Pigou Club -- Just Say No!

It's me against a famed Harvard economic professor in a battle of wits. Wagers, anyone?

I have undying respect for L. Gregory Mankiw. His blog is a must read every day. But every two or three days, he promotes his "Pigou Club." The Pigou Club is named after the economist Arthur Cecil Pigou and the premise is that a direct "Pigouvian" tax on gasoline would be the most efficient and fairest means of reducing consumption. Whenever somebody proposes or extols the benefits of a gas tax, Professor Mankiw says "Welcome to the Pigou Club."

When his blog allowed comments, I would sometimes leave a short, respectful, comment that taxes are to raise revenue and that social engineering was a slippery slope even if one agreed with a gas tax to prevent global warming (which I did not). He no longer allows comments (related?), so I have to object here.

Today he offers A Graphic for the Pigou Club from a WSJ article.





The article is a well reasoned objection to the gas tax holiday, but the graphic underscores my point, not Mankiw's. The graph axes could as easily be labeled "Government Intrusion by Country, 2008 Source: threesources.com"

Thankfully, I am not alone. Earlier this week, Everyday Economist linked to Peter Klein’s Question for the Pigou Club

But my main beef with today’s Pigouvians is that they cherry-pick a case here and there — taxes on gasoline, primarily — without fully pursuing the implications of the analysis. If increasing gasoline taxes is efficient, why stop there? What other market failures should the state be empowered to remedy? Here’s my question, specifically:

Please name the activities you believe deserve Pigouvian subsidies. For each activity provide the efficient subsidy amount, explain how this was calculated, and say how the revenues should be raised.

Brilliant!

Economics and Markets Posted by jk at May 8, 2008 1:46 PM