In which the National Post’s Terence Corcoran crawls out on a limb and starts hacking it off behind him:

We open with his ‘Join the nopigou club‘ column, in reaction to Greg Mankiw’s campaign for higher gasoline taxes in the US. This column is greeted with a rather laconic reply from Mankiw, and a certain amount of derision in the economics blogosphere.

A more sensible man than Mr Corcoran would choose to start talking about something else, but he appears to be made of sterner stuff. As we say in French, il persiste et signe, in the form of a new blog documenting the ‘nopigou’ campaign. (h/t to Brian Ferguson at A Canadian Econoview, who has already blogged on this topic here,  here and here, and promises more to come.)

It is at this point that things start to get silly.

NatPost columnist Peter Foster sets the tone with this gem:

The regressive element of higher gasoline taxes would also be
somewhat ironic given the alleged sympathies of Arthur Pigou for
"redistributive justice" in the name of the poor.

Pigou was a
reclusive individual who is believed to have been a Communist spy,
although this never seems to have been held against him. Many
intellectuals in the 1920s and 1930s saw the Soviet Union as a bastion
against Fascism. But they were also attracted to Communism because of
what Nobel economist Friedrich Hayek — who was no fan of Pigou —
dubbed the "fatal conceit" of socialism. They believed that a centrally
planned economy was obviously superior to an "undesigned" market. Hayek
defined the root of that conceit as the tendency of intelligent people
to greatly overestimate the power of intelligence.

No wonder Greg Mankiw had such a hard time at the CEA – Republicans don’t take policy advice from Communists.

In a more serious vein, Corcoran cites this passage from Pigou himself as evidence that not even Pigou would sign onto Mankiw’s campaign:

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.

NatPost columnist and McGill economics prof William Watson puts it this way:

Would Pigou have joined the Pigou Club? "Just how big is the
externality from gas or carbon?" he surely would have wanted to know.
"How big a reduction in consumption would be optimal? How high need the
tax be to effect that reduction? What would be the effects on the rest
of the economy? And what is the likelihood of the political system
getting all this right?"

This is of course a quite sensible point, and it’s the reason why economists are generally inclined to avoid trying to improve upon market outcomes. No-one really believes that markets ever generate the precise social optimum, since no market perfectly satisfies the necessary conditions you’d need to justify that belief. But it’s typically the case that the costs of obtaining the information you’d need to improve on the market outcome outweigh the benefit of correcting the market imperfection. If you have only a 50-50 chance of improving on the market outcome, a risk-averse policy-maker shouldn’t intervene.

But this doesn’t mean that it is never a good idea to try to correct a market failure. In the case of a gasoline tax, the externalities are well-known and exhaustively documented. Climatologists have a rough idea of what sort of reduction in CO2 emissions would be required to make the costs of global warming more manageable, and economists have a rough idea of what sort of price increase you’d need to reduce gasoline consumption by a given amount (a quick google search kicked up this study, which suggests that the long-run price elasticity of the demand for gasoline is around -1).

We don’t know with probability one what the optimal gas tax would be. But the available evidence overwhelmingly suggests that whatever it is, it’s higher than what it is now.