others down with it. It imposes costs. It strains emotions. By living his life, he makes it difficult for others to live theirs.

In essence, sometimes just staying alive on this planet produces a burdensome effect on others. Every time one person enjoys a meal, he eats food that will not go to someone else who needs it. Every time one person falls in love with another, he denies that person's love to someone else who wants it. Every time one person gets a job offer, someone else had to get a rejection letter. Every time a corporate board awards bonuses to its members, it reduces the available funds for employee raises. Whenever a child is born, it imposes a staggering financial, emotional and social burden on the family.

These are all perfectly lawful things to do. Yet they produce negative effects on others' lives. People don't mean to produce these effects on others. People are simply trying to survive in a world that requires consumption. But these effects are inevitable because resources are limited. When one person succeeds, another must fail. When one person relaxes, another must toil.

Yet where would we be if we constantly worried about externalities? I think we must merely accept the fact that our continued existence will impose substantial difficulty on many people, both far and wide. To some extent, we must resort to selfishness in order to feed ourselves and to secure our bodily health. This may sound bleak. But if you think about it, human bodily existence is quite bleak. There is nothing grandiose about our biological processes: We eat, excrete, grow hair, breathe, make money, buy things, strive to experience positive emotions, have sex, groom ourselves and do our best to avoid pain. These are our "goals" as living creatures. And when we fulfill them, we necessarily impose costs on others. For every goal we reach, someone else did not make it.

True, we rarely want to make others suffer by pleasing ourselves. But that is the price of survival in a world of limited resources. We must simply accept the fact that our own quest for comfort and happiness in life impacts many other people.

No comments: