Tuesday, October 31, 2006

Stern: Pigovian extravaganza

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

Thursday, October 26, 2006

Quebec's fat tax potential

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.

Tuesday, October 24, 2006

How many taxes will it take?

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?

Friday, October 20, 2006

Economic miracles for only $1 a gallon

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!

Thursday, October 19, 2006

Pigou Club plan dead in water

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!

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.

Wednesday, October 18, 2006

Pigou joins NoPigou club!

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

Sunday, October 15, 2006

Readers on NoPigou Club

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

Friday, October 13, 2006

Market failures a dime a dozen

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!

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?

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.

Thursday, October 12, 2006

Welcome to NoPigou Club

For the latest, visit the clubhouse at National Post.