Prices influence billions of decisions every day. But they often ignore social and environmental effects, yielding prices that are sometimes too high and sometimes too low.

To correct these flawed economics, we can tax “bads” such as resource depletion rather than goods such as paychecks; make the polluter pay through fees and permits; and align markets with public goods to stimulate creative solutions.

The power of markets is hard to overstate. They harness the ingenuity and resourcefulness of millions of people and orient their actions through the universal feedback of prices.

But markets rarely operate in the real world as they do in textbooks. They are blind to nature, frequently dominated by monopolies, hamstrung by poor information, and distorted by incentives split among market actors. Governments sometimes prevent markets from operating at all and often impose subsidies, fees, and taxes that amplify, rather than correct, market failures.

As a result, business as usual in Cascadia yields a region that has weaker communities, less-fair markets, and poorer stewardship than it deserves.

Related Solutions

Fortunately, Cascadia has many avenues open to it for employing the power of markets to rectify these shortcomings, by making prices tell the truth.

  • Fees, permits, and subsidy reduction can make the polluter pay for the consequences of their actions.
  • Tax shifting can reduce taxes on paychecks and profits while it puts previously hidden costs—such as traffic congestion—onto business ledgers and consumer receipts.
  • Feebates can turbocharge the adoption of resource-efficient devices.
  • Innovative business models and public initiatives, such as pay-as-you-drive insurance, extended product stewardship, parking deregulation, community right-to-know rules, product certification, and conservation markets, align price signals with public goods.

And across the Northwest and beyond, such innovations in making prices tell the truth are emerging.

March 7, 2005