Wednesday, June 19, 2013

Pigou was not a Pigovian

Blackboard analysis showing a market failure does not justify moving directly to a tax or subsidy:

"High-sounding generalisations on these matters are irrelevant fireworks. They may have a place in political perorations, but they have none in real life. Accumulation of evidence, the balancing of probabilities, judgment of men, by these alone, practical problems in this region can be successfully attacked." -- "State Action and Laissez-Faire"


  1. And there's a great deal of public choice theory in The Economics of Welfare too which unfortunately modern proponents of public choice have done their very best to obscure.

    Is that the definition of Pigovian, though? If it is I doubt most of the members of the Pigou club are Pigovians either!

    1. Steve Medema was lecturing on this today. He made the point that Pigou and Coase are actually very close in there recommendations on how to approach these issues: careful study on a case-by-case basis. But ideology and tractability drove the interpretation of their work in directions that make them seem to offer opposed solutions, where Pigou is read as recommending a tax for every negative externality, and Coase as claiming the market can always work things out.


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