The Pigou Club

Greg Mankiw started a list of economists and others who favored a Pigouvian (or Pigovian if you must, the man's name was Pigou for crying out loud) tax on carbon via a tax on gasoline, and called it the Pigou Club. Others chimed in. Lynne Kiesling and Patri Friedman declined to join. Patri is half right when he says the problem with it is that the proceeds from the tax might be wasted: they might also miscalculate the tax rate.

I have some questions for members of the club:

• When you fill up, do you seek out the most expensive gas you can buy? Why not?
• What is your personal price elasticity for gas? What is the shape of your demand curve? Is it kinked?
• When the Pigovian [sic] tax is passed, what steps do you plan to take to reduce your consumption? Or do you simply expect everyone else to change their lifestyles.
  

Cuz, y'know, enquiring minds want to know.

For what it's worth, I'm slightly* in favor of gasoline price increases. If I'm not mistaken, gasoline prices have gone up all by themselves over the past 2 years. If we must have intervention, let's:

• Remove all federal and state subsidies to the oil industry. I'm not sure what all that entails, but let's charge back any costs of terminal operation and security, tanker security, pipeline security, and cleanup costs as user fees for a start.
  
• Make sure 100% of fuel taxes to go to highways in proportion to the traffic thereon. That means no more windfalls to state and federal governments in the form of excise taxes on oil pumped, by the way.
  

Yeah, that sounds a lot like a free market. Just to be a consistent contrarian, I propose that the cost of the Iraq conflict be 100% paid out of a gasoline tax (though I think it is only partially "about oil"). Divide expected costs for the coming year plus the difference between actual and expected costs from last year by the number of gallons expected to be sold this year and add that to the price of a gallon.

* I'm still concerned about the effect on poor consumers, as are the compassionate libertarians at Econlog. Sorry, couldn't find the specific post, though I did see this wry observation from Arnold Kling:

the biggest reason that Detroit has such a stranglehold on auto innovation is the regulatory structure that Washington set up, particularly in response to Ralph Nader. Today, I'll bet that it takes more lawyers than engineers to bring out a new car. Deregulate autombiles, and small, innovative companies will have a chance.

technorati tags: "free market environmentalism" regulation Pigouvian tax