Cafe Hayek - Latest Comments in When Pigous Don't Have Wings

Re: When Pigous Don't Have Wings

Saeed — Sat, 27 Jan 2007 03:47:01 -0000

For those of you who advocate solving the externality problem using private means, rather than by government imposed solutions, help me to understand why a private solution has not already solved it.

Re: When Pigous Don't Have Wings

Mike Hammock — Fri, 26 Jan 2007 03:37:51 -0000

Sorry, that should be "Mankiw has never explicitly said public transit should be exempt from gas TAXES...".

Re: When Pigous Don't Have Wings

Mike Hammock — Fri, 26 Jan 2007 03:37:16 -0000

"And just how would an equal application of increased fuel taxes incentivize transit usage?"

This could happen if:

-The gasoline used per person-mile by gasoline-powered public transit is less than POVs.

-Some public transit methods do not use gasoline, and therefore are not directly affected by the tax.

-Public transit fares are fixed by law and do not rise with gasoline taxes (This still means costs rise, of course, and will either mean smaller profits or, more likely, larger losses, which means taxpayers pay more to cover the loss--but that's not the same as fares rising, and will not deter ridership).

Those are just three possibilities that would narrow the gap between the price of personal vehicles and public transit. There may be other possibilities. I think the point stands: Mankiw has never explicitly said public transit should be exempt from gas prices, and nothing he has said necessarily implies that it should be exempted, so far as I know.

Re: When Pigous Don't Have Wings

Robert Coté — Thu, 25 Jan 2007 13:23:07 -0000

And just how would an equal application of increased fuel taxes incentivize transit usage? This isn't a big deal. Mankiw wants more transit usage. In the tradition of "The Onion" he appears to want more transit for other people. Regardless, the presumption that increased fuel taxes would alter the POV/transit shares is nonoperative.

Re: When Pigous Don't Have Wings

Mike Hammock — Thu, 25 Jan 2007 12:29:02 -0000

The market works either way; if transit is higher cost per person-mile traveled, then people will continue to avoid it, as they should. If it ends up being cheaper (probably because of the emergence of privately operated buses or jitneys or other alternatives, assuming transportation unions do not crush them), then that's fine, too.

Mankiw did not actually say in that quote that mass transit would be exempted from gasoline taxes. He said that gasoline taxes would increase the incentive to ride mass transit. It is conceivable that a $1.00 increase in the gas tax would increase the cost of a person-mile traveled by POV by more than it would increase the cost of a person-mile traveled by public transit. That doesn't mean that public transit would become cheaper, of course--only that the cost gap might narrow. This is especially true for public transit that is not powered by gasoline.

Interesting; are you arguing that induced demand can never occur, or that none of the studies purporting to show it have actually shown it, or both?

POVs do emit particulates, albeit in much lower amounts than they once did. Also, I'll agree that public transit should have to face the same per person-mile emissions standards as the competition.

Re: When Pigous Don't Have Wings

Robert Coté — Thu, 25 Jan 2007 11:50:33 -0000

Okay, I'll dig it back up. In the mean time there is no "lower price per mile traveled" with transit. Transit mobility costs roughly 4x what POV travel on a per passenger mile cost basis. At that it is also twice as slow so the lost opportunity costs are even higher. How's that for an externality most people ignore?

And CO2. Remember that POVs do not emit particulates but that transit vehicles are exempted.

Congestion; that's an interesting assertion. The places with the most transit are the most congested. Careful analysis is unable to disprove the idea that transit CAUSES congestion. It's like the debunked Hansen/Yuang induced demand assertions. The data do not support the conclusion.

Here it is:

"Road congestion. Every time I am stuck in traffic, I wish my fellow motorists would drive less, perhaps by living closer to where they work or by taking public transport. A higher gas tax would give all of us the incentive to do just that, reducing congestion on streets and highways." - Prof Mankiw

http://gregmankiw.blogspot....

There's lots of this but hopefully we can just accept that part of the Mankiw Agenda involves inducements favoring transit.

Re: When Pigous Don't Have Wings

Mike Hammock — Thu, 25 Jan 2007 11:06:08 -0000

If you don't mind, I'd appreciate that. I've been searching his blog, and I can't find any posts in which he says that mass transit should be exempted. Clearly it should not be exempted; a gallon of gasoline burned by a large bus produces just as much CO2 as a gallon of gasoline burned by a Prius. It may create a smaller congestion externality, but then again, that will be in part reflected in its lower price per mile traveled.

Re: When Pigous Don't Have Wings

Robert Coté — Thu, 25 Jan 2007 10:23:03 -0000

Yes. Is that such a departure that I have to dig up the references?

Re: When Pigous Don't Have Wings

Mike Hammock — Thu, 25 Jan 2007 10:20:36 -0000

Has Mankiw actually said that public transit should be exempted from Pigouvian gasoline taxes?

Re: When Pigous Don't Have Wings

Robert Coté — Thu, 25 Jan 2007 09:25:44 -0000

The problem with fully costing use taxes for transportation at the most basic user level is that it would kill transit instantly. That is not an optimal outcome and the exact opposite of what the POV higher tax advocates imagine. Oh? Transit is to exempted? Why? It is transportation, it has enumerable internal and external costs and it uses the public roadways. This is where Mankiw breaks down, no oner on his side can justify special treatment for transit based on the arguements they advance for charging POVs. This is why I conclude the Pigou tax scheme is but a cover for a pro-transit anti0automobilia agenda.

Re: When Pigous Don't Have Wings

Mike Hammock — Thu, 25 Jan 2007 06:58:47 -0000

Those two studies were merely two of the links that came up under a simple Google search. If you're really keen to find more recent studies, you're welcome to look for yourself. Price elasticity of gasoline demand has surely become greater than it was in the older studies, in an case.

Ben's comment was in response to someone Robert Coté, who said we should question Mankiw's true agenda. Ben (and I) replied that this is a poor argument that gets us nowhere. You replied that it makes sense to question the agenda of politicians. I respond that we're not talking about a politician; we're talking about Mankiw. Mankiw doesn't have some secret, hidden agenda. It might make sense to question true motives in some circumstances, but it does not make sense in this circumstance.

As for vitriol:

"Or has he already drunk too much transit kool-aid to be saved?"

"The problem with Mankiw and his adherents is that they are hiding their true agenda. They don't want to incorporate the externalities of POV mobility. They don't even want to charge more for the neagitve externalities. They want to punish automobilia for imagined sins in the unspoken and misguided idea that by increasing the pain of using autos people will change behavior to those more esthetically pleasing to the would be social engineers delicate sensibilities."

"What's really perverse with you tax freaks is that you want to force the majority of the population to live in a manner they don't want to live."

This is not the language of a serious and mature discussion of policy. This is ad hominem and insulting conspiracy theorizing. Certainly not everyone in this thread posts in this manner, but some do. It is a very natural and common human response to try to assign people to sides of a debate, and judge them evil if they disagree with oneself--but it is a response to be avoided.

Let me throw out another possibility, just to make it harder for anyone to put me on the side of "tax freaks" and make it more difficult to discover my "true agenda": If gasoline demand is getting more price elastic, and if higher gas prices increases research into alternative energies, then it may not be possible, in the long run, to replace payroll taxes with pigouvian taxes and maintain revenue neutrality. That is, people may shift away from gasoline to such a great extent that the tax cannot raise enough revenue to replace payroll taxes. This would be particularly important fifty years from now, when we may be using some other energy source for transportation, and when Social Security and other programs funded by payroll taxes are facing financial difficulty.

Re: When Pigous Don't Have Wings

Python — Wed, 24 Jan 2007 22:48:29 -0000

Mike Hammock,

I'm not sure how you got from my comments (in response to Ben) to your comments (Mankiw is not a politician). I was making an analogy regarding the act of questioning an agenda, which I consider a part of critical thinking. And as far as vitriol, I must have missed that too. Doesn't vitriol mean something like bitterly abusive speech? Is the word "freak" vitriolic?

A link to a study where the data ends at 1991? Isn't that like 16 years ago or something? :-) Hopefully, we can get some a newer study from somewhere.

At California DMVs they have these big pie charts showing how car registration money is spent. They seem so proud of it, because it's in all of their literature also. But it clearly shows that only a small portion of vehicle registration goes to anything remotely to do with transportation. And recently California voters voted down a Proposition which mandated that all gas tax go to Transportation related projects (including environmental research, etc.) I am thoroughly unconvinced that extra tax moneys collected in a gas tax would be used to promote either cleaner or friendly transportation. Certainly a high gas tax would lessen the amount that people choose to drive, that's not news to anyone, but there are obvious costs such as freedom of mobility, efficiency of transportation, increased freight costs, Detroit going further in the tank, etc.

Listing traffic as a negative externality of driving seems like suggesting that a forest is a negative externality of a tree's life-cycle.

Can we put a Pigouvian tax on the sale of suicide bomb belts and IEDs?

Re: When Pigous Don't Have Wings

Robert Coté — Wed, 24 Jan 2007 16:48:56 -0000

I'm not sure what you mean by "Pay Your Own Operating Costs Month".

A thought experiment proposed more than a dozenyears ago that showed POV mobility was taxed and transit was subsidized yet POV was prefered and cheaper for everyone.

Re: When Pigous Don't Have Wings

Robert Coté — Wed, 24 Jan 2007 16:09:24 -0000

Prof Mankiw is unwilling to accept several facts. Yransit costs 4 times as much as POV on a passenger mile basis. Alternatives to POV mobility do not generate positive externalities like POVs. The negative externalities they wish to assign to POV mobility are absolute and not relative to alternatives.

I could go on but if we were to count positive externalities like Mankiw counts the negatives we could point out that auto exaust contains oxygen and is thus a generator of O2.

Re: When Pigous Don't Have Wings

python — Wed, 24 Jan 2007 16:03:34 -0000

Ben says:

" 'The problem with Mankiw and his adherents is that they are hiding their true agenda.'

This is the sort of comment that usually appears when its author has either run out of arguments or can't be bothered making one."

Ben, your statement is obviously not true. Reasonable thinking people can look at motives of people before they start to question the actions. I would prefer that people question motives first, it shines light on the observations.

When you know that the "true agenda" of most politicians is to simply get re-elected, you start to think of their policies differently. The sooner you question motives the sooner you dispense with worthless debate about merits.

For you to make your statement shows me that you have run out of arguments. :-)

I would like to see the study that shows that gas taxes a) has caused substantial change to people's behavior, b) have been used by the government to reduce externalities (rather than just put into the big bin of tax loot.) I didn't read the whole thread so I apologize if it has already been mentioned.

Re: When Pigous Don't Have Wings

ben — Wed, 24 Jan 2007 15:10:14 -0000

"The problem with Mankiw and his adherents is that they are hiding their true agenda."

This is the sort of comment that usually appears when its author has either run out of arguments or can't be bothered making one.

But let's say you have this position because there is something in the Mankiw argument that indicates his true motive. How about just pointing us at to that part of the argument.

Re: When Pigous Don't Have Wings

Mike Hammock — Wed, 24 Jan 2007 14:50:01 -0000

Robert, that is a good point--tax breaks are not subsidies (although I do not believe we should be handing out special tax breaks and making the tax system more complicated than it already is--although that is another issue. Heck, if we're going to discuss corporate income taxes, I'd like to go on the record as being in favor of eliminating them altogether.). Energy assistance programs are a form of subsidy, however.

It seems odd to argue that the Interstate Highway System is the greatest investment ever made, while also arguing that government is too incompetent to ever implement a policy that could address pollution externalities.

In any case, I didn't say it was a bad investment--only that we had built roads beyond the point at which marginal benefit equals marginal cost. You should also keep in mind that we don't have the counterfactual for comparison. What would have happened in the absence of the interstate highway system? Would (private) trains be more important and successful as transportation?

I'm not sure what you mean by "Pay Your Own Operating Costs Month".

I'd also like to add that it's disappointing that this excellent blog is populated by so many who post with such condescension.

Fiona, if the negative externality exists, and if the tax is chosen correctly, then your complaint is actually a feature, not a bug. The fact that markets pass on the cost of the externality to others via prices is part of why pollution taxes and tradeable permits work so well.

Re: When Pigous Don't Have Wings

Robert Coté — Wed, 24 Jan 2007 10:33:16 -0000

John Dewey,

What say ye? Does Mike get the full treatment of; The IHS-Greatest Investment Ever Made, Tax breaks are Not Subsides, Pay Your Own Operating Costs Month, Not Enough Roads, ...? Or has he already drunk too much transit kool-aid to be saved?

Re: When Pigous Don't Have Wings

fiona — Wed, 24 Jan 2007 07:24:03 -0000

Consider that not only private vehicles would be affected by this tax. Almost everything we buy everyday, from food to electronics to clothes is shipped in trucks that use petroleum. There is little that I, the consumer, can do about this. Taxes on gasoline in private cars will hit family pocketbooks directly, but what about the additional cost of goods? Also consider that sales taxes are based on the price of goods and you have a multiplier effect, shovelling more into the pockets of governments on all levels.

Re: When Pigous Don't Have Wings

Mike Hammock — Tue, 23 Jan 2007 16:16:29 -0000

My last name is Hammock, like the swing. Not Hammond. It's a very common mistake, but I'm not sure why.

"That isn't name calling."

Calling someone a "freak" when one disagrees with them is name calling.

"John makes an asute observation. We already tax, double, triple, quadruple tax privately operated vehicles and massively subsidize transit and only by manipulating the statistics is transit holding gross ridership in a burgeoning population."

We also subsidize energy consumption, production, and exploration, and we have probably built too many roads (I'm guessing that the total benefit of the interstate highway system exceeds total costs, but that we have built beyond the point at which marginal cost equals marginal benefit). I'd be happiest if we eliminated all these subsidies, eliminated CAFE standards, and simply implemented a carbon tax, using it to replace payroll taxes. I would not favor such a tax if it were not used to replace payroll taxes (or some other harmful taxes).

"The problem with Mankiw and his adherents is that they are hiding their true agenda."

No they're not. Do you really think there is some conspiracy going on here--that Mankiw is some evil mastermind trying to trick everyone? He's a respected academic economist. I do not think that Russell Roberts would have had Mankiw on his podcast if there was a chance Mankiw had some secret motivation to simply "punish automobilia for imagined sins in the unspoken and misguided idea that by increasing the pain of using autos people will change behavior to those more esthetically pleasing to the would be social engineers delicate sensibilities." You're simply resorting to ad hominem instead of discussing the actual policy.

I mean, suppose someone accused Russell Roberts of hiding his true agenda--to protect the profits of oil extractors and refiners, in order to earn higher returns on his oil-oriented investments? That would be a stupid, dishonest, and insulting argument. If you're not going to grant Mankiw and his ideas the respect they deserve (and the respect that Russell Roberts gives them), it would probably better just to avoid discussing it altogether.

Re: When Pigous Don't Have Wings

john henry — Tue, 23 Jan 2007 16:04:22 -0000

I'd like to see a $1-2/gallon gas tax. Phased in perhaps 10 cents a month for 10-20 months.

I hate the idea of the govt having more money so would offset it by lowering other taxes. Perhaps the employee's portion of SS, but I am open to discussion.

I would not tax coal, nuclear, ethanol, oil shale, tar sands or other forms of energy.

If we raised the cost of gas we would cause permanent changes in our energy consumption. We would send less money to the various countries that dislike us and cause us trouble. They need to sell oil much worse than we need to buy it.

Let them choke on their oil.

John Henry

Re: When Pigous Don't Have Wings

ben — Tue, 23 Jan 2007 11:13:08 -0000

Apologies if this has already been mentioned. I believe one or more studies have demonstrated that existing taxes on gasoline are more than enough to internalise gasoline externalities. Motorists are already paying the costs of their pollution.

Re: When Pigous Don't Have Wings

Robert Coté — Tue, 23 Jan 2007 11:07:00 -0000

The thing about pollutin is that we are internalizing the costs. Thus $1500 per auto in catylitic and other pollution controls. Thus the 10% air added to California gasoline that makes it MORE expensive while getting poorer fuel mileage. What mankiw and his ilk want to do is abritrary and capraciously assign imagined external costs and then charge for them and use the money in some cases to increase the problems. Congestion charging is a good example.

Re: When Pigous Don't Have Wings

Adam Malone — Tue, 23 Jan 2007 10:17:00 -0000

JohnDewey-

I agree and disagree with you on this issue. Like Russell, I have a problem with increasing taxes on fuel and/or road use when it is more likely that those taxes collections will result in increased spending rather than a decrease in other taxes. But there are some externalities to driving.

I am not a believer in the global warming theory, but pollution is obvious. Houston & Los Angeles have pollution problems that are obvious, and generally this pollution can be traced to vehicles. Pollution is a negative externality, period.

But there are at least two reasons why public transportation has not caught on in the US:

1)Gas prices have not risen sufficiently to "encourage" the use of public transit.

2)European and Japanese rail transportation hinges on large urban centers with relatively insignificant suburbs.

A Pigouvian tax would raise the price of gas to the consumer.

But as evidence of the fact that gas prices have been impacting the choices of consumers you simply have to look at the number of auto companies and VCs that are investing tons of money in alternative fuel and high efficiency vehicles.

Comparing current investment with that of just 10 years ago shows that companies are more interested in the technology. And generally companies have one goal...make some money by satisfying customer.

Re: When Pigous Don't Have Wings

Robert Coté — Tue, 23 Jan 2007 10:12:10 -0000

John Dewey correctly observes: "What's really perverse with you tax freaks..."

To which Mike Hammond retorts: "Calling people names doesn't make your argument any stronger."

That isn't name calling. John makes an asute observation. We already tax, double, triple, quadruple tax privately operated vehicles and massively subsidize transit and only by manipulating the statistics is transit holding gross ridership in a burgeoning population. The problem with Mankiw and his adherents is that they are hiding their true agenda. They don't want to incorporate the externalities of POV mobility. They don't even want to charge more for the neagitve externalities. They want to punish automobilia for imagined sins in the unspoken and misguided idea that by increasing the pain of using autos people will change behavior to those more esthetically pleasing to the would be social engineers delicate sensibilities.