Arnold Kling  

John Baden Joins the Pigou Club

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He writes,

Rather than a bailout, free the Big Three. Dump CAFE altogether and replace it with an honest and surely more efficient energy tax. Mr. Obama could transcend stalemates and end the 30-year-old fraud of our CAFE fuel-economy rules.

It really would make sense for President-elect Obama, now that his political capital is high, to propose a higher gasoline tax. The economy has shown that it can survive gasoline prices about $2 higher than they are today. A $1 hike in the tax would be much better than the other "green" policies that are likely to be suggested. One approach would be to vote for the tax hike in 2009, but have it take effect in 2011. That would make it less likely that the tax increase would come during a recession or during an election year.

If the global warming scare should go away, it's not so hard to repeal a tax. On the other hand, once you create a subsidy for "green jobs," you can never kill it.

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COMMENTS (8 to date)
thrill writes:

I'd add a penny a gallon per month starting on inauguration day. It would end when the people were unhappy enough to demand their elected officials make it end - i.e. there'd be a proper feedback loop. By making it start low and grow predictably, then everyone, from buyer to producer, could predict it. The first cent would basically pay for administration - the remainder could pay for everything else we've already bought on deficit.

Greg writes:

I think this is where politics and economics collide. I'd love to see a tax rather than something more convoluted, but I'm not going to hold my breath.

Speaking of convoluted plans, the rising penny a gallon tax sounds like pure utopia.

diz writes:

This idea is a bit like prescribing exercise and a healthy diet to a patient in the midst of a massive cardiac arrest.

It might have avoided the problem if it had been done for the last 30 years, but it's not going to keep the patient alive now.

Larry writes:

Gas taxes are certainly better than CAFE, simply because they reward good behavior (less driving). However, increasing gas taxes will make saving GM significantly harder.

I agree with thrill about slowly, steadily increasing tax rates. While we're being utopian, we should be returning the money via a progressive, refundable tax credit.

Net: dump CAFE now, suspend existing gas taxes now, then start increasing gas taxes the next time GM makes a profit and unemployment is under 6%.

Hugo Pottisch writes:

Yes and... no. Overall a tax makes more sense than some other regulations. But in the context of the car industry and cars per se - not so much. We know that demand adopts to gas prices - but not necessarily supply.

GM's current, few, customers and management do not care about high gas prices and climate change. These are people who refer to climate change as "global warming"... on purpose. Show me somebody who uses the term "global warming" and I can tell you with confidence that I know more about him than he does about... I should stop here.

A tax will not necessarily open GM to new customers. They would still continue to dig their whole deeper by producing too much bad and too little good. Complying with CAFE - so the idea - would also influence supply (domestic) and not merely demand. but generally speaking - there is no good reason to save GM and its way of thinking from itself.

GM should have invested a decade ago to comply with CAFE voluntarily and on its own. Now we have to pay them for saving themselves and our children? Sad hockey dads are not the future. Obscene. We should punish GM and not reward them. No - we prosecute Microsoft for innovating instead.

Global warming, global warming, global warming..

Claiming that cars should not waste more than X per mile is not the same as subsidizing green jobs for ever. It is a specific way to save GM beyond a 2 months breathing period and potentially get some of the subsidies back? again, personally I believe that GM should be punished and not saved. I agree that a CO2 tax is better than detroit bailouts in general - but not necesarrily for this particular bailout case which has nothing to do with climate change per se.

In other words - the claim that"CAFE = subsidizing green jobs for ever" is not clear at all. Agriculture does not have to comply with any sustainability regulations (they are worse than anybody on the planet for the environment) and yet we have been subsidizing millionaires and the destruction of the ecosystem as much per year as detroit is asking now...

Thank you for pointing out that John Baden has joined the Pigou Club, Arnold. The rest of your post was.. a bit hasty?

Will writes:

" One approach would be to vote for the tax hike in 2009, but have it take effect in 2011. That would make it less likely that the tax increase would come during a recession or during an election year."

Uhhh, I don' know about that one. Obama's running for re-election in 2012. A big gas tax hike a year before he runs for re-election? Right. Good luck with that one.

(You might want to try 2013.)

aaron writes:

I'll say it again. A gas tax is a really bad idea. Until traffic is managed better, there are better roads, and people are taught what real efficient driving techniques are, a large gas tax will only decrease efficiency.

The past few years fuel efficiency has declined with rising gas prices despite declining driving. The gas tax ultimately affects the fuel efficiency of new cars the same as cafe, but in the mean time it reduces consumption pretty much entirely by destroying productivity.

1. People do not respond well to excessive rewards nor to excessive disincentives.

2. Driving is complicated. People do not understand what efficient driving is.

3. Tragedy of the commons. There are often situations where what is fuel efficient for the individual is inefficient for the system. Holding back on acceleration and keeping speeds low to avoid braking is probably the most fuel efficient practice you could pickup. However, when there is congestion, this prevents queues from clearing. (Think of a car idling in traffic becuase it will need to stop soon. It prevents other queues from clearing into that road. It also prevents cars behind from reaching their exits.)

aaron writes:

It also prevents cars behind from reaching exits which may be before the stop.

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