Pigou or NoPigou?


ARTHUR PIGOU, an early-20th -century British economist, might well have shuddered at the thought of Facebook.com, a student networking site. A hermetic academic, awkward in the company of women, he surely would have balked at the dating and the picture uploads. But what would he have made of the “Pigou Club”, which has surfaced on Facebook and is giving him the most unprecedented —even cultish—exposure?

His appearance on the internet is down to a contemporary economist clearly at home in cyberspace: Greg Mankiw of Harvard University. For months, Mr Mankiw, a former adviser to President George Bush, has been blogging away in support of “Pigovian taxes” on petrol, believing that a levy of $i a gallon then would not only bring America $100 billion of extra revenue but might also reduce global warming.

With his Pigou Club Mr. Mankiw has whipped up a following behind an economist whose theories on unemployment came under attack from his colleague, John Maynard Keynes . On Facebook, 600 people have signed up to the Pigou Club. Mostly students, they join other Pigovians such as Larry Summers, Gary Becker, and Kenneth Rogoff.

Pigou advocated taxation as a way to combat the negative externalities, or side- effects, associated with certain activities. These have been used to justify levies on cigarettes, alcohol and even traffic congestion. Their advocates argue that they could be used to wean Americans off their dependence on petrol, which degrades the environment, props up unsavoury regimes and clogs traffic.

But governments are not perfect arbiters, say opponents of the Pigou Club. In the spirit of Ronald Coase, an intellectual nemesis of Pigou, a NoPigou club has taken shape on the internet, with its own Facebook following (though with only 59 supporters so far). Coase claimed that a Pigovian tax would penalise producers and consumers and might have other undesireable side-effects. People should be able to negotiate among themselves when there are side-effects, he said. Terence Corcoran, editor of Canada’s Financial Post, writes a NoPigou blog, arguing that such taxes are blunt instruments and governments have insufficient information about them to wield them properly.

Pigou did indeed accept that point, albeit rather late in life, so it is unclear just how he would have felt about petrol and global warming. One thing, however, is certain: the reclusive outdoors man would have found the effects of internet fame decidedly taxing.


The Economist Magazine

November 11th - 17th 2006 (pg. 85)


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