Pigou Club Pigou Club Homepage – an elite group of economists and pundits that promote the use of pigovian taxes

Another Look

Here is a statement that got me thinking:

• 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, and who will pay.

Now hasn’t the government always been doing that? They decided that murder, theft and slander should be punished. In some countries sinning even includes flag burning, not wearing a seat belt or denying the holocaust. In USA sinning includes exposing minors to inapropriate images, while in other countries such incidents would be laughed off. So in essence:

• Pigovian taxation is paying a sum of X for your sins.
• Other sins are taxed by the formula Y*Z

Where Y is the chance of getting caught and Z is the punishment. It seems to me that every punishment (like getting a speeding ticket) is a form of Pigovian taxation. The difference is only in the chance of evading the tax. I wonder what Mr. Mankiw would say about this little theory.

NoPigou Strikes Back

I have to admit that my last post about wiggle room was not met with universal praise. Everyday Economist replied on his website:

• The Pigou Club dismisses my argument by falsely assuming that their are no transaction or transition costs.

Not quite. In my post I just pointed out there is plenty of room for reducing gas consumption. Wikipedia also has this to say: The average fuel efficiency of European cars is over 40 mpg, Japanese cars 45 mpg, and North American cars 20.4 mpg. Do pigovian taxes create costs for the "sinners"? Of course they do, no one ever denied that. Another criticism comes from Three Sources, which starts off by saying that he has little respect for this site and continues:

• I complained that the site was all but completely devoted to Global Warming.

I’m sorry about that, that seems to be the hottest topic on the menu. Oh and Mankiw’s Pigou Club manifesto starts with: With the midterm election around the corner, here’s a wacky idea you won’t often hear from our elected leaders: We should raise the tax on gasoline. The criticism continues:

• …many people have a long term commitment on their transportation..

Again the manifesto comes in handy: I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade. Other complaints are more general and could be applied to taxation in general not just pigovian taxes.

Pigou Club Debunked

Everyday Economist debunks Pigou Club in his latest post:

• Most people use their cars to drive to work, the store, and to see friends and family. If the tax on gasoline was raised, Mankiw argues, individuals would consume less. However, individuals would still have to go to work, pick up the groceries, and presumably visit with family. Thus there would be little wiggle room for reducing consumption.

Lets try to find some wiggle room
This cool Ford F-150 gets 13 miles per gallon

Wiggle room

 Toyota Prius gets 47 miles per gallon

Perhaps there is some room for improvement after all..

Cap and Trade Incentives

Eric Sutherland wrote a comment:

• "Amongst the many arguements for Pigou taxes, a very important concept often goes unmentioned. The expectation of future taxes creates investment and innovation long before the tax is collected. Consequently, even a very small tax increase phased in over a period of time has an immediate payoff."

I think there is a point to be made about the difference between Pigovian taxes and cap-and trade schemes. If Pigovian taxes are expected in the future people and companies will (or at least some of them) react in the present time. They will buy smaller cars, invest in better insulation etc. But if cap-and-trade scheme is expected the incentives are for the companies to increase their emissions of greenhouse gases. The more they emit now, the more credits they will get in the future. Credits can later be turned into money on the market. It seems to me that even talking about future cap-and-trade scheme could be harmful.

PigouClub.com Noticed

A quick note: this website has been recently noticed by the NPR and prof. Mankiw. Let’s hope they are not too disappointed by the content (not everyone can be Harvard material )

Political Climate Changing, US Getting Greener

It seems things are changing at last. US politicians are starting to acknowledge the costs of green house gas emissions. I’m not sure what caused the change, perhaps it was the documentary Inconvenient truth which became quite a hit.

Sadly the proposed solutions are not within Pigou Club guidelines. Most plans rely on cap-and-trade schemes that most economists are not really fond of.

Tomorrow’s edition of The Economist has an article about the change (in fact it is their cover theme): “some half-dozen bills on global warming are circulating in the Senate.”

The Economist has previously mentioned Pigou club and NoPigou Club, but didn’t pick sides. It seems they proposed their own solution in this edition, but the article is hidden in the non-free section of their website (hint: if you can access it please comment)

The fight to acknowledge the problem seems to be over. The fight for better solutions should begin.

UPDATE: The Economist could probably be put in the “pragmatical Pigouvian” category. They advocate pigovian taxation, but if that is politically not feasible they propose a tough cap-and-trade system based on auctions.

(Thanks to Mr Hedengren for the new data)

State of the Union Address

In his speech President Bush suggested a goal of cutting petrol consumption by 20% over 10 years period. It is obvious that this can be achieved by self regulation of the oil industry so we have nothing to worry about.

Now back to reality. Nice words about cutting consumption won’t achieve anything. The thing we should be focusing are incentives. There is no incentive for drivers to use less gas and Pigovian taxes are the best incentive economists can think of.

Perhaps next year the speech will start like this “The union is strong, but enough about that.. let’s talk about the Pigou Club”

Snow Moving Costs

Here is a fun fact – NYTimes is reporting that Austrian world ski race would not be possible without helicopters importing 100,000 cubic feet of snow from nearby mountains. The cost of the airlift was $389.000.

Is global warming to blame? Maybe.

Lifting the snow – a potential cost of global warming

Congress starts noticing CO2 costs

The Economist writes about some activities in the Congress:
“IN RECENT weeks, a rush of climate-change bills has started circulating
in America’s new Congress…  A national cap on emissions of carbon-dioxide, the main
greenhouse gas, looks closer than ever.”

Cap-and-trade isn’t the best solution for this problem. Mr. Mankiw has this to say: “…they, in essence, give the revenue
from a Pigovian tax lump-sum to a regulated entity. Why should an
electric utility, for example, be given a valuable resource simply
because it has for years polluted the environment?“

Exactly. Replacing cap-and-trade with pigouvian taxes would therefore seem to be a win-win situation.

Car enthusiasts for environment

Mr. Mankiw found another Pigou club member, this time it is the editor of Car talk website. The writer has a few ideas that are not strictly in the Pigou Club manifesto, but the genaral idea of Pigovian taxes remains his main point. The debate continued on their forum.

Proposed milk cow (or tax cow).