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.

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