Chapter 3: In which Kat joins the Pigou Club

This thread is going to speak to solving several major problems we have in our Economy in a way that is not going to be highly popular with folks outside the Pigou Club.  If you slept during or avoided your microeconomics course, or blocked the bad memories the minute you finished the course, you undoubtedly are asking yourself wtf is the Pigou Club?  If you do remember who Pigou is and what he suggested, you’re asking yourself, why would any economist suggest raising taxes on anything during a major recession?  Well, get ready to discuss using a tax to shape social behavior because that’s what Pigou suggested and that’s what we now do on things like alcohol and cigarettes.

Arthur Cecil Pigou was a Brit economist who was part of the Cambridge school that also produced John Maynard Keynes.  Pigou’s major work was in an area that we call welfare economics.  You can read more about him if you’d like but this is from Wikipedia and gives you the major idea.

Pigou’s major work, Wealth and Welfare (1912, 1920), brought welfare economics into the scope of economic analysis. In particular, Pigou is responsible for the distinction between private and social marginal products and costs. He originated the idea that governments can, via a mixture of taxes and subsidies, correct such perceived market failures — or “internalize the externalities“. Pigovian taxes, taxes used to correct negative externalities, are named in his honor.

So what do the members of  Greg Mankiw’s Pigou Club want to tax?  Well, the answer is that now is the perfect time for a federal tax on gasoline and other petroleum products.  It appears that the incoming energy secretary, Steven Chu, is also a member of the Pigou Club.    Another Obama appointee, Lawrence Summers also supports the idea.  Here is a description of Chu’s idea from the WSJ.

In a sign of one major internal difference, Mr. Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,” Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.

But Mr. Obama has dismissed the idea of boosting the federal gasoline tax, a move energy experts say could be the single most effective step to promote alternative energies and temper demand.

That last sentence is the important argument is signficant.  A Pigou tax on gasoline, heating oil, and other petroleum products would, in fact, be extremely effective in promoting alternative energies, decreasing dependence on foreign sources of the products, and giving us more leverage in the world with countries we have to endure just because they have oil.   Check out today’s Market Watch and the new threat from OPEC.  Threats from OPEC are nothing new, we’ve been dealing with them since the 1970s, but ineffectively, because they can negatively impact our economyand the way we deal with certain oil exporting countries with terrorist tendencies.  We also know they loosen up the supply and let prices drop anytime we threaten energy independence which causes auto companies and stupid americans who love big vehicles to buy them. 

NEW YORK (MarketWatch) — The Organization of Petroleum Exporting Countries has decided to cut its oil output by 2.2 million barrels a day from current output, or 4.2 million barrels a day from September levels, the Wall Street Journal reported on its Web site Wednesday.

…

OPEC faces a world where oil prices are set by factors outside of the traditional supply and demand. Currency and interest rate moves, as well as jitters tied to the global economic crisis, have pushed oil prices down precipitously of late.

Analysts at Pritchard Capital Partners noted that the lowered production target is expected to take effect on Jan. 1, with actual cuts coming mostly from Saudi Arabia, United Arab Emirates and Kuwait