Property rights as the answer to spillover harm
The earliest treatment of externalities in the excerpts comes from a 2012 episode on the morality of capitalism, in a caller segment. A caller identified as Mark from Berkeley tells the host and guest that what is good for one person may be bad for others, “particularly the environment,” and calls the free-market argument anti-social and potentially harmful to society. Bob Zadek turns the point over to Tom G. Palmer, who grants that something good for one person does not follow as good for others, and that this is a reason to reject one-size-fits-all socialism. Palmer then names the phenomenon directly: there may be spillover effects when a person pursuing his own interest hurts somebody else, and pollution is the classic example. The Morality of Capitalism (2012)
Palmer’s remedy is not regulation in the administrative sense but the rule of law and property rights. If a person pollutes someone else’s front yard or water supply or poisons them in the air, Palmer says, he has harmed them just as if he had shot a bullet at them, and that should be illegal. On this account a right not to be poisoned by other people is itself a property right, and when government allows pollution it is failing to enforce property rights — which Palmer calls government’s fundamental responsibility. Zadek presses the harder case: environmentalists who say the harm is to the environmental health of the planet, with no identifiable property owner whose rights are interfered with. Palmer answers that presumably someone’s property rights are being interfered with, or it should not be an issue, and points to PERC.org as a group of environmentalists focusing on property rights solutions to environmental problems. The Morality of Capitalism (2012)
Externalities and the limits of markets in public choice
A 2017 episode with Michael Munger approaches externalities from the opposite direction — not as something property rights can always handle, but as part of the case for a limited state. Munger sets out what he calls the three premises of Public Choice. The first is methodological individualism, the idea that people do not change much when they enter a voting booth or take public office. The second is behavioral symmetry, the idea that people are basically the same whether they are in the grocery store or the voting booth. Leviathan in Chains: Michael Munger on Public Choice Economics (2017)
The third premise is where externalities enter. Munger attributes to James Buchanan, the Nobel Prize winner in 1986, the view that politics may still be important even if politicians are not that different from the rest of us, because there are things we have to accomplish together in groups and markets are not very good at accomplishing them. Specifically, Munger says, markets cannot use the price mechanism and private property to solve problems of the environment, pollution, externalities, and perhaps information that not everyone has. There may therefore be a role for the state — but a role based on consent, not on the imposition of the will of the majority on a minority that does not want it. Munger frames the whole question of democracy as a balance between the rights of individuals and minorities and the ability of the majority to impose its will, and says that when someone claims more democracy is always better, he does not know what that means. Leviathan in Chains: Michael Munger on Public Choice Economics (2017)
Contagion as an externality
Two later episodes apply the concept to COVID-19. In a 2020 episode, Jeff Singer tells Zadek that decisions about risk should as much as possible be made at the individual level, because different people are willing to accept different risks — the tobacco smoker, for example, decides the pleasure outweighs the health considerations. But Singer draws a limit: if he is contagious and could affect a lot of other people around him, then it is not just his decision, because he is jeopardizing the life and rights of his neighbors. That, Singer says, is why there is a legitimate role for government here, because these are externalities, and to prevent him from hurting his neighbor. Here comes “the spike…” (2020)
Singer immediately qualifies the concession. The role has to be as narrowly defined as possible; decisions made outside the individual realm need a compelling reason and a time limit; and government should deal only with a person’s ability to affect the life and safety of others outside himself. He lists ordinary risk choices — scuba diving, skiing, skydiving, driving — and notes that raising the speed limit from 55 to 70 in California, or 75 in Arizona, caused an increase in deaths from automobile accidents, though one need not drive at the limit. Zadek’s own framing in the same segment is that government at every level decides every day to sacrifice American lives for a greater good, citing troops sent into combat and the permission of driving despite the deaths it causes. Here comes “the spike…” (2020)
A 2021 episode with the same guest returns to the point. Singer says that even as libertarians we can agree that in a true public health emergency we have to be concerned about externalities, and that if your behavior threatens the lives of your neighbors, in principle you should be restricted until the emergency passes, because everyone is threatening everyone else’s life. He calls the initial hunkering-down recommendation reasonable a year earlier, when little was known, but argues policy should have adjusted as evidence arrived: 80% of deaths in people over 65, 40% in nursing homes, over 95% of deaths with pre-existing comorbidities, and COVID less dangerous than influenza for people under 20 and about the same between 20 and 45. Vaccines & the Totalitarian Principle (2021)
Singer’s larger argument is about incentives rather than the existence of the externality. Once a governor imposes a mandate, he says, a different set of incentives appears — what Frédéric Bastiat described in the 1800s as “that which is seen and that which is not seen.” The seen is rising case numbers after restrictions lift; the unseen is the economic damage, derailed college plans, inner-city students regressing without in-person schooling, delayed cancer diagnoses, missed preventive screenings, postponed elective procedures, interrupted rehabilitation for substance use disorder, and chronic pain patients unable to see their doctors. Because the seen is immediate and the unseen is diffuse and delayed, Singer argues, whoever holds the power to impose restrictions will err on the side of over-caution. He adds that a year later less restrictive and more restrictive states had arrived at the same place on cases, hospitalizations and mortality, but with different damage in other areas — comparing California, just then lifting restrictions, with Arizona, which had lifted all of them two weeks earlier and had had in-person dining and no statewide mask mandate since the summer. Vaccines & the Totalitarian Principle (2021)
Across episodes: what changed
The topic recurs in four episodes, and the treatment shifts with context rather than developing a single argument. In 2012 Palmer treats externalities as harms fully answerable by property rights and the rule of law, with government’s failure consisting in not enforcing them. In 2017 Munger treats environment, pollution and externalities as problems markets cannot solve through prices and private property, and therefore as part of a consent-based case for a limited state. In 2020 and 2021 Singer, the same guest in both, concedes a narrow and time-limited government role during a genuine emergency, then argues that the political incentives created by mandates cause the unseen costs of restrictions to be ignored. The later episodes do not revise the earlier ones so much as apply the concept to contagion; the 2021 episode adds the Bastiat distinction and the California–Arizona comparison, which the 2020 episode does not contain.
What the sources do not cover
The excerpts do not define externalities formally, nor do they discuss the economic literature on Pigouvian taxes, Coasean bargaining or cap-and-trade. No excerpt states what PERC.org’s legal or organizational status is beyond Palmer’s description of it as a group of environmentalists focused on property rights solutions, and no excerpt reports any case, statute or bill governing pollution or pandemic restrictions. The 2012 caller segment ends before Zadek’s own response to the environmentalist objection is recorded, and the 2021 excerpt breaks off after Zadek’s name with no following statement.