Why economists argue with ecologists (5): The Suzuki fallacy

I quit smoking when I was about 30 years old. It is an unhealthy habit, of course, but I also disliked the idea of being dependent on my stock of tobacco. One of the few things I miss about smoking, however, is the excuse to go outside during a break and have a fag and a chat with a few likeminded nicotinists. So occasionally I go outside with the addicts and have the chat without the fag.

I did this a while ago with an ecologist who started a long complaint about economists' ignorance of the limits of our planet. Economists, he claimed, refer to environmental problems as 'externalities': they think the environment is external, i.e. irrelevant, to the economy. I tried to convince him how he misunderstood what externalities are, pointing to his sigarette. It may be his own choice to light a cigarette, or something between him and his dealer to buy a pack of cigarettes, but I also had to inhale his smoke. The damage that he thus inflicted on me was a negative externality: a cost that did not show up on his mental 'balance sheet'. Perhaps, if he had to pay a tax for each of my lost lung cells he would have made a different choice. (You know what they say: nobody is purer than an ex-prostitute.)

I doubt whether I convinced him, but in any case his comment had me thinking. Where did he get this ludricous idea that the economic term 'externality' means 'irrelevant'? After all, every introductory microeconomics book has a chapter on how externalities are a form of market failure. Then I saw the following clip:

My toes still cringe when I watch this - it's just too embarrassing. When he talks about ecosystem services:

All of the things that nature does for us, for nothing. Pollination, for example, or a forest that takes carbon dioxide out of the air and puts oxygen back in, or that holds the soil and prevent erosion.

That's the point where I would have expected an explanation that these services are unpriced, and that we should make those services visible in the market place. For instance, by putting a price on them in public decisions, or by levying environmental taxes, or through paying the owners of the ecosystems for the services they provide. But somehow he got it into his head that

All those services that nature performs, economists call them "externalities". And what that means is: "they got nothing to do with the economy. We don't put a price on them, they are irrelevant."

The speaker, David Suzuki, is a famous environmentalist. He should know his stuff, but he is making these statements without a single speck of irony, and apparently he has been doing this for years. Of course there is lots of nonsense spouted on the internet and you don't have to react to everything, but people like my smoking ecologist listen to David Suzuki. I don't mind criticism of economic theory, in fact I think a lot can be improved. The nice thing about interdisciplinary work is that you learn not just about the contents of other disciplines, but also their way of doing science. And this reflects back on your own discipline. But such cooperation is not helped if people start spreading this kind of prejudice and misunderstanding about one of the fields involved.