Sunday, December 6, 2009

Who's Really Chillin' with A.C. Pigou?

At his blog, Harvard's Greg Mankiw has been promoting what he calls the "Pigou Club". He writes:
The Pigou Club is an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes. Here are some examples of the current membership:

Greg Mankiw (Fortune 5/24/99, WSJ 1/3/06, 5/31/06)
Bill Nordhaus (Foreign Policy in Focus 3/27/06)
Martin Feldstein (WSJ 6/4/92)
Gary Becker (Businessweek 5/27/02)
Robert Frank (NY Times 2/16/06, 6/8/06)
Andrew Samwick (his blog)
Ted Gayer (Regulation)
Mike Moffatt (
Ken Rogoff (Project Syndicate)
Paul Krugman (Slate 4/18/97)
Greg Easterbrook (NY Times 5/25/04)
John Tierney (NY Times 10/4/05, 5/23/06)
Jonathan Rauch (National Journal 2/9/02)
Thomas Friedman (NY Times 9/21/05, 2/8/06, 6/16/06)
Joe Klein (Time 5/7/06)
Andrew Sullivan (Time 4/11/04)
Jane Galt (her blog)
Christopher Farrell (Businessweek 8/19/05)
William Baldwin (Forbes 6/19/06)
Clive Crook (National Journal 6/2/06)
Al Gore (Charlie Rose Show 6/19/06 at 42:45)
Now, New York University's Mario Rizzo explains why he has dissed membership in the Pigou Club, despite "the elite group of economists and pundits" that are members.:
I have often taught in my classes that Pigovian taxes for negative externalities and subsidies for positive externalities work fine in textbooks where the relevant information is simply given. However, the mechanism is actually rarely (never?) used. One reason is that we often do not know what the correct tax or subsidy should be. Furthermore, in practice such correction of market prices is fraught with the public choice problems that distort “corrections” in the direction of the partial, rather than general, interests.

And, not only does Rizzo walk away from the club, in the next breath he casually mentions that instead he's chillin' with another economist that he has recently discovered is a non-member, A.C. Pigou , himself:
This is what Pigou said in 1954:

It must be confessed, however, that we seldom know enough to decide what fields and to what extent the State, on account of them, could usefully interfere with individual freedom of choice. Moreover, even though economists 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.
Rizzo's full comment is here.

1 comment:

  1. Interesting article. Love Prof Rizzo's comment showing how this group of Interventionists mis-understand AC Pigou.

    Here's a quote from Pigou just for Wenzel: "The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant." The source is a James Grant WSJ editorial dated 9/19/09.