AM08 Externalities

Part 1: Externalities (64 min Video Lecture)

Based on Chapter 7: Externalities of Hill & Myatt Anti-Textbook. Conventional textbooks treat externalities as a rare exception -- because it has bad effects on the story of perfect competition and free markets as ideal solution to all problems. In reality, externalities are everywhere, and causing huge amounts of damage, precisely because of attempt to utilize free markets. Ideology trumps reality so that a theory blind to externalities is used as a guide to situations with huge amounts of externalities, causing massive losses to human welfare. Part 1 of Lecture deals with this material

Part 2: The Great Depression: Background and Consequences (22 min Video Lecture)

Excesses of Financial Institutions caused the Great Depression. This led to heavy regulations and a revised economic theory, Keynesian, which said that governments had to intervene to create full employment -- free market supply and demand did not operate in the labor market. This created prosperity for the public, but led to a decline in the wealth share of the top 0.1%. The Wealthy plotted a counter-revolution against the public and created the ET1% (Economic Theory of the top 1%), which favors the wealthy while appearing to be equitable. On the basis of this theory, they argued that economic problems were being caused by REGULATIONS and RESTRICTIONS on free markets. The Reagan-Thatcher era saw a lot of de-regulation, which ultimately led to repeal of the Glass-Steagall act in 1999, and the Commodity Futures Modernization Act in 2000. This breaking of the regulatory chains on finance quickly led to the Global Financial Crisis in 2007-8, repeating the pattern which had created the Great Depression of 1929.

Sample Question for Final

Provide evidence that economics textbooks create the impression that externalities are not very important, and we can ignore them in our applications of economic theory

Provide counterexamples -- three examples of real world externalities which make a HUGE difference and cannot (or SHOULD not) be ignored by economists