Pigou, or Pig in a Poke?

Gabriel Mihalache objects to Greg Mankiw‘s frequent invocation of Pigou in support of energy taxes he’d like to see enacted. In a thoughtful and eloquent rant, he makes an important point about the impossibility of implementing an optimal tax “scientifically”:

[T]hey draw you in under the pretense of restoring efficiency—what’s fair is fair, right?—who would argue against efficiency? That’s like saying you don’t like puppies!

But once they get you with the externalities/Pigou/efficiency argument, surprise! They don’t provide you with a practical formula for Lindahl pricing, an econometric/empirical test—this does not exist (yet)—and instead each of the members of the Pigou Club starts pushing his own political agenda: some, like Becker or Greenspan, want to see reliance on foreign authoritarians regimes reduced, others, like Mike Moffatt, want to equal-out the marginal effect of taxes, etc. But guess what, all these otherwise noble political causes have nothing to do with Pigou’s work.

I must strongly object to purely political proposals dressed-up as positive welfare economics/science.

[italics are Gabriel’s]

Read the whole thing (as well as my, er, eh-hem, lengthy and erudite comments) here.


2 Responses to “Pigou, or Pig in a Poke?”

  1. Gabriel M. writes:

    Thank you! I hoped somebody will understand! Sometimes I feel like I’m on methodological crazy-pills. ;-)

    I agree with your comment, in connection to how people argue for/against policy, by using theory. But as long as it’s OK to use theory loosely, I think it should also be OK to object to it.

    I’m also more hopeful for the alternative… I think that if people were forced to state-out their political goals as such, maybe the political process would be a bit better… but I’m starting to dream again. ;-)

    Anyway, thanks for your input!

  2. Gabriel,

    By the way, I don’t mean to object to your calling people on trying to promote questionable policy by pretending it’s the right thing to do “scientifically”. Economists are the worst about this, and they should be called on it every time. Appealing to ones differential equations as though their very incomprehesibility merits deference is a variation on an old charlatan’s trick. Hocus pocus!

    My only quibble is that it’s fair game to use theory to argue policy, even though the applicability of the theory can’t be rigorously shown. Having the theory described gives us all an opportunity to make judgements about its relevance to the policy at issue, and advances the debate. Using purported expertise and authority to command deference does quite the opposite.

    (I’ll cross-post this on your blog as well, as we have a bifurcated conversation…)