Sunday, May 25, 2008

Frankly Pigouvian

Robert Frank in the New York Times says:
THAT the invisible hand often breaks down is actually good news. After all, we need to tax something to pay for public services. By taxing forms of consumption that generate negative side effects, we could not only generate enough revenue to eliminate budget deficits, but also help steer resources toward their most highly valued uses.
I found much in this article to draw argument with, but I'm going to focus on this statement alone. The idea that, "fortunately" we may have a institutional market failure so that we may tax, collect revenue, and provide public services is circular reasoning. The economic argument for public goods in the first place is to provide something the market has some problem with providing. If the invisible hand does not break down, there is no need for public services, hence no need for taxation. Unfortunately there are areas where we do not, for the time being, have the correct institutions that assign property rights in a manner that allows the invisible hand to work as efficient as possible.

This is an article sure to be critiqued heavily by classical liberals in the coming days over the blogosphere, this is my contribution.

1 comment:

KipEsquire said...

I remain unswervingly of the view that a Pigou tax is morally justified if and only if the revenue collected not only reasonably reflects (or at least tries to estimate) the true cost of the externality at issue, but also is used exclusively to correct that externality.

If, on the other hand, the revenue is just another dish at the central planner buffet, then it is pure evil -- and Frank is as damnable as ever.