Charles Krauthammer in piece at
Real Clear Politics tell us that
At $4, Everybody Gets Rational. Krauthammer argues
You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.
Incentives matter. Increasing prices does change behaviour. Petrol get more expensive, people change the way they travel. May be more use of public transport, may be more use of a bike, but even more likely is a move to smaller, more efficient cars. Krauthammer then notes that
Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker.
This is one advantage with the use of a Pigouvian tax. You can use the tax revenues to lower other taxes. Krauthammer continues
But instead of doing the obvious -- tax the damn thing -- we go through spasms of destructive alternatives, such as efficiency standards, ethanol mandates, and now a crazy carbon cap-and-trade system the Senate is debating this week. These are infinitely complex mandates for inefficiency and invitations to corruption. But they have a singular virtue: They hide the cost to the American consumer.
Politics will beat economics everytime.
2 comments:
I don't understand why tax is even mentioned in this article. If the premise is that prices moves incentives efficiently, doesn't the price of gasoline unadjusted by taxes do this just nicely? (not withstanding externalities, of course, which aren't mentioned anyway)
Is the author so desperate to say something to gvoernment other than 'do nothing' that he trips on his own premise?
I think his point is twofold. 1)price changes will achieve things like more fuel-efficient cars better than direct government intervention. 2)if you want higher prices, for whatever reason -externalities or whatever- then use a tax and the government gets the tax revenues which can then be used to finance lower taxes elsewhere or wait for the market price to rise and then someone else gets the "tax revenues" and you can't cut other taxes. In another part of the article he says that even if the market price drops below $4 taxes should be used to keep the consumer price at that level.
Post a Comment