The NY Times Joins the Pigou Club

tire-gauge1A few weeks ago I opened a thread about a Pigouvian tax on gas.  I argued that it would accomplish several things.  The first is to discourage consumption of gas and oil.  The second to discourage consumption of gas and oil from foreign countries. The third was to discourage consumption of gas and oil that contributes to global warming and pollution.  The fourth was to switch consumption and product development to energy efficient and non petroleum-based energy sources.  It struck a nerve among a lot of people because it basically is going to cost all of us money at all levels of society.  I heard a  lot of folks saying that the impact on the poor would be ‘unfair’ because so many would be unable to transfer out of gas-guzzlers and long commutes in the short run.  I also suggested that this could be offset with some kind of manipulation of the tax code to give them more take home pay until they can change the behavior.  I know suggesting tax increases on every one but the extremely rich is a highly unpopular thing, but unfortunately, it’s not only the rich that adopt behaviors that pass on social costs to the entire society.  Every has a stake in energy indepency, energy efficiency, and cleaner energy technologies.  If folks don’t change voluntarily (and history has taught us in this case they don’t), some times we have to make it costly.

Since I wrote that thread, the NY Times editorial board came out for a petroleum tax.  Gas prices are still falling and are now at about 5 year record lows.  Just like the 1970s and the 1980s, the american public is returning to its old habits.  This was just published at CNNMONEY.COM.

NEW YORK (CNNMoney.com) — After nearly a year of flagging sales, low gas prices and fat incentives are reigniting America’s taste for big vehicles.

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” commented Michelle Krebs, Senior Editor of Edmunds’ AutoObserver.com.

This month, trucks and SUVs will make up 51% all vehicles sold in the U.S., according to Edmunds.com. Before the spike in gas prices earlier this year, market share for trucks and SUVs had been even higher than that, said Edmunds.com sales analyst Jesse Toprak.

It just seems that we some people never learn.  That is when a Pigou tax in necessary.

Thomas Friedman in today’s NY Times  advocated the tax on petroleum for the same reasons.  Quoting Friedman is not something I usually do.  He’s has,however, spent some time studying the problem.  Here’s his take:

The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.

There has to be a system that permanently changes consumer demand, which would permanently change what Detroit makes, which would attract more investment in battery technology to make electric cars, which would hugely help the expansion of the wind and solar industries — where the biggest drawback is the lack of batteries to store electrons when the wind isn’t blowing or the sun isn’t shining. A higher gas tax would drive all these systemic benefits.

The same is true in geopolitics. A gas tax reduces gasoline demand and keeps dollars in America, dries up funding for terrorists and reduces the clout of Iran and Russia at a time when Obama will be looking for greater leverage against petro-dictatorships. It reduces our current account deficit, which strengthens the dollar. It reduces U.S. carbon emissions driving climate change, which means more global respect for America. And it increases the incentives for U.S. innovation on clean cars and clean-tech.

The Times Editorial mentioned some of the same numbers.

The recent infatuation with the Toyota Prius and other fuel-efficient cars could well come to a similar end. It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.

There are several ways to tax gas. One would be to devise a variable consumption tax in such a way that a gallon of unleaded gasoline at the pump would never go below a floor of $4 or $5 (in 2008 dollars), fluctuating to accommodate changing oil prices and other costs. Robert Lawrence, an economist at Harvard, proposes a variable tariff on imported oil to achieve the same effect and also to stimulate the development of domestic energy sources.

In both cases, the fuel taxes could be offset with tax credits to protect vulnerable segments of the population.

So, here are the arguments again with the evidence that people will not do what’s best without the stick.  Please think about it and discuss.


9 Comments on “The NY Times Joins the Pigou Club”

  1. sherry says:

    We really need to get on about the business of becoming energy independent.This past year and the record gas prices played a huge part in our economic meltdown and seriously damaged our eonomy and society.We keep planning to spend BILLIONS on bailouts and stimulus plans.Bail us out of our dependence on foreign oil. Make electric plug in car technology more affordable. It costs the equivalent of 60 cents a gallon to drive an electric plug in car. The electric could be generated from wind or solar.If all gasoline cars,trucks, and suv’s instead had plug-in electric drivetrains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.Get with it! Utilize free sources such as wind and solar. Stop throwing away money on things that don’t work. Invest in America and it’s energy independence. Create cheap clean energy, create millions of badly needed green collar jobs. Put America back to work. It is a win-win situation. We have to become more proactive citizens,educate ourselves and demand our elected officials move this country forward into the era of energy independence. Jeff Wilson’s new book The Manhattan Project of 2009
    Energy Independence NOW outlines a plan for America to wean itself off oil.
    We need a plan and we need it now! http://www.themanhattanprojectof2009.com

  2. Ben Kilpatrick says:

    Won’t do what’s best, or won’t satisfy the personal and cultural preferences of a small number of people?

    Those are two entirely different questions…

  3. Jmac says:

    Maybe the run on trucks and SUV’s is like the run on guns – Bubba afraid if he doesn’t take the great offer on the mega-truck now, it might not be produced again.

    In other news, Madoff might be planning an insanity defense.

  4. Mike J. says:

    Before the average working American is slapped by the gas tax, he/she needs to be provided an alternative to driving a car in form of a cheap and ubiquitous public transportation system. This needs to happen FIRST. Otherwise, the Pigou approach is simply trickle-down environmentalism that shifts most of the burden onto those who can afford to bear it least: people who have to use a car to get to work, and whose jobs pay so little that an increase in gas tax makes a real difference in their incomes. And “move closer to where you work” is simply not an option. If you work at Wal-Mart or some other crappy place where you can be fired at the drop of the hat, you can hardly afford to break the terms of your annual lease (for example) given that you have zero job security in the first place. It goes without saying that folks who work for near-minimum wage jobs cannot afford hybrids, plug-in or otherwise, and will not be able to do so for a long time to come. They will be stuck driving cheap, used, gas-guzzling vehicles and paying through the nose just to be able to get to work. And they’ll vote Republican in the next election to get relief.

  5. dakinikat says:

    Mike J: That’s why you have to give tax credits to the bottom tax tiers while you’re implementing this .. you have to get folks to replace the vehicles with more energy efficient models … the trend right now is that they’re buying trucks again. Down here in the hood, it’s the new cadillac. I had a musician friend get killed last year by a 20 year old mother of 3 driving her boyfriend’s wife big old hulking Titan. She didn’t even know how to drive it. She accelerated instead of put on the brake and slammed my friend into a garage gate. We have narrow streets in our hood built for horse carriages, not Titans. I watched him die. He was a BIG man–probably close to 300 pounds. That truck just was more power and size than any one here in a city needs. Trucks are being positioned as luxury vehicles because it’s not plumbers and carpenters that are buying them at the moment.

    I was a Ford Dealer’s daughter and everything I ever got we owe to the F1-50, but that was in Iowa and it was farmers buying them to take take pigs to market and hay bales to cows. We can give folks tax credits that really need these vehicles for work. They already can write them off on farms and the gas too. This can be extended to others in the trades that require big vehicles or to those that are handicap and need them to haul wheelchairs around.

  6. Ben Kilpatrick says:

    Jmac’s reference to “Bubba” is interesting – there’s very little so amusing as erstwhile egalitarians putting on their aristocracy hats when they turn their attention to the poor and benighted people of “flyover country.”

  7. Ben Kilpatrick says:

    Kat, these two posts raise lots of interesting technical questions, but your “why?” is very weak … People refusing to buy what you would prefer that they buy is not an ethically defensible ground for public policy. It would seem that until some justification for giving arbitrary personal preferences the force of law is presented, the technical issues are merely a case of missing the forest for the trees.

  8. dakinikat says:

    ben: the justification is the the fact that the private costs are less than the total cost of the behavior and that there are social costs passed on to every one else. The tax places the full cost of the behavior back on the consumer of that private good, rather than forcing every one else to pay for the results of their behavior that doesn’t fully reflect the cost of that behavior to every one else. It’s called a negative externality.

    The idea is similar to that of say, a bar setting up in a neighborhood community, it plays loud music at all hours of the night, increases traffic and crime. The owner of the establishment benefits, the consumers of the establishment benefit, but the neigbhorhood experiences ‘costs’ that neither the bar owner or the patrons pay. They loose property value, sleep, deal with the noise, and the crime. Zoning laws, alchohol licenses, etc. are all set up to ensure that the owners of the establishment experience the true costs of their businesses–not only their private costs, but the social costs of their behavior.

    So the pollution, the increased energy usage, the increased dependence on foreign oil that results from folks with high gas consumption is greater than the cost of the gas … their behavior places costs on others that they avoid. The Pigou tax forces the full costs of their behavior back on them and off the folks that make difference choices.

  9. Ben Kilpatrick says:

    I can agree that pollution would be a perfectly acceptable reason for a pigovian tax. But increased energy usage and and dependence on foreign petroleum?
    Petro-nationalism seems to me to be a very shady reason. For me, and the vast majority of the people in this country, it makes no difference whether oil comes from Texas and Louisiana or Iran, Russia, and Venezuela. Sure, they’re not nice regimes, but, frankly, most regimes world-wide aren’t really nice. The fact that these countries don’t like us is something we have to deal with, at least so long as the government insists of striding the world like the Colosus. Might not a simple policy of non-interference in the domestic affairs of other nations be a better policy, and one that doesn’t involve a sizable transfer of wealth to domestic oil producers (might be wrong on that)?