Are You a Member of the Pigou Club?

Late last year Greg Mankiw, a professor of Economics at Harvard University, wrote a Wall Street Journal article that he dubbed the "Pigou Club Manifesto." It is called the "Pigou Club Manifesto" after the late British economist Arthur Pigou(1877-1959). Pigou is perhaps best known for developing the concept of negative externalities. He felt that properly levied taxes on producers and consumers of products with negative externalities help align the incentives of interested parties with those of the negatively affected third parties. Mankiw's article argues for an increase in the tax on gasoline consumption. Imagine paying an extra $1.00 per gallon every time you go fill up your tank. Doesn't really make you too excited does it? Well I must admit upon first hearing this I was a little taken aback as well. But, after a quick review the policy seems to make good economic sense. Check out Professor Mankiw's article in its entirety here. The article is actually a quick read but I included a quick excerpt below to whet your appetite:

Campaign consultants aren't fond of this kind of proposal, but policy wonks keep pushing for it. Here's why:

The environment. The burning of gasoline emits several pollutants. These include carbon dioxide, a cause of global warming. Higher gasoline taxes, perhaps as part of a broader carbon tax, would be the most direct and least invasive policy to address environmental concerns.

Road congestion. Every time I am stuck in traffic, I wish my fellow motorists would drive less, perhaps by living closer to where they work or by taking public transport. A higher gas tax would give all of us the incentive to do just that, reducing congestion on streets and highways.

Please check out the rest over at Greg Mankiw's blog here.

Source: N. Gregory Mankiw
"The Pigou Club Manifesto" October 20th, 2006
http://gregmankiw.blogspot.com/2006/10/pigou-club-manifesto.html