Makers, as they call themselves, can’t compete with the long, orderly rows of workers from the poorer provinces of China or India who cut, stitch and solder bras, shoes and cellphones for pennies — or even with the hundreds of billions of dollars a year worth of stuff that continues to pour out of large, old-fashioned American factories. Their method involves creating “hacker space” cooperatives, where a few dozen members share a 3-D printer, a laser cutter and an oscilloscope and engage in collaborative manufacturing projects. Makers have created companies like Shapeways and CloudFab, which for a fee will manufacture small runs of products that you design. They are becoming kit makers like Bdeir, manufacturing building blocks that allow others to create things.

Neil Gershenfeld, an M.I.T. physicist who is an intellectual godfather to the maker movement, suggested to me that the new tools would over time change global industry as we know it. He predicts a wave of new competitors for the megacorporation that designs, makes and sells products all under one brand. Instead, Gershenfeld imagines a consumer of the near future downloading a design for a mobile phone through an iTunes-like portal; buying an add-on from another firm that tweaks the design; and having it printed at a neighborhood shop in a plastic shell of your choice.

For now, the tech is still in the early stages – and there are still lots of obstacles to overcome and bugs to work out. The reporter asked one small shop if he could try building something using their “CupCake CNC, a so-called 3-D printer that spits out small plastic wares,” which costs only $699.

He guided me to the Web site Thingiverse.com, which abounds in digital models — three-dimensional files that the CupCake can print out. I browsed and chose an iPad stand …

The CupCake began to print. First the nozzle moved back and forth smoothly, dropping black plastic in neat rows. It was building a base for my object. Then it began to jitterbug, dashing unpredictably this way and that, depositing bits of the melting goo one layer at a time. Slowly it formed an iPad stand. But then, 19 minutes in, the machine lost the plot and began to squirt everywhere, and we had to start over.…

Andrew said that the design I picked might have been flawed.

In the long run, how will this tech shape the economy? For example, will it create lots of good jobs in the US? Or is that a fantasy? We are as likely to figure that out now as folks were when they first made predictions about the impact of computers on society. But definitely worth keeping an eye on.

In my research, I analyzed 300 of the most influential innovations in science, commerce and technology — from the discovery of vacuums to the vacuum tube to the vacuum cleaner — and put the innovators of each breakthrough into one of four quadrants. First, there is the classic solo entrepreneur, protecting innovations in order to benefit from them financially; then the amateur individual, exploring and inventing for the love of it. Then there are the private corporations collaborating on ideas while simultaneously competing with one another. And then there is what I call the “fourth quadrant”: the space of collaborative, nonproprietary innovation, exemplified in recent years by the Internet and the Web, two groundbreaking innovations not owned by anyone.

The conventional wisdom, of course, is that market forces drive innovation, with businesses propelled to new ideas by the promise of financial reward. And yet even in the heyday of industrial and consumer capitalism over the last two centuries, the fourth quadrant turns out to have generated more world-changing ideas than the competitive sphere of the marketplace. Batteries, bifocals, neonatal incubators, birth control pills — all originated either in amateur labs or in academic environments.

Now-ubiquitous technology like GPS was created by public-sector agencies for its original military use. And most of the building-block innovations that make GPS possible — satellites themselves, or the atomic clocks that let them coordinate their signals so precisely — were first conceived in nonmarket environments.

The fourth quadrant, however, is not locked in a zero-sum conflict with markets. As in the case of GPS, this fourth space creates new platforms, which then support commercial ventures.

Why has the fourth quadrant been so innovative, despite the lack of traditional economic rewards? The answer, I believe, has to do with the increased connectivity that comes from these open environments. Ideas are free to flow from mind to mind, and to be refined and modified without complex business development deals or patent lawyers. The incentives for innovation are lower, but so are the barriers.

When we champion fourth-quadrant innovation, we are not arguing for top-down bureaucracies and central planning. Stalin would have despised Wikipedia….

The choice shouldn’t be between decentralized markets and command-and-control states. Over these last centuries, much of the history of innovation has lived in a less formal space between those two regimes: in the grad seminar and the coffeehouse and the hobbyist’s home lab and the digital bulletin board. The wonders of modern life did not emerge exclusively from the proprietary clash between private firms. They also emerged from open networks.

We have some great news to announce: The coal-burning power plant proposed by the East Kentucky Power Cooperative (EKPC) has been canceled by the utility.

EKPC has entered into an agreement with Kentuckians For The Commonwealth, Kentucky Environmental Foundation, the Sierra Club, three individual co-op members, the Kentucky attorney general, and Gallatin Steel (EKPC’s biggest industrial customer). Under the agreement, EKPC will halt its plans for the proposed [nearly $1 billion] coal-burning power plant in Clark County by abandoning the permits it needed to proceed with construction. The cooperative also committed $125,000 toward a collaborative effort in which the public interest groups, EKPC and its member co-ops, and other parties will work together to evaluate and recommend new energy efficiency programs and renewable energy options.

To pull this off in coal country is pretty damn impressive – especially since they got the power company to agree to take a serious look at investing in renewable energy.

KFC won not only because they ran a great campaign against the plant but also because they have a vision of where they think Appalachian Kentucky could go. Their plan called Renew East Kentucky, is very sharp. It takes advantage of existing infrastructure:

EKPC and the local co-ops already have the infrastructure in place to ramp up EE/RE solutions to scale throughout the region—trucks, workers, power lines, contracts, customers, and brand. Most of the co-ops have more than 70 years of experience each, and with their proven capacity for billing and servicing more than half a million members, the electric co-ops are in the perfect position to provide an immediate shot in the arm that would kick off a wider Appalachian transition.

Because it’s being run through co-ops, more of the money is likely to stay within the community. And what they learn from their experience could be scaled up:

The co-ops here are similar to the more than 400 other rural electric co-ops across the nation… this plan can become a model, or template, that can be picked up and implemented by—and can become a vision for—hundreds of other co-ops and for the more than 40 million members those co-ops

More excerpts from Renew East Kentucky:

“We are running the country on a dinosaur,” says John Craft, who mined eastern Kentucky coal for nearly 20 years. John not only knows how to run the heavy machinery required to extract coal, he is also familiar with the coal industry’s political and economic machinations. He has lived through the cycles of boom and bust and understands their causes: “The stockpiles of the power plants go up and the bottom falls out of the [coal] market.”

The extraction of coal by miners like John, and the thousands before him, has fueled the modernization and prosperity of the United States during the last century. It has made distant stockholders and owners of coal companies rich, but has left the area from which the coal has been extracted in poverty. As a result, Appalachian Kentucky suffers from an underdeveloped economy and a dearth of jobs. The jobless rate in the central Appalachian region is much higher than it is in the rest of the country. While the national unemployment rate for February 2010 was considered high at 9.7 percent, some eastern Kentucky counties, including the coal-producing counties, had unemployment rates of more than 23 percent.…

like thousands of other folks in eastern Kentucky, John also has a vision of a very different future, one of a “sustainable economy built on renewable energies like wind, solar, and small hydro plants.” In this future, energy workers have safe and healthy jobs, and hundreds—or thousands—of people like himself can be re-trained to fit into a twenty-first-century workforce. Renewal in eastern Kentucky is not only possible, but necessary.…

We propose that the East Kentucky Power Cooperative and their 16 distribution cooperatives launch an aggressive, well-funded, five-year energy efficiency and renewable energy initiative—called “Renew East Kentucky”—in the EKPC service area.

This initiative, anchored by the distribution cooperatives, would re-tool and expand the local workforce, build up local initiatives already in place, and much more aggressively implement energy efficiency and renewable energy (EE/RE) solutions to address the region’s significant infrastructure and economic challenges. The initiative would offset the need for a risky new coal plant that EKPC is proposing to build and in its stead would yield thousands of new jobs during the initiative’s initial five-year lifespan. It would reduce energy consumption while diversifying energy generation, facilitate new job training, upgrade residential housing, build new renewable energy facilities and capacity, and develop a new economic sector that can grow well beyond the borders of our initial plan.

Grants and loans from USDA would fund a large part of this initiative. A creative new on-bill financing mechanism being designed today by the Mountain Association for Community Economic Development (MACED) and the distribution cooperatives would ensure loan payback, allowing co-op members to upgrade their homes and pay for the improvements with their utility savings.

Such a plan not only has tangible energy, economic, and job creation benefits, but can also begin to shift public perception toward transition, offer a proactive plan that all but the most fearful or coal-captive politicians can promote, and launch a new, growing sector of the national economy right here in eastern Kentucky…

EKPC and the local co-ops already have the infrastructure in place to ramp up EE/RE solutions to scale throughout the region—trucks, workers, power lines, contracts, customers, and brand. Most of the co-ops have more than 70 years of experience each, and with their proven capacity for billing and servicing more than half a million members, the electric co-ops are in the perfect position to provide an immediate shot in the arm that would kick off a wider Appalachian transition.

Second, the co-ops are locally owned and, according to their publications and messages, democratically controlled by their membership. Though much work is still needed to bring the co-ops into complete adherence to this democratic structure, the members, as owners of the co-ops, collectively will own the solution itself. Unlike other for-profit, investor-owned utilities that operate in the state—utilities headquartered in Ohio, or North Carolina, or even Europe—the benefits generated in the local co-ops will not increase the shares of distant stockholders, but will stay local. “Profits” made on any of the programs will return to the cooperative members in the form of capital credits and re-enter the local economy when these credits are spent.

There’s yet another reason why working within the rural electric co-ops in Kentucky is important: The co-ops here are similar to the more than 400 other rural electric co-ops across the nation. These other co-ops are governed largely in the same way that EKPC’s distribution co-ops are, they operate similarly, and they serve similar demographics—the rural and relatively poor regions of the country. This plan can become a model, or template, that can be picked up and implemented by—and can become a vision for—hundreds of other co-ops and for the more than 40 million members those co-ops serve.

On a more philosophical note, this plan reflects the original mission of all electric cooperatives, including all those in EKPC’s service area. Two of the seven Cooperative Principles that guide the co-ops are “Education, Training, and Information” and “Concern for Community.”6 During the early years of rural electrification, the co-ops hired staff to travel throughout their service areas and educate their members about how to use the electricity they were now able to receive. They held traveling demonstrations on how to operate new electric appliances like clothes washers. This plan presents an opportunity for the co-ops to return to those early guiding principles and behaviors. By going back to that hands-on approach, traveling door-to-door to perform energy audits and implement the efficiency and weatherization programs, the co-ops will once again build strong relationships with their members and truly serve their communities.…

We know of no other concrete, specific plan that can be implemented right now in central Appalachia and provide such a vast range and scale of benefits.

Since 1990, Recology has its own artist in residence program, where artists receive a monthly stipend, a studio, and access to as much recycled materials as they can drag away. At the end of the artist’s residency, Recology holds a public showing for them. Recology also has a large sculpture garden that acts as

a reclamation site, a visually pleasing buffer for the families that live next to Recology San Francisco, a place of community involvement and educational potential, a model drought-tolerant garden, and a home for the growing sculpture collection of Recology San Francisco.

How cool is that?

In 2008, the last year for which the city has data, the diversion rate was 72 percent, up from 69 percent in 2007 and 67 percent in 2006.

How has San Francisco pulled off this remarkable innovation? According to Grist, it all started because in 1989, California passed a law requiring that towns

divert 50 percent of their trash away from landfills. Inspired, San Francisco decided it could do even better.

They began by running a bunch of little experiments to figure out what actually worked for residents and businesses, then followed up with mandates:

The city worked with its exclusive waste hauler, Norcal Waste Systems (since rebranded as Recology) to run a dozen experimental pilot programs, augmented by community outreach meetings and teams dispatched to train businesses and residents. In 2000, a three-stream system was established: blue bins for recycling, green for compost, and black for landfill.

Collecting data about the city’s refuse was key. “We do a lot of analysis of what San Francisco sends to the landfill,” says Recology spokesman Robert Reed. “We look closely at the garbage … and we saw a lot of food, so we designed this urban food scrap collection program.” Following successful tests, home composting was made mandatory in 2009.

And years before they made composting mandatory, they gave folks serious financial incentives to do it:

Customers who reduce their landfill-bound garbage get deductions on their hauling bills, and there’s no fee for additional recycling and compositing bins. By sorting waste, businesses can save hundreds or even thousands of dollars, said Jack Macy.

The city and its enthusiastic residents weren’t the only key. The other critical piece was a crucial business partner: their waste hauler, which saw a chance to do well by doing good.

The city’s success might not have been possible without Recology President Mike Sangiacomo, who was among the first in the hauling industry to push for new recycling and composting technology. At Sangiacomo’s behest, Recology recently joined The Product Stewardship Council to push for packaging reform….

Diverting waste from landfills required new technology and equipment, the cost of which was borne by Recology. The company spends “millions” to provide San Francisco residents with all those bins, and spent $38 million, to build a new recycling plant on Pier 96 in the early 2000s. Recology also spent $2.5 million in 2009-10 to upgrade technology at Jepson Prairie Organics, where they compost food scraps.

Most customers only see the three bins, but behind the scenes, Recology has developed 18 separate recycling programs — more than any city in the country — to maximize diversion.

The payoff for Recology: a ton of free publicity that opens up new markets for their innovative work:

Top city officials from around the world have toured Recology’s state-of-the-art facilities.

In short, a combination of long-term state mandates, the strategy of starting with pilot projects and incentives following up with mandates, and a fired up business partner has created an astonishing amount of innovation and progress.

Parklets are also an interesting way of thinking about how we can allow for different levels of input or say. Democracy is a good thing, but sometimes it can be a bit… frustrating. Andres Power of San Francisco’s Planning Department, this looser structure made it possible to make progress where they hadn’t been able to before.

Cities like New York have a strong hierarchical structure. We don’t have that in San Francisco. And so when there are differences in opinion between groups or agencies, it can be almost impossible to get things done. The first plaza that went in, at 17th and Castro, had a history going back almost ten years of the community talking about using that space. But making it temporary made it happen.

That doesn’t mean we want to get rid of democracy. Sometimes long, hard deliberations are necessary. And we don’t want the kind of openness we saw in Chula Vista. Letting an oil plant owner ignore regulations and spew toxins into neighborhoods and onto school grounds is not the kind of innovation we are looking for. But we need some balance – some lightness, some airiness, some room for a handful of individuals to just try something out and see what happens.

In fact, parklets worked because they gave people around them other forms of having a say aside from voting (or attending endless meetings). They were done in a way that treated other folks’ needs with respect. And, like markets, they allowed individuals and businesses to essentially vote on whether to keep these projects going via pitching in with their labor or money.

And parklets acted as feedback loops. People got to see the results in action, on a small scale. There was less risk than with the big rule change – if important issues were missed, odds were decent that someone would catch it. I think that’s why Rebar’s latest experiments with walklets have smart touches like leaving the rain gutters unimpeded or being designed so that street sweeping machines can easily maneuver around them. These are the kind of issues that are easy to miss and that feedback in the real world are likely to help you with.

The other smart thing about parklets as a model is that it starts very small and then scales up. In San Francisco, it started with just one group creating a parklet. Then other groups did another cities. Then the city of San Francisco tried creating parklets. And now they are attempting to enshrine the process of experimenting with parklets by providing permits year-round for these experiments.

Obviously, this model won’t work for every project. You probably don’t want to use it to design something as massive and vulnerable to collapse as a bridge. But I think that with experience, we might find there are a lot more types of projects where this approach might work very well.

In short, the experience with parklets is a very different way of thinking about how to encourage innovation and creativity within the rules that we all agree we need to provide security.

Up next week: parklets, race, and inequality.

The result was streets and sidewalks that were often smelly and disgusting – and plenty of freedom for other actors, like Mr. Cholera, to breed to their hearts content and kill tens of thousands of people.

Eventually, city governments began to put limits on people’s freedom to do whatever they wanted. Cities became less smelly and more safe.

Over the years, these restrictions got tighter and tighter — sometimes for good reasons that benefited everyone, and sometimes because of games played by powerful interests.

In 2005, a design studio called Rebar decided it was time to test these restrictions. They temporarily turned one metered parking space into a public park — a quick and dirty guerrilla art project to raise questions about how we use our city space. The project was a success, partly because they did in San Francisco and not, say, Dallas, partly because they showed respect for other uses of the street by cleaning up after they were done — no pig remains or horse poop were left behind — and partly because they did it with style.

Over the next few years, citizens, artists, and activists around the globe joined in for what became an annual PARK(ing) Day event. Their mission:

to call attention to the need for more urban open space, to generate critical debate around how public space is created and allocated, and to improve the quality of urban human habitat … at least until the meter runs out!

Eventually this innovation inspired officials in cities around the globe to act. For example, New York City closed parts of Broadway and created “pedestrian plazas in Times Square and Herald Square.” The result was a smashing success. Tourists and New Yorkers loved it, and it had other benefits as well:

Advocates for the project said it had vastly improved safety in the area, pointing to a 35 percent decline in pedestrian injuries and a 63 percent reduction in injuries to drivers and passengers, according to city data. Foot traffic grew by 11 percent in Times Square and by 6 percent in Herald Square, and a survey of local businesses found that more than two-thirds of the area’s retailers wanted the project to become permanent…. The Times Square Alliance, a business group, surveyed residents and office workers and found that about 75 percent were “satisfied with their experience” in the area, up from less than half in 2007….

“It’s shifted the paradigm for what a street and sidewalk experience is supposed to be like in New York City,” said Tim Tompkins, the president of the alliance.

The city of San Francisco also finally got in the game, creating official “parklets” last year:

The first pedestrian plaza opened in May at 17th and Market streets in the Castro and has become so popular that four more plazas as well as five “parklets” – two or three successive parking spaces turned into teeny parks – are slated to open by this summer. More are expected to be built this fall and next year.

The idea is to replicate the European tradition of outdoor plazas for sunning and socializing on the cheap as the city faces a grim $522 million budget deficit for the coming fiscal year.

The city’s official website called Pavement to Parts describes the project is way:

San Francisco’s streets and public rights-of-way make up fully 25% of the city’s land area, more space even than is found in all of the city’s parks. Many of our streets are excessively wide and contain large zones of wasted space, especially at intersections. San Francisco’s new “Pavement to Parks” projects seek to temporarily reclaim these unused swathes and quickly and inexpensively turn them into new public plazas and parks. During the temporary closure, the success of these plazas will be evaluated to understand what adjustments need to be made in the short term, and ultimately, whether the temporary closure should be a long term community investment….

Each Pavement to Parks project is intended to be a public laboratory where the City can work with the community to test the potential of the selected location to be permanently reclaimed as public open space.

The city liked parklets in part because at a time when the city was struggling financially parklets didn’t cost a lot of money:

The parklets – which will consist of raised platforms to make them level with sidewalks for seating, planters and bicycle parking – cost $7,000 apiece. The larger plazas with tables, chairs, planters and art installations can cost up to $35,000.

“It’s pennies compared to a brand new park,” said Astrid Haryati, the mayor’s greening director.

Sponsored by neighborhood businesses and corporate donations, they’ll cost the city nothing but labor from the Department of Public Works to set them up and maintain them.…The [Department of Public Works] also is scrounging up unused city property like Dumpsters to serve as large planters for fruit trees and the trunks of dead trees for use as planter borders.

According to Andres Power of San Francisco’s Planning Department, what’s interesting about San Francisco is that it’s more decentralized than New York City’s

Our plaza program is not exactly like New York’s. Their Department of Transportation designs their plazas in-house, with their engineers and landscape designers. Which has its advantages. Their plazas are incredibly replicable, efficient, and easy. But in having different local designers work on ours, we have something more organic and site-specific. And there’s more room for whimsical projects.

What’s up next for San Francisco? Making every day PARK(ing) day.

The plazas will always likely require some input from the various city agencies, including DPW and the municipal transportation agency. But we’re working with these same agencies on developing a permit system that will allow anyone willing to hold a permit for a space – a business, a nonprofit, a group of people – to apply to put in a parklet.

In the meantime, outside groups keep innovating. Rebar has created what they call a walklet that they have been experimenting with and eventually hope to be able to offer for sale:

The sixty foot linear parklet (Rebar uses the term “Walklet”) is composed of pre-fabricated modular sections, each three feet wide by 6 1/2 feet deep. The module foundations are welded steel frames with bamboo decking, each affixed to the curb edge. The modules have different components, some simple flat sidewalk extensions, others with seating. One variation has seating with a planter built into it; another is a high bar 40 inches above the platform. Two modules have two bike racks each and several modules will be deep benches that allow reclining.

“The idea was to have a magic carpet of bamboo,” said Merker, describing the aesthetic. “It creates a sense of prospect and refuge for people who want to inhabit the street.”

Up next: parklets as a different way of thinking about government and innovation.

You wouldn’t know that from reading the lit on innovation and the economy. As far as they’re concerned, innovation is like chocolate — more is better.

But sometimes, innovation isn’t like chocolate. Take the flu. We keep coming up with vaccines to get our defenses on high alert. And viruses keep innovating ways around our defenses.

The same is true for Wall Street. Give those clever Boys and Girls half a chance, and they’ll come up with new ways to make gobs of money by screwing over their customers or blowing things up. It’s so bad that last year former Fed reserve chair Paul Volcker Street told a meeting of finance bigwigs:

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.”

Mr. Volcker’s favorite financial innovation of the past 25 years? The ATM. “It really helps people, it’s useful.”

Now I’m not talking about all innovations that I personally think are bad. Like, say, 80s hair. Or the Mountaingoat, the furry, horned mountain bike by Sogreni, which describes it as “a unique bicycle where only the imagination sets the boundaries.” I think that’s a little insane, but hey, to each to their own.

(Incidentally, Sogreeni’s website says they are “currently developing a kitchen and bathroom design series,” so if you’ve ever wanted to have a furry horned kitchen, stay tuned)

What I’m talking about are the innovations that actively cause harm to people. Who gets to decide what counts as causing harm? I think that’s a critical conversation that has to take place when citizens in a democracy want a dynamic, innovative economy – more on that later in the series.

Up next: Parklets, walklets, and a different way of thinking about setting rules.

I strongly favour the culture of dynamism and innovation that thrives when markets are left relatively unfettered, but it is a straightforward mistake to confuse questions of economic freedom and entrepreneurial dynamism with questions about the size of the redistributive state.

I find it hard to believe that W. W., a conservative whose writings I enjoy and respect, really believes that “innovation… thrives when markets are left relatively unfettered.” Dynamism I could see an argument for, even if I don’t buy it. But innovation?

Take the biggest innovation of the last 20 years: the Internet. It’s hard to argue the Net was a result of unfettered markets when Uncle Sam funded and nurtured it. And we don’t have to wonder if a “relatively unfettered” market also could have created the Net. All you need to do is look at the track record of CompuServe, AOL, and other competitors to the Net — they did everything they could to create closed systems whose spirit was contrary to the essence of the Net.

Or what about finance? It’s a moot point; no way could you call the world of finance “relatively unfettered.” If it was — if we got rid of deposit insurance, the Federal Reserve, and any implicit agreement that we would bail out big banks and Wall Street when they threatened to push the economy off a cliff — it would certainly produce innovation. But would anyone want to live with the innovation it created?

Or how about healthcare? Again, it’s hard to make an argument about innovation based on a market that’s “relatively unfettered” given how amazingly fettered the healthcare market is. Of course, if you think our current drug patent monopolies are part of a relatively unfettered market, you could argue that the truly ingenious ways drug companies manage to bribe doctors, pollute medical information, sucker consumers, and otherwise jack up the cost of healthcare while producing new drugs which usually aren’t better than anything on the market is very innovative. But this isn’t the kind of innovation I’m rooting for.

This isn’t to say that markets don’t create innovation — they do. But it’s hard to see how you can argue that relatively unfettered markets are the main source of it.

So if a “relatively unfettered” market isn’t the way to nurture a pro-innovation economy, what is? In the next few posts, I’m going to sketch out a draft of my answer.

Last week, I argued that a values-based framework has two big advantages over a market-based framework in setting the agenda. We’re more likely to debate what really matters to us. And we’re more likely to debate who should get to decide — and in turn, that makes it harder for the wealthy and big corporations to hide what they’re fighting for.

In the next few posts, I’m going to try to show that a values-based framework is also better at actually delivering the goods. To understand why, first we need to be clear why smart folks like Krugman favor a market-based framework. Or as Krugman put it,

Textbook economics and real-world experience tell us that we should have policies to discourage activities that generate negative externalities and that it is generally best to rely on a market-based approach.

That said, Krugman isn’t arguing markets are the only game in town. Sometimes banning behavior outright make more sense.

When it comes to direct action, you can make the case that economists love markets not wisely but too well, that they are too ready to assume that changing people’s financial incentives fixes every problem. In particular, you can’t put a price on something unless you can measure it accurately, and that can be both difficult and expensive. So sometimes it’s better simply to lay down some basic rules about what people can and cannot do.

Consider auto emissions, for example. Could we or should we charge each car owner a fee proportional to the emissions from his or her tailpipe? Surely not. You would have to install expensive monitoring equipment on every car, and you would also have to worry about fraud. It’s almost certainly better to do what we actually do, which is impose emissions standards on all cars.

So why rely on markets wherever possible? First, he argues,

A market-based system would create decentralized incentives to do the right thing

And decentralized incentives are critical when you are dealing with an insanely complicated problem like greenhouse gases.

greenhouse gases are a direct or indirect byproduct of almost everything produced in a modern economy, from the houses we live in to the cars we drive. Reducing emissions of those gases will require getting people to change their behavior in many different ways, some of them impossible to identify until we have a much better grasp of green technology. So can we really make meaningful progress by telling people specifically what will or will not be permitted? 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.

The second reason to use markets:

But while the direct regulation of activities that cause pollution makes sense in some cases, it is seriously defective in others, because it does not offer any scope for flexibility and creativity

In short, a market-based framework allow for decentralized, flexible, creative solutions, “as opposed to a ‘command and control’ fix that issues specific instructions in the form of regulations.”

Up next: market-based theory meets European Union Cap and Trade reality