Re: gasoline

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

If we think that Marshall and Pigou even approximate reality wrt partial
equilibrium analysis and the impact of taxes, then a couple of things are
clear:
1)The use of combustible fossil fuels carries a third party cost;
2) A tax on the use of these fuels would reduce their use (by a lot in the
short run and more in the long run).

Let's say that Marshall and Pigou are wrong on the concept of "efficient
market price" (suppose we cannot know what it is, even in partial
equilibrium) and that it is indeed difficult-nay impossible-as Deirdre
McCloskey argues is the true interpretation of the Coase theorem-to know the
"Correct" Pigovian tax.

Doesn't it still follow that there is a good deal of evidence (admittedly
not certain) that burning fossil fuels contributes to global warming and
really, really good evidence that the emissions of automobile exhaust make
it more difficult for many people to breathe.  As we look at the situation
in California, at rising energy prices, congested highways, urban smog and
many other problems-does anyone doubt that we need to reorient the way we
use energy? Is it a violation of PK principles that the correct solution is
anything other than "polluter pays"?

What we need is a reinstatement of Clinton's attempted BTU tax and subsidies
to low income consumers along with an investment of the proceeds of this tax
into mass transit. One small anecdote: Last time I was in Barcelona, I rode
the train all day, anywhere for 4$. Last time I was in D.C., it could easily
cost me $4 to just get into the city during rush hour.

Seems to me you don't have to a neo-classical to see that we need to change
the incentives.

-----Original Message-----
From: larson@xxxxxx
To: pkt@xxxxxxxxxxxxxxxx
Sent: 4/4/01 6:12 PM
Subject: Re: gasoline

Quoting John O'Donnell <jackodonnell@xxxxxxxx>:

> Politically things are not that simple but economically they
> are. The temporary happiness of the unaware may get
> politicians elected, but it does not solve economic
> problems. Avoiding such taxes is also a particularly foolish
> economic choice because the tax payments can be distributed
> domestically [i.e. -- Directly as citizen subsidies or
> indirectly by lowering other taxes.] while monopoly profits
> to OPEC can not.

Who's unaware? Is a consumer "unaware" who prefers a low gasoline price
today
because she can't see what benefits she personally will get out of
today's high
price a few years hence? Is she "unaware" if she raises doubt that she
PERSONALLY will benefit from gasoline-tax-based redistribution, and
therefore
opposes it? Or is she unaware if she votes against a 170% gasoline price
hike
because she is afraid that such a move would hurt aggregate demand
enough to
trigger a severe recession in the US?

> Is the purpose of macro economic study to learn to be
> supplicants to politicians or is it learn the effects of
> economic policy choices and educate the public so
> politicians do the right thing?

Your argument about what is economically correct is based on premises
that are
either unrealistic or incorrect. One such premise is the positive
economic
effect of a 170% rise in gasoline prices in the US. It's sure going to
create a
whole lot of extra revenues for the federal government, since
alternative
transportation is poorly provided in many American cities. But there is
no
economic law, no theory that says this extra collection of resources
will
automatically be redistributed. Welfare theory says a tax should have a
minimum
impact while benefits should have maximum impact to be theoretically
acceptable. But that's about the only way to motivate high taxes. And
it's a
theory complex that is subject to a whole range of criticism from Post
Keynesian perspectives.

As to educating the public: if you want to do that, you better make sure
your
theories are well founded in reality. Because there is no more
formidable enemy
to economic theory than reality. Part of that reality is the set of
preferences
ordinary people have, according to which they will always act. You can
tell
people their preferences and education is "uninformed" all you want -
they are
still going to act the way they want to and you're going to have to
account for
that in your economic models. It's the "stylized facts" beginning of any

empirically grounded economic argument.

/srl

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde
Telephone: (+45) 4674 2910