I recently flew and had to go through the non-TSA line because my wife doesn't have TSA.
It's possible that the reason we have shitty airport security procedures is that the well off can buy their way out of them. The same way we had shitty COVID policies because they had ZOOM jobs. That if they had to put up with it, the procedures might go away. Of course it's possible that they would remain the same and fewer people would be able to pay to escape. But its clearly a shakedown.
I'm reminded of a similar feeling people get related to "fast pass lanes" at amusement parks. While I don't automatically think its a bad idea to allow people to pay money for time, I'd much prefer that the price of admission were simply higher so that the lines were more reasonable (alternatively, that you had the old system of a certain # of tickets for specific rides). I don't want to have to figure out the fast past lane system and be waking up at 7am or whatever to log into some app to try to snag a slot. I don't want to sit there calculating the optimal level of fast passes to purchase for the day. I don't want to know that if my infant has a poop at the wrong time it will derail the carefully planned schedule that is my only hope.
And I don't want to tell my kids that we are going to be next on a ride we've been waiting in the heat for. Only for a family to come up the fast pass lane and delay our going on the ride next because they skip us. And I have to hear my kids whine and scream and not understand while I followed the advice that "fast pass lanes aren't necessary for young children rides" that they say on their website and yet somehow this young children's ride has a fast pass lane.
I get this with traffic. I get that a commute is something you do every day and you can understand, calculate, and adjust your life choices in response to new and clear financial incentives without too much trouble.
But these other pay to play systems that are too damn complicated and your trapped once you are there create a vast tax on my attention, imagination, empathy, and spontaneity.
Hi Bryan, the link at the bottom of the page doesn't lead to Pigou's biography book. Instead, it mistakenly redirects to the youTube video "There Is a Liberal Answer to Elon Musk | The Ezra Klein Show."
Here's an objection to using Pigouvian taxation. No one knows even approximately the dollar value of an externality, which means that no one knows even approximately the level of taxation appropriate. A second objection is this; mandatory taxation is immoral.
He’s aware of these objections (and probably even accepts them pro tanto. But he would agree that they’re less bad than other taxes, so he’s pointing out that the government doesn’t even operate on the more theoretically efficient model.
> Some defenders, including the Commerce Secretary Howard Lutnick, say that tariffs don't necessarily cause inflation. My view is that these defenders have a point, but not a good one.
> I think it is best to say that tariffs reduce productivity because they prevent the international marketplace from allocating resources to their best use. Lower productivity means lower real incomes. Lower real incomes could take the form of either (1) a higher price level for given nominal incomes or (2) lower nominal incomes for a given price level. Whether (1) or (2) occurs depends largely on monetary policy.
> When Trump critics say that tariffs raise inflation, they are implicitly assuming case (1). That case may be the more likely one, but it is not necessarily the way things will play out.
I generally think of "inflation" as being a fall in the value of the dollar, but let's run with the idea of a rise in the price level instead.
It's unambiguous that the tariff causes a fall in the value of the dollar. After enactment, your one dollar can buy less than it could before; the market has been restricted.
Mankiw's point seems to be that what *might* happen is, the value of the dollar as measured against labor rises sharply - one dollar will now buy a lot more labor than it used to before - and this rise might be so sharp that the value of the dollar as measured against everything but labor stays flat. In this case, the price level doesn't rise and there is "no inflation".
But I don't see how an increase in the value of the dollar against labor, coupled with no change in the value of the dollar against everything else, can add up to an overall fall in the value of the dollar. If I'm taking the average of some set of numbers and the average is negative, one of those numbers must have been negative too.
> The Pigovian remedy for negative externalities: set taxes equal in magnitude to the severity of the externality — and then leave the market alone. No regulation, no bans.
> The Pigovian remedy for positive externalities: set subsidies equal in magnitude to the severity of the externality — and then leave the market alone. No regulation, no government ownership.
[later]
> governments strongly prefer to directly own industries with (alleged) positive externalities.
These are related observations. There are many, many people who would like to describe themselves as following an economically rational Pigovian policy of taxing some undesirable behavior. You see them everywhere.
But they're all bluffing. When the behavior they're taxing doesn't go away, they point to that as evidence that the tax isn't high enough. If it were high enough, it would 𝘴𝘰𝘭𝘷𝘦 𝘵𝘩𝘦 𝘱𝘳𝘰𝘣𝘭𝘦𝘮, because that's the point of having policies.
Of course this has nothing to do with a Pigovian analysis. Political discourse on Pigovian taxes is essentially parallel to political discourse on the Laffer curve. You decide what you want to do, and then you try to display an academic justification really quickly, before anyone can question the relationship between the policy and the justification. Next topic.
This total lack of any measurement of the size of negative or positive externalities explains why the government needs to own the positive ones directly. There's no problem with advocating for infinitely high taxes while pretending Pigou would have been on your side. But there is a problem with advocating for infinitely high subsidies.
I think the problem is fundamental; more effort devoted to the problem is not going to yield more accurate estimates of the size of externalities in cases where people are unhappy with the status quo. Pigovian taxation and spending is a useless concept.
In answer to my skepticism of the Pigovian approach, ChatGPT offered the following: “In situations where the cost to mitigate harm far exceeds the tax burden relative to a firm’s profitability, relying solely on Pigovian taxes may lead to a situation where harmful practices persist. In such cases, regulations that directly require firms to prevent harm (coupled with effective enforcement) might indeed be a more socially beneficial strategy. Many economists recognize this nuance and argue for a balanced approach that might incorporate both taxes and regulatory measures depending on the context.”
Grok, on the other hand, suggested that “the tax must be calibrated not only to the externality’s severity but also to the producer’s financial context”. This point from Grok seems to suitably address ChatGPT’s concerns about a purely Pigovian approach and my own initial skepticism about it.
In the case of choosing between education systems, how do you see this impacting the quality of the free K-12 option? The rich obviously wouldn't consider this a choice if public and private education had similar quality levels. If the poor cannot afford a decent education, which will likely keeps them poor, wouldn't this destroy social mobility?
I wonder if it’s a fool’s game to try get folks to stop using the word “free” as shorthand for “government provided.” I’ll tackle that once I get everyone to say “progressive “ instead of “liberal.”
I think of it as shorthand for "free at point of service". But you also bring up a good point of how whether this system could even afford to pay for the "free" K-12. How certain are we that this system would generate a profit?
> The rich obviously wouldn't consider this a choice if public and private education had similar quality levels.
This is only true in an all-inclusive sense. You're paying for every part of the school, and every part of the school figures into your estimation of whether it's worth it.
As far as the education goes, public and private education already do have similar quality levels. The difference is in the classmates.
Would you agree that there are approximately zero private schools as poor as the worst public schools and that the vast majority of private schools are at least as good as most suburban schools?
I recently flew and had to go through the non-TSA line because my wife doesn't have TSA.
It's possible that the reason we have shitty airport security procedures is that the well off can buy their way out of them. The same way we had shitty COVID policies because they had ZOOM jobs. That if they had to put up with it, the procedures might go away. Of course it's possible that they would remain the same and fewer people would be able to pay to escape. But its clearly a shakedown.
I'm reminded of a similar feeling people get related to "fast pass lanes" at amusement parks. While I don't automatically think its a bad idea to allow people to pay money for time, I'd much prefer that the price of admission were simply higher so that the lines were more reasonable (alternatively, that you had the old system of a certain # of tickets for specific rides). I don't want to have to figure out the fast past lane system and be waking up at 7am or whatever to log into some app to try to snag a slot. I don't want to sit there calculating the optimal level of fast passes to purchase for the day. I don't want to know that if my infant has a poop at the wrong time it will derail the carefully planned schedule that is my only hope.
And I don't want to tell my kids that we are going to be next on a ride we've been waiting in the heat for. Only for a family to come up the fast pass lane and delay our going on the ride next because they skip us. And I have to hear my kids whine and scream and not understand while I followed the advice that "fast pass lanes aren't necessary for young children rides" that they say on their website and yet somehow this young children's ride has a fast pass lane.
I get this with traffic. I get that a commute is something you do every day and you can understand, calculate, and adjust your life choices in response to new and clear financial incentives without too much trouble.
But these other pay to play systems that are too damn complicated and your trapped once you are there create a vast tax on my attention, imagination, empathy, and spontaneity.
Hi Bryan, the link at the bottom of the page doesn't lead to Pigou's biography book. Instead, it mistakenly redirects to the youTube video "There Is a Liberal Answer to Elon Musk | The Ezra Klein Show."
Here's an objection to using Pigouvian taxation. No one knows even approximately the dollar value of an externality, which means that no one knows even approximately the level of taxation appropriate. A second objection is this; mandatory taxation is immoral.
Mandatory income taxation already exists.
He’s aware of these objections (and probably even accepts them pro tanto. But he would agree that they’re less bad than other taxes, so he’s pointing out that the government doesn’t even operate on the more theoretically efficient model.
Anyone can avoid the tax by eschewing the taxed activity, which is rarely if ever required for staying alive.
Good post.
Not the worst thing to link to
This isn't really related, but it's at least related to economics.
Greg Mankiw just posted a short argument to his blog ( http://gregmankiw.blogspot.com/2025/03/do-tariffs-cause-inflation.html ):
> Some defenders, including the Commerce Secretary Howard Lutnick, say that tariffs don't necessarily cause inflation. My view is that these defenders have a point, but not a good one.
> I think it is best to say that tariffs reduce productivity because they prevent the international marketplace from allocating resources to their best use. Lower productivity means lower real incomes. Lower real incomes could take the form of either (1) a higher price level for given nominal incomes or (2) lower nominal incomes for a given price level. Whether (1) or (2) occurs depends largely on monetary policy.
> When Trump critics say that tariffs raise inflation, they are implicitly assuming case (1). That case may be the more likely one, but it is not necessarily the way things will play out.
I generally think of "inflation" as being a fall in the value of the dollar, but let's run with the idea of a rise in the price level instead.
It's unambiguous that the tariff causes a fall in the value of the dollar. After enactment, your one dollar can buy less than it could before; the market has been restricted.
Mankiw's point seems to be that what *might* happen is, the value of the dollar as measured against labor rises sharply - one dollar will now buy a lot more labor than it used to before - and this rise might be so sharp that the value of the dollar as measured against everything but labor stays flat. In this case, the price level doesn't rise and there is "no inflation".
But I don't see how an increase in the value of the dollar against labor, coupled with no change in the value of the dollar against everything else, can add up to an overall fall in the value of the dollar. If I'm taking the average of some set of numbers and the average is negative, one of those numbers must have been negative too.
What have I misunderstood?
> The Pigovian remedy for negative externalities: set taxes equal in magnitude to the severity of the externality — and then leave the market alone. No regulation, no bans.
> The Pigovian remedy for positive externalities: set subsidies equal in magnitude to the severity of the externality — and then leave the market alone. No regulation, no government ownership.
[later]
> governments strongly prefer to directly own industries with (alleged) positive externalities.
These are related observations. There are many, many people who would like to describe themselves as following an economically rational Pigovian policy of taxing some undesirable behavior. You see them everywhere.
But they're all bluffing. When the behavior they're taxing doesn't go away, they point to that as evidence that the tax isn't high enough. If it were high enough, it would 𝘴𝘰𝘭𝘷𝘦 𝘵𝘩𝘦 𝘱𝘳𝘰𝘣𝘭𝘦𝘮, because that's the point of having policies.
Of course this has nothing to do with a Pigovian analysis. Political discourse on Pigovian taxes is essentially parallel to political discourse on the Laffer curve. You decide what you want to do, and then you try to display an academic justification really quickly, before anyone can question the relationship between the policy and the justification. Next topic.
This total lack of any measurement of the size of negative or positive externalities explains why the government needs to own the positive ones directly. There's no problem with advocating for infinitely high taxes while pretending Pigou would have been on your side. But there is a problem with advocating for infinitely high subsidies.
I think the problem is fundamental; more effort devoted to the problem is not going to yield more accurate estimates of the size of externalities in cases where people are unhappy with the status quo. Pigovian taxation and spending is a useless concept.
In answer to my skepticism of the Pigovian approach, ChatGPT offered the following: “In situations where the cost to mitigate harm far exceeds the tax burden relative to a firm’s profitability, relying solely on Pigovian taxes may lead to a situation where harmful practices persist. In such cases, regulations that directly require firms to prevent harm (coupled with effective enforcement) might indeed be a more socially beneficial strategy. Many economists recognize this nuance and argue for a balanced approach that might incorporate both taxes and regulatory measures depending on the context.”
Grok, on the other hand, suggested that “the tax must be calibrated not only to the externality’s severity but also to the producer’s financial context”. This point from Grok seems to suitably address ChatGPT’s concerns about a purely Pigovian approach and my own initial skepticism about it.
Pigovianism is valid if the purpose of government is tweaking with social knobs and fiddling with cultural dials.
Externalities are rarely, if ever, purely social. They're economic, and by definition outside the ambit of bargaining between the parties.
Economics is production and consumption, and that all takes place in society.
In the case of choosing between education systems, how do you see this impacting the quality of the free K-12 option? The rich obviously wouldn't consider this a choice if public and private education had similar quality levels. If the poor cannot afford a decent education, which will likely keeps them poor, wouldn't this destroy social mobility?
I wonder if it’s a fool’s game to try get folks to stop using the word “free” as shorthand for “government provided.” I’ll tackle that once I get everyone to say “progressive “ instead of “liberal.”
I think of it as shorthand for "free at point of service". But you also bring up a good point of how whether this system could even afford to pay for the "free" K-12. How certain are we that this system would generate a profit?
> The rich obviously wouldn't consider this a choice if public and private education had similar quality levels.
This is only true in an all-inclusive sense. You're paying for every part of the school, and every part of the school figures into your estimation of whether it's worth it.
As far as the education goes, public and private education already do have similar quality levels. The difference is in the classmates.
Would you agree that there are approximately zero private schools as poor as the worst public schools and that the vast majority of private schools are at least as good as most suburban schools?
No?