Monday, August 9, 2010

Pigovian Economics

Some hundred years ago, a British Economist, Pigou, had an interesting idea. Based on the idea that what you subsidize, you get more of, and what you tax, you get less of, he proposes that subsidies and taxes be based on the quality of a thing's externalities. College tuition leads to better workforces who earn more money, and who commit less crime, so it should be subsidized. Horn factories that play "La Cucaracha" are annoying, so you should tax the crap out of them.
Assuming that one finds at least as many annoying things to tax as beneficial things to subsidize, it doesn't hurt the budget. And if it really changes the balance of the market, it changes it for the better. Who wouldn't want less annoying things, and more beneficial ones?
Of course, this idea has its critics. Free market fundamentalists would loudly decry this massive government interference, arguing that if people buy things that are annoying, they do so for a good reason. Although frankly, such people are denying the very existence of externalities. And from the perspective of one who seeks to avoid negative externalities, the alternative is regulations, which free market fans hate even more.
Can you, my reader, think of some good things to tax? Good things to subsidize? Right now, the balance needs to favor the tax, because the budget is utterly in the toilet at the moment.

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