NoPigou Club

Free marketer against Pigou

2007-03-15T09:51:00.000-07:00

David Friedman joins the No Pigou Club: In a new post today, he hits on two key reasons to oppose energy tax--nobody can know what the right tax level should be, and he has no confidence the revenue will be used to offset other taxes.

Cap-and-trade: Pigovian Bootleggers exposed

2007-02-13T14:24:00.000-08:00

For a sharp analysis of the economic muddle behind plans for cap-and-trade carbon schemes, no one beats Fred Smith of Competitive Enterprise Institute in his testimony today before the U.S. Senate Committee on Environment. In the 19th century, laws banning alcohol sales on Sundays were backed by Baptists and Bootleggers. "Thus politicians were able to pose as acting to promote public morality, even while taking contributions from Bootleggers." Smith argues that "environmental pressure groups active in the Climate Action Partnership are the Baptists, providing moral screen to the Bootleggers, in this case the energy and manufacturing companies."
The real problem, he goes on, is that the proposed cap-and-trade carbon systems is in fact '"an ugly combination of two of the greatest ills to affect the market economy over the past 200 years--cartelization and central planning."
Fred Smith is hereby enrolled in the No Pigou Club.
For another note on the use of state pricing to control demand, see my column today (On Gas Taxes, the Voters Know) at the Club site on the continuing wisdom of Canadian and American voters. They've seen what happened to tobacco.
TC

What's in a price? The great Pigovian flaw

2007-01-30T13:27:00.000-08:00

The plan to nationalize the price of oil
One of the great flaws of Pigovianism is the role reversal imposed on prices. An example of how that flaw plays out appeared in Charles Krauthammer's recent piece for The Washington Post Group on energy policy. Along with other Pigovians on the Right, Krauthammer takes the gas tax plan right to its Pigovian root: Tax gas till it hits US$4 a gallon and then watch the market react. "Raise the price and people change their habits. It's the essence of capitalism." As I note in a column today (The new OPEC) posted at the No Pigou Club site, that's not at all the essence of capitalism. It's the essence of planning and statism.
Pigovian taxes turn the role of prices upside down. The proper view of prices in a market economy is that the price contains thousands of pieces of information about a product: the unmeasurable individual wants of millions of people, the costs of hundreds of inputs, the supply and demand circumstances at a point in time, assessments of future conditions, the relationship of all the prices for similar and competing products, etc. Price is part of a process, jam packed with unmeasurable information, not a fixture in time that just needs to be tweaked to get a desired result. Taxes are not prices.
The Pigovians throw all the real price information out, declare that it's all wrong and claim we need a new price that will incorporate the information we think should be in the price or would be in the price if people only knew what we know. The Pigovians plan to tear down the market price and all the information it contains and impose their own government-regulated price. They plan to nationalize the price gasoline and set prices to get the results they want rather than the results produced by the market.

"Why I can't join Pigou Club"

2007-01-22T12:53:00.000-08:00

The No Pigou Club welcomes Russell Roberts! After a podcast interview with Greg Mankiw, Russell concludes that while he likes the theory of Pigou taxes on gasoline, the practice will turn into a political mess. He's on the right track, just not far enough down to realize how off-base the Pigovians are. Greg Mankiw's claim that sometime you have to put up with bad politics to get to good economic policy misses at least part of the main point. If it involves a political move, it likely is bad economic policy.
tc

Did oil price "tip" demand?

2007-01-22T12:10:00.000-08:00

Front page of Wall Street Journal on Friday floated the idea that high oil prices hit a 'tipping point' in 2006 that prompted a fall in consumption within OECD nations. It was a big reach, but the Journal managed to turn it into a possible justification for Bush to present Pigovian arguments in favor of energy taxes in State of Union. We shall see. For the No Pigou take on this, visit the Club for a fresh posting.

Happy New Year to all NoPigou Club members

2006-12-21T15:38:00.000-08:00

I know it's been a while since postings, and I apologize. But we will be back in the New Year with fresh blasts at the rising menace of Pigovianism within the intellectual and political classes. There are those who say there's nothing to worry about, because voters will never buy into the idea of a big new tax on gasoline to fight global warming, congestion, smog and what have you. Such complacency is unwarranted. The confluence of popular fear of something like global warming could easily be converted by a sly politician into a mandate to impose major tax increases as part of a grand strategy to save our nations. As such threats mount in the coming year, the voice of the NoPigou Club will be heard!
In the meantime, and on behalf of Peter Foster and William Watson, co-founders of the club, I wish you all a prosperous year.
All the best
Terence Corcoran

Canada's Liberals reject Pigou carbon tax

2006-12-04T11:54:00.000-08:00

Attention Republicans and Democrats: Pigovian carbon taxes may be political suicide. Not much of a surprise in that idea, but it took concrete form in Canada over the weekend when the Liberal Party (the Democrats of the North) picked a new leader, Stephane Dion. Mr. Dion is an inducted member of the NoPigou Club, having campaigned against carbon taxes throughout his leadership bid.
Going down to defeat is former Harvard prof and international intellectual Michael Ignatieff, an avid Pigovian. Ignatief even mentioned carbon taxes in his speech to delegates at the convention: "We must put a price 0n pollution and on carbon emissions."
Not great politics. Bad economics, too. Did Ignatieff spend time with his Harvard colleague Greg Mankiw? Ignatieff's leadership bid had other problems, but I would put his Pigovianism on the list of stumbling blocks. When it came down to the final votes, Ignatief would have carried no support from Alberta, Canada's oil province. Dion, meanwhile, would have attracted Alberta suport, even though he's a tough-talking promoter of the Kyoto Protocol.
Terence Corcoran

Conservative think tank stops thinking

2006-11-30T15:19:00.000-08:00

The conservative/free market American Enterprise Institute recently posted a commentary on the need for a U.S. national carbon or gas tax--whatever--for all the usual reasons. For a brief review of the AEI paper, see my column. The authors like the idea of, and seem to think they have found , "the optimal Pigouvian tax on motor fuels." Oh dear. Optimal! Done.

No planners in Pigouland?

2006-11-29T09:16:00.000-08:00

The NoPigou club is under attack! Mark Jaccard, in a commentary posted at the NoPigou Club clubhouse, says we're just a bunch of Orwellian truth manipulators. In essence, the Simon Fraser University prof says carbon and other Pigou taxes are just crispy clean market-friendly government measures that all "right"-thinking economists and politicians should and do support. But here's Jaccard's big claim: He supports Pigovian taxes because they involve "no role for planners." We'll have more on this untruth in later postings, but let's begin with one question: Who sets the price--i.e. the tax? No planners here, says Jaccard. Just us free market economists. And how does one set the tax rate? What factors does one take into consideration? Maybe we need a report from the Ministry of Oil Supply and the Ministry of Consumer Behavior, the Department of International Trade and the Bureau of Tax Collection Efficiency. And then another question: What do we do with the money collected through the Pigovian tax? Let's get the Ministry of the Environment and the Department of Industry...but, hey, no planners, please. We're free-market driven Pigovians!

Gas tax pushed by Frum, pollsters

2006-11-14T08:35:00.000-08:00

Fresh political agitation for big gas tax hike comes from pollsters in Canada and David Frum in the US. See my latest comment. Somebody needs to explain how a rise in gasoline tax will lead to increased US energy independence.

NoPigou in The Economist

2006-11-13T14:40:00.000-08:00

Big hit: The Economist plugs in to the NoPigou Club cyberdebate over Greg Mankiw's plan to create the U.S. economy's next big tax distortion.
Big loss: Republican desperation is creating Pigouvian craziness. David Frum says Bush should introduce a carbon tax, and is immediately inducted into Mankiw's circle. More on this at the NoPigou clubhouse shortly.

Stern: Pigovian extravaganza

2006-10-31T10:00:00.000-08:00

The Stern Review on the Economics of Climate Change, 600 pages of demagogic scaremongering and economic catastrophism from the UK government, takes Pigou tax/externality theory to its logical conclusion. Massive tax and control programs. Pigou is mentioned several times in the Stern text and footnotes--see especially chapters 2 and 14. My initial NoPigou Club take on Stern, The New Green Totalitarianism, is posted at the club house.
Terence Corcoran

Quebec's fat tax potential

2006-10-26T15:47:00.000-07:00

Pigou takes on poutine. If you don't know, poutine is a Quebec fast food dish made of french fries, gravy and melting cheese curd--definitely fattening, obesity-causing and a threat to the health care system. It is, therefore, a generator of externalities in need of a fat tax. NoPigou Club founding member Willim Watson of McGill University puts it all into a NoPigovian context in the National Post today.

How many taxes will it take?

2006-10-24T08:14:00.000-07:00

Here's a practical question for Pigouvians: How many Pigou taxes will it take to achieve the objective of relieving traffic congestion in cities? The reason for asking: A comment posted by anonymous the other day came to the defense of London's congestion charge.

I had said that London, which already has $4US a gallon gas taxes, also imposes a $16US daily congestion charge on vehicles entering the central core of the city. "And that doesn't seem to work much either!" Anonymous came back with a quote from a paper that claimed the charge, originally set at about $10US, had produced a significant response, reducing traffic congestion by 30%.

That's the claim, although a recent visit to London leads me to believe congestion is still an issue. If it was such a success, why did they have to raise the charge, and why is the city now talking about raising it again to about $20US? The tax is certainly a cash cow; maybe that's one reason. Another: Maybe it doesns't work all that well.

The latest report from the London authority actually says it's too soon to reach final conclusions. Also, the 30% reduction in congestion is a bit of a statistical game. It compares the amount of time it takes to travel one kilometre within the city before and after the charge was imposed. Buat it doesn't.

The total driving time for one kilometre pre-congestion charge was 4 minutes and 30 seconds. The first 2 minutes are considered to be normal. The congestion element is listed at 2 minutes and 30 seconds. The claim is that the congestion portion was reduced by 30%. But that's 30% of the 150 seconds per kilometre that make up the congestion portion, which means that the total congestion reduction is about 45 seconds off the time it takes to travel one kilometre. That's success?

The net effect: Before congestion charge the time to travel one kilometre was 4 mins and 30 secs. Time to travel one kilometre after charge: 3mins 45 secs. Actual reduction, or total time saved. equal to about 15%. That's based on the report after the first year of operation. The latest report reduces the numbers a bit. Bottom line analysis: If you were driving, say, 5 kilometres across central London in 2002, pre-charge, it would have taken 22 minutes. To travel the same distance today would take almost 19 minutes. That three minute reduction in travel time today cost $16US.

That's Pigovian tax policy in action. So Brits now pay two Pigovian taxes: $4US a gallon in gas tax and another $16US in congestion charge. But London is still bogged down in traffic.

So the fundamental question is: How many Pigovian taxes will it take to meet the objective of reducing traffic congestion?

Economic miracles for only $1 a gallon

2006-10-20T11:34:00.001-07:00

The Mankiw plan to raise gasoline taxes may be dead, but it's proponents just won't quit. One of his Pigou Club members, Mike Moffat at the Ivey business school at the University of Western Ontario, says the Pigou Club is like the 1975 Cincinnati Reds--with Greg Mankiw as the club's Johnny Bench. Sorry, Mike, no World Series for the Pigou Club. Did you see the faces on the Mets fans last night? That's the prospect for Pigou Club members. But still, we've posted Mike's missive on the NoPigou Clubhouse wall for all to read.
But there's more from this diehard club. Johnny Bench himself has a short item in The Wall Street Journal this morning. He lists the Seven Economic Miracles that would occur of the United Stastes raised gas taxes by $1 a gallon. Less pollution, less road congestion, less regualtion, improved social security, lower world oil prices, more growth and greater national security. Gosh economics is easy. Each miracle deserves a review, but one question: What's the evidence that high gas prices curb road congestion? London's gas taxes of $4US a gallon did nothing to curb traffic--so the city has a congestion tax. And that doesn't seem to work much either!

Pigou Club plan dead in water

2006-10-19T13:04:00.000-07:00

For more on the reality of Pigovian gasoline taxes, see this from the Washington Post. Celebrity economists and activists may talk about the greatness of their theory, but the theory is going nowhere.

Canadians say no to gas tax!

2006-10-19T12:00:00.000-07:00

Well, at least Canadians seem to be unwilling to join the Greg Mankiw's celebrity Pigou Club plan to raise gasoline taxes to fight climate change. Al Gore might want to tax the hell out of car drivers, but Canadians will have none of it. A new poll by Strategic Council found that 79% of Canadians are opposed to a significant increase in the price of gasoline to fund greenhouse-gas reduction programs. Leave it to Toronto's Globe and Mail to get the story wrong: "Canadians warm to tax on enrgy use, Globe-CTV poll says." You have to really bend poll results to get to that conclusion, and bending poll results is something Strategic Council chairman Allan Gregg is expert at. One poll question asked about curbing greenhouse gases through an "energy tax based on the total amount of energy consumed by consumers and industries." About 55% of Canadians say yes to that. What does that mean? Said Mr. Gregg: "What it says is, 'If I'm a good person and don't use a log of energy, it wouldn't be paying much." He said it represents a "sense of fairness" on the part of Canadians. Given the question, I'd say the answer represents confusion on the part of people who were asked a baffling question.

Mr. Gregg has a long history of interpreting polls in ways that portray Canadians as wallowing left-of-centre upholders of conventional wisdom, even when the poll clearly shows the opposite. In this case, the only clear message was: Don't raise gasoline taxes!

It's a message Liberal leadershiip candidate Michael Ignatieff might want to note before he pushes his own gas tax plan any futher. For another real indicator of where Canadians are going on this, look to New Brunswick's new Liberal Premier, Shawn Graham. The first thing his government did, after one day in office the other week, was to cut the province's gasoline tax by 3.9 cents a litre. We hereby enrol Shawn Graham in the NoPigou Club.

Also enrolled is Amy Wasleske, a grade five student in Wausau, Wisconsin, who wrote a letter to the Wausau Daily Herald last week: "No vacation this year, kids! Gas prices are too high! At this rate we can't afford to go anywhere." Here’s part of what she said: “To begin with, I believe the government should start by reducing the gas taxes that are included in the price we pay at the pump. Also, the government needs to encourage companies to produce more oil in North America. With increasing our supply of oil in this country, we would lose our dependence on the oil that comes from other countries, save the cost of transporting it here, and hopefully bring prices down.”

Future presidential material in Amy. And definitely a member of the NoPigou Club. If you want to see her letter, it’s at the Wausau Daily Herald’s web site, but you have to pay.

Pigou joins NoPigou club!

2006-10-18T11:12:00.000-07:00

Since Greg Mankiw has no problem unilaterally enrolling people in his campaign to raise gasoline taxes—the Pigou Club—I hereby induct a new member into the NoPigou Club—Arthur C. Pigou. Pigou is widely credited with creating the concept of externalities, even though he never used the word himself. The standard statement on Pigou is that he argued that the existence of externalities was sufficient justification for government intervention.

Well, maybe he did at one point. But in 1954, five years before his death, Pigou seemed to have changed his mind. Here’s the full citation on the subject.

When people decide to spend their money in certain ways it sometimes happens that their spending yields uncovenanted benefits or inflicts uncovenanted damage on other people whose gains or losses do not enter into the calculations of the spenders. There are many examples of this. The social costs involved in the supply of alcoholic drinks includes the provision of police to control the effects of excess, but these costs do not enter into the price that the purchasers of such drinks have to pay for them. Nor does the damage done to people living near smoking factories and the extra washing bills they have to pay enter into the price of the factory’s products. If they did, as, with strict social accounting, they ought to do, the price of those products would be higher, less of them would be demanded and less resources devoted to making them. On the other hand, when a good landlord protects the amenities of the neighbourhood and erects a beautiful instead of an ugly house there is a benefit to others for which he gets no payment. These gaps, positive and negative, between private and public costs were not much in people’s minds until fairly recently. Now everybody understands about them. It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of them could usefully interfere with individual freedom of choice. Moreover, even though economist were able to provide a perfect blueprint for beneficial State action, politicians are not philosopher kings and a blueprint might quickly yield place on their desks to the propaganda of competing pressure groups. “Fancy” finance, like a fancy franchise, whatever its theoretical attractions, has, at all events in a democracy, dim practical prospects.

From A. C. Pigou, “Some Aspects of the Welfare State,” Diogenes 7:1-11 (Summer 1954), p. 10

Readers on NoPigou Club

2006-10-15T16:21:00.000-07:00

NoPigou Club has drawn numerous letters to National Post. A few were published this weekend.

Market failures a dime a dozen

2006-10-13T15:53:00.000-07:00

NoPigou Club has been noticed by Mankiw's Pigou Club. In the comments, a poster named Sahil wonders "did this guy even look at any decent books about market failure?"

A brief note on Market Failure: I've read some books on the subject, including Tyler Cowen's Public Goods and Market Failure. I was shocked to see his enrollment (sort of) in the Pigou Club. Like many free-marketers, and far too many non-free-marketers, Pigou Club members seem to see price as a superior and justifiable -- even sacred -- mechanism to correct so-called market failures. You can't go wrong if you use a price to fix a problem. I say so-called because market failures are a dime a dozen, some real but most ideologically created by politicians and economists. A gasoline tax to cut the deficit is a straight and logical political and economic proposition. It's a tax grab. A gasoline tax to correct a market failure called climate change is another matter, a great leap from Pigovian tax to Pigovian central planning, with no possible way of knowing what the right price should be or what the outcome might be. As my colleague William Watson put it, if Pigou were alive today he probably would want to have his name removed from the Pigou Club.

Note to Guelph Mercury: Don't do it!

2006-10-13T10:05:00.000-07:00

Brian Ferguson of Guelph University wonders if the local Guelph Mercury newspaper will join Greg Mankiw's Pigou Club.

Would Pigou join the Pigou Club?

2006-10-13T08:35:00.000-07:00

We've got the third installment in the NoPigou Club campaign: McGill University Prof. William Watson says that if Arthur Pigou were alive today, he probably would have insisted the Pigou Club stopped taking his name in vain.

Welcome to NoPigou Club

2006-10-12T14:45:00.000-07:00

For the latest, visit the clubhouse at National Post.