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9/1/08
Externalities and the True Economic Benefit of Cycling
Around mid-Auguest a survey came via the internet asking those in the bicycle and bicycle related industry to report their business related activities so the State can calculate the impact on the larger economy. In the comments section I noted that the impact should be more than simple value added in production, or even the amount paid to employees, because the use of a bike mitigates external expenses incurred when using other, less environmentally friendly forms of transportation. The fact that external costs of some industries are not included when calculating total financial impact clouds the real value of a particular output of goods or services.
A recent article in the N.Y. Times (8/31/08) pointed to this phenomena and supported this argument. In the article Louis Utchitelle notes: “Other shortcomings (of GDP outputs) have become apparent. The boom in prison construction, for example, has added greatly to the G.D.P., but the damage from the crimes that made the prison necessary is not subtracted. Neither is environmental damage nor depletion of forests, although lumbering shows up in governmental statistics as value added. So does health care, which is measured by the money spent, not by improvements in people’s health. Obesity is on the rise in America, undermining health, but that is not subtracted.”
We know that cycling, as with other forms of exercise, has a positive health benefit and thus can reduce health care costs. We also know that pollution from cars causes environmental damage, not the least of which ends up causing damage to human health. And we know emission of CO2, which will have future consequences, is essentially zero when cycling.
This problem of capturing the future impact of existing emissions is addressed in the June 2008 issue of Scientific American. In The Ethics of Climate Change author John Broome details the moral challenges in accounting for external consequences when those consequences are “paid” by future generations. To simplify, economists discount the value of something in the future, even life. How much they discount the future is the subject of debate.
Can we afford to continue ignoring externalities when calculating the value of an industry? Are cyclists shortchanged in public discussion weighing the benefits of various forms of transportation when the present and future value of cycling is not included in the benefit equation?
That’s the question for this installment of NewsCycle.
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