Market failures are over-diagnosed. Since there is no principled way of limiting the consequences of an action, negative and positive externalities, to use the economist's term, stretch out on every side, in effect cancelling each other. Indeed, in everyday moral life we recognise this. I choose to sit at a table, or not to suit my sense of convenience. But this choice may, perhaps, on the one hand cause a war two-hundred years hence, or, on the other, the discovery of a wonder cure that saves the lives of countless millions. On balance these speculative costs and benefits are neither held against me nor counted to my credit. The fact that such externalities are indeterminable because the causal chains are so long is of course important, and does mark them out as different from those with clearer ancestry, the pollution of a water course by a manufacturing plant for example. But the distinction fades in significance when we recall that beyond the readily identifiable varieties of consequences stretch the infinity of effects already noted, dwarfing even those cases where effects are in fact determinable. In the extreme case, choosing to sit at a table or not, we balance them out, reasoning that the indeterminable negative externalities are, in all probability, balanced by an equal quantity of indeterminable positives. Perhaps we should do the same even with situations where the externality seems more manifestly identifiable.
Indeed, there must be a strong suspicion that the discussion of externalities has become polluted by normative ethics. It is the indeterminable externalities that cause the confusion and resentment. The impacts of climate change strike some as manifestly determinable; others as equally clearly quite otherwise. And there is a reasonable suspicion that the positive internalities may have been understated, let alone the positive externalities.
Furthermore, we might ask whether externalities are even an economic consideration. Aren't they a legal matter. Or to put it another way, the concept of market failure is quite artificial and results from extruding the economic domain beyond its field of competence, and into the legal zone (i.e. the field of normative behavioural morals), where it has no power and can hardly be expected to succeed. Does this result from the ambition of economists in their professional capacity? We can see from Freakonomics and the Undercover Economist that the will to expansion is certainly there.
If my point is sound, and I am at this writing prepared to defend it with vigour, then we should be very suspicious of attempts to resolve 'market failures' through economic policy. Since that failure is an artefact of over-extending the field of economic competence it is very unlikely that an economic solution will be viable. It is law that is required, not factitious pricing in of externalities.
Support for this view can be found in the fact that in some cases it is the victim of the pollution who is forced to pay the polluter to stop. This is may seem morally and even economically bizarre. However, in relation to simple criminal and many civil cases this point does not arise, and we accept without question that the victim, or prospective victim, pays taxes to support the rule of law that stops or deters the offender. Pollution is no different, and is obviously, on this reasoning, an area best handled by law, not economic measures.