[Part 5 of Values-based vs. Market-based Approaches to the Economy]
It’s easy to understand why economists love market-based frameworks: they’re elegantly simple. Set the right prices and everything follows. Or as Krugman wrote about solving the climate crisis:
Econ 101 tells us — probably correctly — that the only way to get people to change their behavior appropriately is to put a price on emissions so this cost in turn gets incorporated into everything else in a way that reflects ultimate environmental impacts…. [For example,] When businesses decide how much to spend on insulation, they will take into account the costs of heating and air-conditioning that include the price of emissions licenses or taxes for electricity generation.
But as we saw in Getting Green Done, price incentives often aren’t enough. Even when Schendler could show that switching to compact fluorescent light bulbs would save his company a lot of money, he lost that battle. Part of the reason: “Hotel managers don’t believe they make money by saving — they make money by selling” even though a huge amount of profit gets eaten up by overhead. In other words, people and organizations aren’t calculators.
That’s why, as we saw last year, behavioral economics may be doing well in the press but still isn’t making much headway with most economists — it makes building elegantly simple models close to impossible. Better to pretend it doesn’t exist:
“Behavioral economics has identified a dizzying array of human foibles. We clearly can’t incorporate all of them, and because of that, people feel that incorporating one error into your model may be just as unrealistic as incorporating none,” says Ed Glaeser, a professor of economics at Harvard University.
If we can’t afford to just throw our hands up and say the economy’s too complicated, what do we do? I say, place our bets. Markets can be a great tool, but there are plenty others — many of which also encourage flexibility and creativity:
- Prime the Pump by funding experiments
- Work together like the folks in Chula Vista’s Environmental Health Coalition, New York City’s WE ACT, Kentuckians for the Commonwealth, and the Miami Workers Center did to create a collaborative vision of where we want to take our community
- Use the power of non-market based competition and friendly rivalries like CityFlight 2010
- Run global corporate accountability campaigns
- Focus on a particular sector of the economy, such as Architecture 2030 — a campaign by architects whose goal is to ensure that by 2030 all new buildings and major renovations are carbon neutral
And these are just tools for taking on the climate crisis. There are plenty of examples from efforts to solve other problems. Take the case of open source software. If you surf the net, odds are many of the sites you visit it use open source software — an incredibly flexible, creative ecosystem where folks create and give away software and the means for modifying it. It’s one of our economy’s great success stories, and it’s not a market-based solution.
Markets are a good tool, but they are only one of many. If we focus just on markets, we’ll miss out on a lot of opportunities for tackling the major problems we’re facing.
If you’re concerned these other approaches won’t value flexibility and creativity the way markets can, I think you’re missing the point of a values-based framework. If we value flexibility and creativity not just because it’s effective in solving problems but because we intrinsically value it, then there’s no reason why we can’t decide it’s one of our critical values. I don’t know about you, but I want to live in a world where when we take on complicated problems like the climate crisis, we look for solutions that are effective, just, and that allow for flexibility and creativity.
In coming months, I’ll flesh out ways of structuring/chunking these tools and what’s involved in placing our bets. But for now, perhaps a simple way of thinking about the difference between a market-based framework and values-based framework is the difference between a model and heuristics. Economists love simple, clean, elegant models — and I don’t blame them. But if you live in the messy real world, they aren’t enough of a guide. That’s why in my sector of the economy, we tend to use heuristics instead. They aren’t as satisfying, but they get the job done.
Up Next: making sure everyone gets a real say.
