Chapter 24: Rules vs. Prices

1. In nature, genetic information and energy flow through the feedback loops of the food web. In the economy, technological information and value flow through the feedback loops of the value web.

2. No one set up the ecosystem. No one set up the market economy. No one needed to. Like any self-organizing system, capitalism just happened. Chaos will prove to economists that erratic oscillations are normal and healthy for the economy.

3. In the extreme, the suppression of market chaos creates a black market. Several analysts argue that America's illegal drug market is so enormous largely because the illegality drives prices far above production costs. High prices create fantastic profit margins in the illicit distribution network.

4. For the most part, the Western capitalist economies are comprised of "white" markets, where prices are free to find their own levels. Only when a price formula is written into law does a white market go gray. Many nonprice rules, such as safety regulations, actually improve market function.

5. For most of the twentieth century, governments have set prices for all kinds of things. In the late 1970s, this trend was reversed. Governments abandoned "command-and-control" methods. This did not come from an outcry for free markets. It simply represented the public's frustration with the waste.

6. Wherever a rule substitutes for a price, inefficiency is guaranteed. The environment is a public "commons." In a black market, the price of an outlawed item is fixed at infinity. In a nonmarket commons, the price of the resource is set at zero. The economic consequences are equally disastrous.

7. Once Congress gave an unlimited "credit card," backed by the U.S. Treasury, to any outfit calling itself a savings and loan, no army of regulators could stop the waste and fraud. Only the self-regulation of the market, where individuals directly bear the costs of their bad judgment, can discipline greed.

8. In the environment, as in the savings and loan disaster, where the political system sets the cost of air and water at zero, economic players are virtually begged to abuse the commons of nature.

9. If a "pollution market" existed, society would use the signaling device that economic actors understand - money. By placing a fluctuating dollar value on clean air and water, the market would instantaneously stimulate desired changes in our collective economic behavior.

10. Ironically, those who claim to care most deeply about the earth's future insist on government policies that condemn the planet to the very catastrophe they want to avoid. The longer the "command-and-control" outlook dominates thinking in the environmental movement, the closer the world will come to ecosystem breakdown.