Blogs, environment, politics, technology and the kitchen link, often all in one post!

Wednesday, November 29, 2006

Pigou means less planning

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?
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.
Unless all NoPigouClub members are anarchists, they will admit that taxes need to be collected. The level of energy tax should not be set by the EPA or Commerce Department, but by Congress ... just as Income and other taxes are now set, mostly according to what Congress thinks it can get away with and how much is needed to cover spending minus borrowing. There is no additional planning, just a shift from one sort of taxes to another.

And the shift is better if you care about the environment, the economy, or simply distrust planners.

  1. Taxes on income and capital suppress positive externalities (ex: economic growth).
  2. Pigouvian taxes substitute for regulation and prohibition of greenhouse gas and other pollutant emissions.
  3. (Redundant, but Kitchen Linker must drive home the point) Without pigouvian taxes, we will continue to have damaging tax on labor and capital AND extremely inefficient and politically determined non-solutions to our environmental problems (ex: the SugarCorn mafia)
Come to grips with reality NoPigou and switch clubs!


Francis St-Pierre said...

"Unless all NoPigouClub members are anarchists..."

There is at least one. More would be better still.

Kitchen Linker said...

Francis, thanks for the comment and congratulations on being an anarchist.

Do you think all taxes are equally bad?

Francis St-Pierre said...

Thanks. I'm of the capitalist branch, of course...

To answer your question, no I don't believe all taxes are equally bad. I understand and agree with your point that taxes that create the least distortions on the markets are less bad than taxes who create large distortions.

This being said, my concern with Pigovian taxes is that the calculation of the social costs of externalities is impossible. No policy maker can substitute market pricing and calculate, even estimate the social optimal price and level of production of an economic "bad".

Private solutions are required to solve what are ultimately private problems.

Kitchen Linker said...

Precise calculation may not be possible, but grant only one of

* negative externalities from burning fossil fuels exist

* creation of income and capital have large positive externalities which are suppressed by taxation of income and capital

and you have to advocate an income/capital-to-carbon tax shift.

Francis St-Pierre said...

1. negative externalities from carbon consumption may exist only insofar as property rights are not sufficiently well distributed.

2. The concept of positive externalities is b.s., created to justify subsidies and universalization of education, among other things.

Calculating the socially optimal level of anything is not just difficult, it is a meaningless concept.

Kitchen Linker said...

francis, so

1. you believe property rights are perfectly distributed?

2. so capitalism does not have positive externalities? wow, you amaze kitchen linker!

Francis St-Pierre said...

1. No, I believe this is the solution to externality problems. Statist solutions are bad solutions because they involve centralized calculations about people's preferences (at least in theory; in practice it is more likely to be a few fatcats who make the shots for the sake of their agenda)

2. What goods do not have externalities then? Cell phones have annoying ringer tones, newspapers can be read by other people in the subway. Do people overconsume cell phones or underconsume newspapers? Positive externalities is a meaningless concept.

How is a central agency able to determine the socially optimal level of production of all goods? It can't.

Kitchen Linker said...


1. you believe perfectly distributed property rights are the solution, but this solution does not appear to be forthcoming

2. certainly most goods and actions have externalities, positive or negative. most would cost more to correct, or even to figure out what they are, to bother with corrective measures.

kitchen linker does not believe it is possible to precisely calculate the net externalities of work and capital on one hand, and pollution on the other, but it is hard to deny the that the sign of each is obvious (positive and negative respectively).

as the government *is* going to tax it seems obvious that taxing activities that have negative externalities is better than taxing those with positive externalities.

it is *not* a matter of precise calculation.