I am aware of what is meant by externality in economics however economics have a lot of blind spots, the consequence of technology being one of them which makes it an externality for exactly that reason.
ok so your point is that when technology creates long term downwards trends in the value of labor, anything that decreases the value of labor can be thought of as an externality?
Redistribution can counteract this effect. If productivity increases but it also increases inequality, then there is some level of redistribution that will correct the inequality while making everyone better off (in the sense that the number of people earning more than X increases for all X). Not exactly a theorem, but a rough consequence of general equilibrium theory. You might claim that this kind of redistribution is impossible, but there are countries (e.g Scandinavia and Aus/NZ/Canada/UK) that redistribute a lot more than the US.
> ok so your point is that when technology creates long term downwards trends in the value of labor, anything that decreases the value of labor can be thought of as an externality?
Almost certainly, it is an externality in the strict economic sense, in that the "thing that decreases the value of labor" is almost certainly the product of investment decisions made by actors that are not the same set of people who are impacted by the reduction in the value of labor.
> Redistribution can counteract this effect.
Right, but in practice rarely does not, because what redistribution occurs is controlled by who has power over government, and power over government is disproportionately in the hands of those who have gained the most benefit from the economy, so those harmed by externalities and who would be most inclined, on a self-interested level, to seek redistribution are also the least likely to see their wishes reflected in government policy.
> If productivity increases but it also increases inequality, then there is some level of redistribution that will correct the inequality while making everyone better off (in the sense that the number of people earning more than X increases for all X). Not exactly a theorem, but a rough consequence of general equilibrium theory.
Its not really a "rough consequence of general equilibrium theory", whereas general equilibrium theory holds that without externalities (and with rational choice) a pareto-efficient result will be achieved, your conclusion requires the assumption (which general equilibrium theory does not support) that with externalities, a pareto-efficient result will not be reached, and further that the actual result will be such that there will exist an alternative result reachable by redistribution which features less inequality by whatever the relevant measure of inequality is, and is closer to being pareto-efficient.
But general equilibrium theory does not guarantee pareto-inefficiency with externalities, and if a pareto-efficient result is attained prior to redistribution, no redistribution can "make everyone better off" (since the definition of pareto-efficiency is that no one can gain without someone losing.)
