For Now, I Refuse Membership in the Club

Greg Mankiw has been pushing the idea of a Pigovian carbon tax. Let me make the obligatory mention of my respect for and admiration of Prof. Mankiw (and appreciativeness that he has a blog) before I say, we really ought not to jump on a carbon tax bandwagon just yet. Europe is doing it, so let's hang back and study the effects of their policy for awhile. There is a long list of extremely dumb ideas that Europe has pursued that we have chosen not to imitate, to our credit. This seems like one of them. (Naturally, there are also good ideas that Europe has pursued that we haven't imitated, to our discredit, privatizing air traffic control comes to mind, but I digress.)

I don't know if Prof. Mankiw is arguing for a Pigovian carbon tax because it is the most effective form of discouraging use of hydrocarbons presupposing that we have already made the societal decision to discourage hydrocarbon use or because a carbon tax is desirable in itself. I am going to assume that Prof. Mankiw's motivations are the former, because, first, he makes no claim to any expertise in climatology, and secondly, academic economists are in the business of telling us what is efficient not what is desirable; but, sometimes his tone would indicate otherwise so I am not sure but I will give him the benefit of the doubt. The argument for a carbon tax is that it is the best way to compensate for the negative externalities that carbon use imposes on society. Well, if we had any clue as what those negative externalities were and how to measure them, then maybe there would be are a starting point to argue for a carbon tax. But there isn't (see here and here but mostly here), so why be so aggressive in promoting a carbon tax? Prof. Mankiw ought to know the dangers of not communicating with precision on matters of policy.

I would go further and argue that NOT using hydrocarbons would impose severe negative externalities on society. Hydrocarbon-based resources are the cheapest source of energy that we currently have to power our world. This is a world that not only employs enormously "wasteful" machines like SUVs, but also enormously wasteful (no scare quotes) machines like lasers and ultrasound machines. In terms of energy physics lasers are about as truly wasteful a machine as we have devised. However, lasers improve eyesight among other things and ultrasound machines drive down infant mortality, but only by being a massive energy hog. Has anybody factored in the positive externalities of better eyesight and healthier babies? Bigger refrigerators also come in for scorn from the anti-hydrocarbon crowd, but today's fridges are vastly more efficient than yesteryear's models, so we get more space for the same energy use. More space in the fridge means less trips to the store, at least in my house. These are just a few paltry examples of how our mastery of hydrocarbon resources and our development of a whole field of hydrocarbon technology enables us to do things faster, cheaper and better, freeing up time to pursue other advances or simply to live more enjoyable lives. Any tax on carbon would only drive up the costs of countless benefits big and small that hydrocarbon technology provide us. Furthermore a carbon tax would suffer from the same flaws that most taxes suffer from. First, the tax would almost assuredly never go away, persisting long after the intended policy goals were achieved. Second, the tax revenue would augment the spending authority and capacity of politicians, which can only spread further inefficiencies to the broader economy. So I say scrap Pigou and embrace Julian Simon - let hydrocarbon technology flourish to give us more time and more tools to achieve more great feats of human ingenuity.

Finally, my last beef with Pigovian taxes is that they are ammunition for our presumptive betters to get us to change behaviors (precisely because they are so effective) that they disapprove of. Nick Kristoff wants to tax your Coca-Cola because he thinks we are all too fat and presumes to know your molecular biology. Other elitist nannys want to tax a variety of perfectly normal, legal and longstanding behaviors for similarly presumptive and arrogant motivations, and Pigovian taxes are the second tool of choice when they fail to ban such behaviors through legislation. So while Pigovian taxes are effective, they are by no means necessarily desirable for good reasons, both economic and non-economic. Let's make sure that critical distinction is a part of the debate, rather than blindly accepting them as an intrinsic good, an impression that all this club membership talk seems to impart. For now, leave me out of the club.