The key point of David Brin’s post on Guided Allocation vs. Faith in Blind Markets is that it is desirable to tune markets to achieve desired ends without going to the extreme of interfering with individual allocation decisions.

Markets are machines designed to harness the wisdom of crowds, not forces of nature. We can tune market machines to accomplish desired goals, as seen prominently on the web.

For example, markets can be designed to ensure that “reasonable costs are paid by the same generation that reaps the immediate benefits.” Done carefully, this can be accomplished without impairing the ability of the market to benefit from the collective wisdom of millions of individual participants.

There is nothing inherently more “blind” (much less desirable) about markets that (intentionally or unintenionally) have been set up to encourage extremely short term thinking and the transfer of costs to our grandchildren. In a world of finite resources these kinds of market will eventually lead us to grief.

There is much that can be learned in the area of creating and tuning markets from the web, which is notable for its pace and variety of innovation.

Out in the brick and mortar world, innovation in markets is slowed by inertia, vested interests, the mental blinders we apply to our existing institutions, and the difficulty of building to a critical mass of participants.

But consider the web’s countless experiments in learning from the wisdom of crowds. The web is in effect a marketplace of marketplaces, with rich rewards for the companies that succeed in creating the most valuable and successful markets.

To give only a few examples: Google figured out how to create a marketplace (or voting booth) based on links, where none of the participants initially even realized they were participating. Ebay discovered how to combine reputation with a market that had global scale. Digg and similar sites created a marketplace for news that replaces a single editorial voice with a voting system.

In every case, the creators of the markets are engaged in a continual process of invention and adaptation to tune the markets. There is a feedback loop between Google’s ranking system and the web publishers, for instance, and Google works constantly to tune their ranking algorithm so that the marketplace continues to accomplish the goal of yielding relevant results.

“Legacy” markets like the stock markets have authorities who work to prevent outright cheating, but insufficient thought has gone into the question of what goals those marketplaces might be set up to achieve or how to tune the markets to accomplish those goals without wrecking them. Much depends on learning how to do so.