Explain SMBC — the wiki for Saturday Morning Breakfast Cereal

Externalities

2017-03-08 View on smbc-comics.com → 1 revision
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Explanation

The Joke

A character explains the economic concept of externalities — costs or benefits that affect third parties who didn't choose to be involved. The explanation starts with a textbook example (pollution) but quickly spirals into showing that externalities are everywhere and almost nothing in modern life has a price that reflects its true cost.

The Humor

The humor is in the escalation: once you start seeing externalities, you can't stop. Every transaction, every product, every daily activity has hidden costs borne by someone else. The character starts calm and ends frantic, overwhelmed by the realization that the entire economy is built on unpriced externalities.

Economic Context

Externalities are one of the most important concepts in economics. Arthur Pigou proposed taxing negative externalities (Pigouvian taxes) to align private and social costs. Carbon taxes, congestion pricing, and cigarette taxes are all real-world applications. The comic captures why externalities are so hard to deal with: they're everywhere and pricing them is politically difficult.

View History (1) Original Comic