In the 1940s, a few hundred people each year in the US died from lightning strikes. By the 2010’s, that number was down to less than 40 per year.
Did we win the war on lightning? No way. People get struck at about the same rate as they always did; they just don’t die from it as much, because we’re a lot better at keeping injured people alive than we were in the 1940s. If you want to try a fun experiment, ask people around you to guess why there were ~400 lightning deaths per year 75 years ago, but less than a tenth that number today. People tend to immediately try to rationalize why fewer people were struck by lightning – “fewer people work outside these days,” or “we’re better at predicting the weather so people aren’t caught by surprise as much” or stuff like that. Far fewer people reach the correct conclusion intuitively.
I find that in general, people are bad at intuitively grasping positive externalities. If you’ve never heard that term before, I’m super excited to tell you about it, because it’s one of my favorite economics concepts (and please don’t make fun of me for being the kind of dork who has a “favorite economics concept”). A positive externality is when there’s a by-product of some action that benefits one or more third parties who had nothing to do with the original action.
Need an example? Your neighbor plants some trees in their own yard. They grow tall, and the shade from those trees partially covers your yard and house as well. You get lovely shade and your summer cooling bill goes down, plus a nice break from the worst winds. In fact, it improves the quality of your own yard so much that your property value goes up by around $10,000 when you sell the house. You had nothing to do with the original action of planting trees – you didn’t pay for them in any way, but you reaped benefit. That’s a positive externality.
Now, not all externalities are positive. In fact, no externality is inherently positive or negative, that’s just the result based on your own preference. If I love the smell of fresh-baked bread, then someone building a bakery next to my house produces a great positive externality for me – but if I hate that smell, the same action produces a negative externality for me.
As bad as people are at intuitively recognizing positive externalities, they’re freakin’ great at spotting negative ones. The classic case is a polluting factory – people who had nothing to do with the construction or operation of the factory nonetheless have to suffer from its waste products if they’re pumped into the air or water.
I think people’s different reactions to positive and negative externalities have a lot to do with airplane crashes. Come with me on this tangent!
Why do airplane crashes make the news but car crashes don’t? Because airplane crashes are super rare, and car crashes are one of the most common accidents. If the news reported on every car crash, that’s all it would report on 24/7. So a car crash is very “dog bites man” – it’s not news. But a plane crash is a big deal.
Despite this, many people act as though flying were much more dangerous than driving. They get nervous on airplanes despite driving every day. They buy flight insurance. Some people don’t fly at all for fear of how hazardous it is, but will drive while texting and smoking every day. Why? Because of the availability heuristic. This is a term from the world of psychology that talks about how people are biased to believe something is more common if they can easily come up with examples of it. Because plane crashes make the news, many people might be able to easily recall a plane crash, but have never seen a serious car crash. Those people might then be influenced to think that plane crashes are the more serious threat, even though they’re absolutely not.
Which brings us back to the topic at hand. Negative externalities like pollution are serious issues with deadly consequences, just like plane crashes. But they’re also much, much more rare than positive externalities. Positive externalities are so common that they aren’t news, so they’re very rarely presented to you in a way that captures your attention. And if you see the news of a plane crash, you might mistakenly believe that you shouldn’t fly, even though the positives of flying so vastly outweigh the negatives that it’s silly to even consider it.
Want a great example? Donating plasma. Plasma donation centers exist all across the country, and you can go there and get paid to sit in a chair for 45 minutes and give plasma. Plasma is the goop that carries your blood cells around; it’s vital to the creation of a lot of life-saving medicine. Because it’s not actually your “blood,” you can donate like twice a week instead of once every 2 months; basically as long as you re-hydrate it comes back almost immediately. In order to donate plasma, you don’t need any skills or credentials, so it’s a great way for people with fewer income-earning opportunities to stay solvent. But the positive externality is this: they RIGOROUSLY test people who donate every single time, for everything from drugs & alcohol to the presence of STDs. Anything like that disqualifies you. So a lot of recovering addicts also essentially get paid to stay clean, even though that’s not the original aim or purpose of these places at all. Those people’s families are getting a healthier loved one, even though they didn’t do anything at all.
That’s a big positive externality. Another one is that in our continual quest to make money in medicine, we’ve saved a few hundred people a year from lightning strikes – and a few hundred million from other stuff. People trying to make money from each other has such incredible spillover effects into my life.
I’m typing this on a computer. I bought the computer, so the benefits it gives me aren’t an externality; that’s what I paid for. Except… about 99.99999% of the benefit I get from this computer actually comes from other people having bought them. The people who read this, the people who write things for me to read, the people who create the sites I read on, and so on – that’s all stuff I didn’t pay for directly, but spillover effects we’re all giving each other.
I’m sitting in a glorious monument to positive externalities. I’m in a Midwestern convenience store chain called a Sheetz – a combination gas station/liquor store/fast food joint/grocery store with very decent nachos and a lot of energy drinks – and they have a little section off to the side with tables. I didn’t pay for this, or the free wifi they have here. I’m not paying for the electricity. Not even indirectly – I haven’t bought anything here today, though I might in the future. But as all these people come to and fro, buying their goods and shooting the breeze for a minute, they’re creating this constant spillover wave that I absorb.
This convenience store is a glorious monument to all the good we do for each other every day, just by existing. Sometimes we produce negative externalities, and if you’re a good person you’ll minimize them if you can. (Maybe don’t practice your electric guitar at 2 AM, even if you enjoy it.) But while you’re doing that, take a moment to really appreciate all those glorious monuments all around you.
The Opportunity Machine 
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