Humans understand externalities just fine, they just don't care about them because the more convenient option is to ignore them and optimize for the short term,

Humans understand externalities just fine, they just don't care about them because the more convenient option is to ignore them and optimize for the short term, which seems a key feature of our species. That short term bias keeps one alive for another day in our original biological state as hunter-gatherers, which we still are. But it's a pretty crappy quality at planetary scale. Pure market thinkers say that when you pollute a river, it will create a new market to clean up the river. That makes no sense as you might as well not pollute the river in the first place, so you can't claim efficiency. More importantly, this market to clean up the river does not spontaneously come into existence, as nobody is going to place an order for a clean river. It requires political will, which is easily corrupted, just like regulation. I would agree that communism would not solve this problem either. We, as citizens, are equally guilty of this outcome. The politician that plans for the cleaning up of the river will lose from the politician that builds a new sports stadium.