Maurizio – Omnologos

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Cato Institute Scholar Lauds the Power of Taxes

with 2 comments

Perhaps Arnold Kling may want to reconsider his thoughts after realizing he has just argued for higher taxes, and heavier governmental intervention in the energy sector:

The most important, inconvenient truth about energy policy is that there is no justification for a subsidy for good energy. Subsidies for wind farms, solar energy, ethanol, and so forth, whether they come from government “energy policy” or personal carbon offsets, are pure pork.

It may be true, as Greg Mankiw argues in his Pigou Club Manifesto, that higher taxes on bad energy are justified. Figuring out the optimum tax is a difficult challenge, even for the Pigou Club. However, once the correct tax is set, that by itself provides all the incentive that is needed to get people to switch to good energy. The tax on bad energy will raise the price that people are willing to pay for good energy. That higher price for good energy is all of the incentive that producers need to undertake the effort to provide more good energy.

It would have helped to have a little more reasoning on how difficult the challenge to find what a “optimum tax” is, and how dangerous things can become if that’s miscalculated.

As things stand, I can imagine such details getting forgotten whilst certain people will use the article “The Political Economy of Alternative Energy” to support strong governmental activism.

Or perhaps it’s a matter of finding the lesser of two evils? Was Kling’s a way to demonstrate that pork looks worse than taxes in the eyes of a person advocating freer markets?

Written by omnologos

2007/Mar/06 at 13:47:03

2 Responses

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  1. He is just supporting good economics. And pigovian taxes are accepted by a lot of economists as a good solution to the problem of external costs.

    PigouClub

    2007/Mar/07 at 00:59:31

  2. Thank you PigouClub. But what I am referring to is how Kling’s words can be used, more than what he meant them to be

    omnologos

    2007/Mar/07 at 01:44:39


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