Monday, September 8, 2008

Smart Taxes: An Open Invitation to Join the Pigou Club – By N. Gregory Mankiw

As an economics educator, I have always been fascinated by topics about which there is a large gap between the beliefs of economists and those of the general public. For example, economists are generally supportive of free trade among nations, while the public is more skeptical. Economists oppose rent control, while much of the public supports the policy.

In these and other cases where economists and mere muggles don’t see eye-to-eye, you shouldn’t be surprised to hear that I am quick to side with my fellow economists. I like to think that this reaction is more than mere professional solidarity but is, instead, a symptom of my commitment to rational thought. Unlike most people, who spend their time thinking about their children, local sports team, or favorite sitcom, economists have devoted much of their lives to thinking about such things as international trade and rent control. That fact may make us boring at cocktail parties, but it does have some offsetting benefits. It is not a stretch to believe that more thought about an issue leads to more reliable conclusions. As a result, I feel comfortable with conclusion that, regarding these issues, economists are right and the general public is just ill informed.

My topic for today is a policy about which there is a particularly large gap between economists and the public: Pigovian taxation. In particular, I want to talk about taxes on energy-related products, such as gasoline taxes. Not long ago, the economist Steve Levitt, coauthor of the best-seller Freakonomics, wrote on his blog, “For a long time I have felt the price of gasoline in the United States was way too low. Pretty much all economists believe this.” Levitt then went on to argue for higher taxes on gasoline. At about the same time, Speaker of the House Nancy Pelosi had precisely the opposite perspective. She announced “a series of hearings to address rising gas prices—focusing on the causes, the burdens they put on American families and businesses, and solutions.”
Related site: Greg Mankiw's Blog