Pigovian

I will start spelling it correctly (drop the "u"), but I am not going to sign up. The respect I have for Gregory Mankiw is not transferable to the creators of the Pigou Club website. I complained that the site was all but completely devoted to Global Warming. The graphic of the globe on a spit over an open flame says it all.

The club attempts to defend itself from a "debunking" by Josh at Everyday Economist with a somewhat snide rejoinder that we can all drive Toyota Priuses. Josh defends his point well in the comments that his original post pointed out that many people have a long term commitment on their transportation or a good reason to require a larger vehicle.

I'm gong to oppose the taxes broadly on philosophical grounds. The 16th Amendment gives the Federal government the power to tax income to fund the government. The Pigovians have provided more and more social engineering through the tax code ever since it was ratified,

The Pigou Club's Why It Works page says it all.

The tax in the third option can also be called Pigovian tax. It is what this Club is all about - taxing the activities that harm other people.

In the example, the unlucky miscreant was overfishing a communal lake (being too productive, working too hard) and the classic "Commons Problem" is all put to right with government taxation.

John is moderately happy because he can still catch fish and the community is also happy - the fish stocks are stable. Villagers can lower their taxes because of John’s contributions and spend the extra money any way they like.

As Spike would say, "Get your Kumbuya-yas out!" Everybody's happy. I don't think they go far enough to enumerate those who profit from the arrangement. Allow me to fill in the details:

• Hollingsworth is happy, because the price of fish will increase. He will be able to support his drinking habit without working as hard as John.


• Vinney the lobbyist is happy, because Hollingsworth has paid him to get the taxes on his efficient competitor raised.


• Senator Shuck Newmer is happy because he got a big fat contribution from Hollingsworth and Vinney -- he may run for President!


• Annie is happy because she got a great job at the new Riparian Resource Control Division. She could never keep a job at the canners or the restaurant but this is stable with great benefits.

The problem with "sin taxes," whether the sin is smoking, or not recycling, or driving to see Mom, is giving government the power to decide what sin is, what the wages of sin are (including a cost-of-living increase tied to the CPI-U), and who will pay. The political process is a poor mechanism to decide that fairly or to allocate the funds effectively (Josh points out in a private email that tobacco taxes never seem to find their way to smoking cessation as promised).

Pigovian taxes are anti-free market. Though they use the mechanism of price, supply and demand, they represent intrusion and coercion into the market.

I will not be joining the club.

Economics and Markets Posted by jk at January 28, 2007 7:01 PM