Introduction
In economics terms an externality or a spill-over can be defined as an effect caused by a party that is not directly concerned with making the economic decision. This happens when an economic activity makes a third party incur external costs (or gains) while not directly taking part in the economic transaction. This means that in a given market, the sellers and buyers do not get the all the benefits and incur all the costs of whichever economic activity they engage in. Pollution, which is a negative externality is caused by production or consumption processes. Pollution is divided into several types which in clued water, air, land, radioactive, noise, and thermal pollution.
Air pollution is the sign of disturbances to the normal composition of the components which make up the atmosphere. It can also be said to be the changes to the normal atmospheric composition caused by the introduction of foreign substances both knowingly and unknowingly. Air pollution is mostly caused by the reaction of compounds that are reactive and not biodegradable. It can also occur when the natural gaseous exchange cycles such as nitrogen and carbon cycles are interfered with to an extent that excess gas is removed from or added to the atmosphere. These cycles can be tampered with through human actions such as deforestation and release of gaseous emissions. Source of air pollution include: components of electrical manufacturing, roadway construction, fuel production, volcanic eruption, solvent evaporation, solid waste, building demolition, fertilizers plants, auto manufacturing, industrial processes, heat and power generation facilities, motor vehicle exhaust (Blanchard & Fischer 1990).
Water pollution happens when additional impure materials to the water in high quantities. When this continues to the extent that the water is declared unfit for its intended use, it is hence said that the water is polluted. Water pollution is mostly caused by infiltration of water bodies by fertilizers and sewages that have compounds such as phosphates and nitrate. An excess of these compounds can lead to the overgrowth of aquatic plants and algae which act as a barrier blocking sunlight from reaching other marine life while blocking waterways. This affects marine economic activities such as tourism and fishing (Elson & Cagatay 2000).
The presence of externalities such as pollution in a market-based economy would normally be assumed that its rules will direct us to locative efficiency and probably not being socially efficient. The fact that the externality is there hence gives an example of a market that has failed to accomplish market efficiency. Thus real locative efficiency may not be achieved until the externality for instance pollution is addressed and put into account for correct economic analysis.
Noise pollution also results from production and consumption processes too. This can be reflected from noise from a factory that is located near civilian settlement, and loud music being played by a neighbor next door. Soil pollution is a result of deposition and accumulation of solid, non-biodegradable wastes and toxic substances which eventually change the soil structure and the normal soil pH of a given sample of soil. Soil pollution may lead to devastating effects such as desertification, clogging and swamping, and if not checked the soil structure will be permanently destroyed. Other types of pollution with bad effects include thermal pollution which leads to the overheating in the atmosphere and radioactive or nuclear pollution which involves the release of radioactive substances such as uranium to the environment (Devra 2004).
Possible Solutions to Pollution Externalities
This externality can be resolved or checked with government intervention and to some extent without government intervention. In one way government can control pollution through prohibition of the activities that lead to pollution, and regulation of the quantity of pollution that is allowed. While civilians can counter pollution by putting in place moral codes of conduct, and supporting companies that are anti-pollution by buying more of their products, advertising them through word of mouth. These approaches can be executed as explained below.
Government Intervention Through Prohibition
The government can pass legislation that makes most or all pollution activities illegal with heavy penalties for offenders. This is a highly risky plan and should be implemented mostly as a last resort in order to reduce pollution which may be life-threatening to the population in the area. The risky aspect about it is that most production activities (such as manufacturing) lead to pollution hence this type of law could lead to a large number of people losing the source of their livelihoods.
For example, a paint manufacturing factory that is located upstream on a river that supports a large number of fishermen who live in the area can be dumping its wastes and sludge into the river. With time this will lead to a reduction and eventually death of all the fish which is the fishermen’s source of livelihood. The fishermen will then be rendered jobless. In this situation the government can come in and ban dumping into the river in order to protect the fishermen’s source of livelihood (Hoffman & Turley 2002).
Government Intervention Through Regulation Of Pollution
From a different perspective, instead of prohibiting pollution the government can regulate the levels of pollution through regulation of the number of pollutants that can be released into a given environment. Regulation can be by use of dumping tax, setting up production standards such as quality of equipment to be used, and recruiting experts to help in the regulation of pollution.
With reference to the example on the fishermen and the paint manufacturing factory, the government would introduce some sort of payment for the factory on a given amount of waste released into the river. This is because more practical than prohibiting dumping because; prohibition might on the other hand lead to closure of the paint factory hence loss of jobs. Therefore this would be a compromise but the factory will have to pay for it to continue its operation. The government can compensate the fishermen by paying them a percentage of the amount paid by the factory for the damage done to the river (Landsgurg & Feintone, 1997).
There are disadvantages that are associated with this option of regulation to both government and the population. One is that the government will have to employ extra help from experts to help in checking the levels of pollution and how much is paid. Secondly, there is basically no reason for the firms to reduce pollution apart from the penalty of paying for the extra costs, and the finally, firms that make a lot of money would continue dumping because they have can pay for it. Nevertheless, this seems to be the more practicable approach the government could take.
Solution Without Government Intervention
Pollution can also be countered without government intervention as sometimes government is slow to respond to some urgent issues. One way of doing this is through the adoption of some moral codes of conduct, and supporting companies that are anti-pollution by buying more of their products, advertising them through word of mouth (Brugan 2003).
Moral codes which have roots in people’s way of life do not need to be written nor have police in place to look out for offenders. Anti-pollution codes such as littering, smoking in public areas, the use of road-unworthy vehicles among others are just but a few examples that can be used to counter pollution. Bring out citizens who have respect for their environment and have the general goodwill of their environment at heart can go a long way toward reducing the levels of pollution. A manufacturing company that has workers who are environmentally conscious may make the company reconsider its pollution due to being enlightened (Romer 2005).
In addition, social conventions can be used to cope with the negative effects of pollution. They can be used as a tool to make people be accountable and aware of the pollution they cause. This can make them change their behavior and instill in them the responsibility they have towards the environment, this can be done especially to young children so that they grow with these values in them. These conventions can also be used to teach people how to respond to pollution problems at their level.
On the other hand it is difficult to hold individuals accountable for the pollution they have caused. Taking individuals to account involves time and costs; time in the sense that while you are trying to make them answerable, they may be doing it somewhere else or someone else can also be doing it. Costs in the sense that these processes involve lawsuits which are expensive in terms of paying lawyers and the period it may take to for the suit to materialize. The time and money spent will end up being more than the damage that has been caused to the environment.
Conclusion
In a market that is purely private a good or service is usually produced too much or too little. Market failures are caused by externalities; this is because the market players tend to tend to prioritize their personal costs in front of those costs of outsiders. They tend to keep their personal welfare maximum by equating the marginal personal advantage from an action with the marginal private costs. The rationale of this is to categorize and negotiate with any would-be 3rd parties in order to make it difficult for them to have a reasonable effect in the market (Mankiw 1998).
The problems associated with pollution have a capability to cripple a country’s economy if it spins out of control. The fact that countries such as the U.K., U.S. and majority of the European Union are passing laws to combat pollution send a message that its effects are not good. Therefore it is important for any economy to be educated to increase awareness of these sensitive issues. The environment qualities now and in future are an important aspect globally. Hence, externalities are being considered in major decision making processes. In most cases the “social cost” of fuel and electricity can basically be related to impacts to the environment and production, the balance of trade, the exhaustion of nonrenewable resources together with many more impacts.
If not checked pollution may lead to an environmental collapse globally. If possible it must be ensured that the 1st world counties must work together with the 3rd world countries to ensure that the 1st world does not add to these environmental problems; this can be done while at the same time coming up with ways of providing cheap technologies that are both efficient and effective to the 3rd world countries. On the other hand conservation strategies should be brought into play, to protect the little that is remaining in its pure form.
An Analysis of the Role for Macroeconomic Policy That Influence
Unemployment
The main subject in macroeconomics is whether markets can be left alone and without any intervention can regulate themselves in such a way that they run at equilibrium in the long run. When the market forces are independently worked to achieve a level of full employment of the national income with nearly constant prices and a growth in the economy; government intervention would not be necessary hence fiscal monetary exchange rate and supply-side policies would not be needed either. Anyway it is true that all governments get involved using macro-economic policies- such as the different stimulus packages governments are issuing to protect workers from losing jobs. These interventions are all meant to realize certain objectives and in general to improve the health of the economy (Dolan & Lindsey 1991).
The main aims of macro-economic policies are to enable the government to achieve:
- Economic stability
- Inflation and/or recession from going to the extremes
- Equitable distribution of resources
- Long-term social goals (healthcare, education, and jobs).
An economy that is growing enables the creation of jobs for that section of the population that is just entering the labor market and providing employment opportunities for the section that is unemployed and job searching.
The rate of unemployment enables us to determine the number of people in a given economy who are able to work but cannot find jobs. It has been studied that whenever an economy experiences growth from one period to another and these figures are reflected on the GDP growth rate the unemployment rate seems to be the opposite (Low). An explanation for this is that when the real GDP rate is going up, general output also goes up leading to the market needing a larger workforce to meet this demand in production.
In the unemployment policies there tends to be a cyclical (involuntary) fluctuation in unemployment caused by low demand in services and goods produced. This is mostly experienced during an economic slowdown or recession periods such as this, which experiences a growth in unemployment rates a result of business closures and failures which leads to an increase in redundancies and worker lay-offs. This is usually a result of a decline in demand for a given amount of output. These economic slumps act as a stimulus for many industries to reduce their general operation with the starting point being job losses. But if growth is to be realized both monetary and fiscal policies can avoid high negative production gap hence enabling the creation of a stable supply of fresh jobs in the economy (Miners & Samuelson 2001).
For unemployment rates to decline in the long run, supply and demand policies should be able to be made exist in a balance. The main reason for unemployment is the approach of boosting demand whenever it goes low which has proven to be an inefficient method of tackling this problem. When demand keeps on being stimulated, it gives rise to possible inflation which means the trade-off between the two objectives keeps worsening. On the other hand, when an economy registers a full employment rate, it does not mean that there is no unemployment. There will always be a small percentage of unemployed people.
There are some major variances in regional unemployment rates and long-term unemployment is others. These cause costs such as real wage unemployment and hidden unemployment to be incurred. Real wage unemployment is a result of real wages going higher than the market-clearing level making labor availability excessive. While hidden unemployment is when there are people in the economy who are unemployed but cannot be located in the government unemployment statistics. This might be partly because the system is not working for them and they have reduced their efforts in job hunting (Eurostat 2005).
Governments all over the world have laid down policies to help keep down the rates of unemployment. Even though some are more successful than others, effective policies have to address the issues of demand and supply for labor in the long term. In this way there will be adequate jobs with a pool of laborers with skills that match the jobs. On the other hand the incentives given for the jobs will also be adequately matching the skills that are being offered. In relation to the theories of unemployment this will ultimately reduce the effects of unemployment which will be reflected in the whole economy. These effects are felt in the form of losses in output to the economy, tax revenue, profits while increasing government expenditure (Sowell 2007).
Effective unemployment policies enable the stimulation and general improvement in the human resource of the workforce. This will ensure that the unemployed have adequate skills to meet the demand that is available. Occupation mobility of labor is the principal aim of most unemployment policies. With the high dynamism in the unemployment trends, there is need for the workforce in an economy to be equally flexible. This will make it easy for the available workforce to change with the given economical periods over the years hence avoiding the extremes.
Unemployment policies also tend to address the issue of improving the incentives so that people have the drive to look for work and appreciate paid labor. This is usually accompanied by a change in the current taxation and benefits system. In addition, Government can also offer subsidies for firms that accept to employ long-term unemployed individuals. This will act as an incentive for businesses to increase the workforce sizes so as to get higher subsidies. In part of the government of U.K. policy, it provides subsidies for foreign companies relocating into the U.K., this park of the government regional policy (Gartner 2006).
The unemployment policies are also meant to achieve a sustainable phase of growth in the economy. For firms to be encouraged to increase their workforce, it is necessary that the aggregate demand be maintained at high levels. However it does not pass that for every increase in aggregate demand there should be an increase in labor. This is because firms may increase production through the employment of technology and other ways of increasing effectiveness.
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