Morning Must-Read: Jeffrey Frankel: The Startling Decline of Market-Based Approaches to Regulation

Jeffrey Frankel: The Startling Decline of Market-Based Approaches to Regulation: “Markets can fail. But, as has been demonstrated in areas like air pollution, traffic congestion, spectrum allocation, and tobacco consumption, market mechanisms are often the best way for governments to address such failures. So why are such mechanisms now in retreat?…

Today, however, politics is killing “cap and trade.” In the United States, the highly successful cap-and-trade system for sulfur-dioxide emissions has effectively vanished. In Europe, the Emissions Trading System (ETS), the world’s largest market for carbon allowances, has become increasingly irrelevant as well. On both sides of the Atlantic, market-oriented environmental regulation has in effect been superseded over the last five years by older “command-and-control” approaches, by which the government dictates who should use which technologies, in what amounts, to reduce which emissions…. There is a fascinating parallel between the evolution of American political attitudes toward market mechanisms in environmental regulation and Republican hostility to “Obamacare” (the 2010 Affordable Care Act). The core of Obamacare is an attempt to ensure that all Americans have health insurance, via the individual mandate. But it is a market-oriented program insofar as health insurers and health-care providers remain private and compete against one other. This was originally a conservative approach.