In my Knowledge, Reality, and Value Book Club, I focus on my disagreements with Huemer, even though I agree with the vast majority of what the book says. Recently, however, he wrote a separate piece that I disagree with almost entirely, entitled “Two Taxes that Aren’t Theft.” Using Huemer’s common-sense approach to ethics, I say that he’s deeply mistaken on both counts.
He starts by making reasonable points about pollution taxes:
Pollution. Whenever you drive your car, you release a little bit of pollution into the air, which imposes a tiny expected harm on a huge number of other people and animals, including future generations. I bet you don’t get their consent, either.
On some absolute deontological views, you always need consent before imposing (certain kinds of) harm on others. But that’s impractical. You can’t get the consent of everyone in the world, including the future generations who will be affected by your pollution. So we’d have to say either
(a) “You can’t pollute at all.” This requires shutting down modern civilization. Or
(b) “Pollution isn’t the right kind of harm” (it’s not aggressive, people don’t have rights against pollution, or something like that). But this would mean that it would be fine to completely destroy the atmosphere with pollution (if someone had the ability to do that).
(a) and (b) are both bad. We shouldn’t completely prohibit all pollution, nor should we take no action at all against pollution. While complete destruction of the atmosphere may not be on the table (yet), we would surely have too much pollution if we didn’t do anything at all to polluters.
[…]
Wait — you can see what the utilitarian rationale is for Pigouvian taxes, but why isn’t it still theft (even if a beneficial theft)? My thinking is that the person creating the negative externality actually owes compensation for doing so. Extracting owed compensation from someone isn’t theft. So this form of taxation isn’t theft.
I’ve actually made a similar argument myself, so what’s my objection? He seems to endorse Pigovian taxes not just on physical damage to person and property, but against negative externalities in general:
This point of course applies to other kinds of externalities. If people get to impose negative externalities for free, there will be too many negative externalities. Lots of activities will get done that impose greater total costs than their total benefits. And almost everyone is going to lose out overall from all the negative externalities.
Solution: Pigouvian taxes. These are taxes on externality-producing activities. They’re supposed to be set so that the tax is about equal to the amount of external harm produced by the activity. This deters people from doing the activity, if and only if the total cost created by it exceeds the total benefit.
The problem: Anything can be a negative externality. Saying things people dislike is a negative externality. Painting your house an objectionable color is a negative externality. Having an unpopular religion is a negative externality. And yet common-sense says that human beings have a right to create such externalities, and those who object cannot legitimately use violence to prevent their creation. (Of course, as The Problem of Political Authority explains, people appeal to the notion of authority to rationalize government’s use of violence in such cases; what common sense says is that private individuals must tolerate most negative externalities). A society where all negative externalities were taxed might be economically efficient, but it would definitely be a tyranny. In a deep sense, freedom is the freedom to create negative externalities with impunity as long as you don’t non-consensually use other people’s bodies or property in the process.
To put this in the form of a common-sense moral dialogue:
A: Hail Satan!
B: You just created a serious negative externality.
A: How?
B: Christians don’t like you saying, “Hail Satan!”
A: So I’m not allowed to say that?
B: You can, but there’s a $20 tax for doing so. Pay up.
Huemer also seems to endorse Georgist land taxes:
This one is more interesting and controversial. I think Henry George may be right. Henry George thought that (a) everyone is entitled to the value that they themselves produce, but (b) they’re not entitled in the same way to value produced by nature. If you happen to be the first person to claim some valuable natural object, that doesn’t really give you a greater claim to its value than other people who arrived later…
Solution: A land tax. The first person to find some unused land gets to claim it, but also, the person who owns a particular piece of land at any given time has to pay a tax approximately equal to the intrinsic value of that land (the value not due to human labor). The tax money should then be distributed evenly among society. This implements the idea that everyone should get an equal portion of the unimproved value of land and natural resources. Unlike other taxes, it doesn’t discourage productive activity, but it does discourage inefficient uses of land.
First, this directly contradicts common-sense. If you’re the second person to arrive on an island, and the first-person has already farmed the best land, it seems very odd to claim that you’re “entitled” to half the surplus value of his land.
Second, raw human talent is also a “valuable natural object.” So by Georgist reasoning, everyone should be entitled to an equal share of the value of human talent. Which is, in common-sense terms, slavery.
To put this in the form of a common-sense moral dialogue:
A: Welcome to the island!
B: Thanks. Now hand over half the surplus value of your land. You owe it to me.
A: This is my land. I’m the one who farmed it. I was going to give you some to help you out, but you’re scaring me.
B: You’re entitled to your value-added, sure. But you have to share the raw productivity of nature with me.
A: Seems unfair.
B: Well, let me point out that you seem to have an inborn knack for farming.
A: True, I’ve always had a green thumb.
B: Interesting. I wasn’t born with this talent, so you also owe me half the value of your inborn green thumb. I think I’m going to like this island!
I say this is crazy. Political authority might trick people into thinking that Georgist taxes are legitimate, but in Crusoe scenarios we can readily see them as theft.
P.S. My paper with Zac Gochenour argues that the category of “unimproved land” is much narrower than most Georgists suppose. Whether we’re right or wrong, however, Georgist taxes are indeed theft.
READER COMMENTS
robc
Aug 4 2021 at 2:00pm
I disagree with you about Georgist taxes, primarily because your Crusoe scenario is wrong. You owe the other person 1/2 the surplus value of the land whether they come to the island or not (or really 1/7000000000th of the surplus land value, plus or minus). I am now off to read the Gochenour link, but I probably agree with it.
I agree with you on Pigovian taxes. At other places on this site, I have described them as a 3rd best solution, at best.
robc
Aug 4 2021 at 2:34pm
I agreed with less of Gochenour than I thought I would.
He actually covered most of my objections, but casually dismissed them away, not to my satisfaction.
His claim that the pre-search value of unimproved land is zero is wrong. The pre-search value would be the EV of the land, adjusted for some risk factor. Say .8EV. The EV is not zero.
Think of it this way, if someone auctioned off a randomly chosen acre of land somewhere in the world, how much would you be willing to bid? If truly random, it would be pretty low, as the vast majority of acres are at the bottom of the ocean and without any easy to access value (maybe fishing rights?). But if you have any terms at all, such as that it is actually land, the EV goes way up. You could argue about what information is pre-search. Random acre in Montana? Is knowing it is in Montana search value?
I think it is more like an as-is house auction. You can see it and walk thru it, but you don’t know all the flaws, but you can get a decent EV without an extensive search. Walking across land in Montana may not tell you what minerals exist, but you can make a very rough estimate.
benjamin d weenen
Aug 21 2021 at 11:24am
No Georgist or advocate of land tax would in their right mind suggest an auction whereby the value of land is in the public domain. That simply adds search costs into its value. Thus not a tax on land, but a tax on human inputs too.
Plenty of jurisdictions around the world operate fairly Georgist policies regarding mineral extraction. Oil companies still search and still make a profit.
Pierre Lemieux
Aug 4 2021 at 4:47pm
Bryan: Whether one thinks that all taxes are theft or not, your point on the ubiquity of externalities is an important objection to defenders of government intervention on that basis. In the forthcoming (Fall) issue of Regulation, I have an article on “the danger of externalities” where I note (among other points):
Thomas Lee Hutcheson
Aug 4 2021 at 10:04pm
And in a tort suit, one had to prove “real” damage. Centuries of precedent has made this easier but each case still has to be decided. Same with externalities. With the right kind of court system, everyone harmed by pollution would just sue all the carbon oxidizers and the court could impose a carbon tax remedy.
Pierre Lemieux
Aug 5 2021 at 10:54am
What’s a bit of carbon during your short voyage on earth compared to eternal life? And is it “real damage” that, as one economist recently complained, the old rich don’t die and continue spending their money on themselves, an externality for all their heirs?
Frank
Aug 4 2021 at 5:51pm
Reminds me of Sen’s The Impossibility of a Paretian Liberal, JPE 1970, and the ensuing discussion.
Joe Denver
Aug 4 2021 at 6:15pm
On Pigouvian Taxes: isn’t there a point at which negative externalities do become rights violations, though?
If transaction costs were literally zero, I’m not certain Bryan’s logic holds. Yes demanding $20 for hailing Satan is unreasonable. Demanding $.00000001 dollars, without any effort to hand over said money, might not be so unreasonable.
On LVTs: perhaps I am missing something, but I thought Georgists were arguing to tax the unimproved value of the land. Which, on a desert island, would basically be zero, since no one is there to value the land.
So I’m not certain the analogy holds here either.
Not that I’m in favor of either tax. I’m just not certain this logic is correct.
Jon Murphy
Aug 4 2021 at 8:10pm
A negative externality may be a rights violation (and vice versa: a right violation may be a negative externality), but they do not have to be one and the same. For example, the giant Crucifix on someone’s lawn is a negative externality but no rights are being violated.
Kevin Jackson
Aug 4 2021 at 7:51pm
Pollution is the classic example of an externality, but it’s a terrible one because it is so one sided. But externalities are always two sided. Driving a car that releases pollutants into the air creates an externality. But keeping the air clean by mandating catalytic converters imposes an externality on everyone driving a car. Have fun making that argument in public though! Imposing a tax on people driving cars to compensate those with lower air quality is no different than imposing a tax on those with cleaner air to compensate drivers for modifying their car, except that is much easier to calculate the cost of modifying cars and collect a tax accordingly.
BC
Aug 4 2021 at 9:17pm
“Whenever you inhale, you take a little O2 out of and release a little bit of CO2 into the air, which imposes a tiny expected harm on a huge number of other people and animals, including future generations. I bet you don’t get their consent, either….you can see what the utilitarian rationale is for Pigouvian taxes on breathing…”
The problem with externalities is that they are symmetric. Yes, emitting CO2 might lead to higher sea levels, reducing the value of coastal land, but preserving the value of that land requires reducing the value of oil fields. The same argument for levying Pigouvian taxes on CO2 is also an argument for levying taxes on use of coastal land to pay oil field owners to leave their fuel in the ground.
Breaking this symmetry requires defining property rights. Either oil owners have the right to burn their fuel (or sell it to others to burn), in which case coastal land owners must pay the oil owners to leave it in the ground, or coastal land owners own “sea level rights” to prevent anyone from affecting sea levels, in which case oil owners must buy those rights from coastal land owners to burn fuel. (Sea level rights actually seem pretty hard to define and enforce. Lots of things that people do might have hard-to-determine impacts on sea levels in different places.)
In the case of air pollution (or breathing), someone might own a property right in air that entitles them to stop others from releasing pollutants into it (or breathing the air). But, just noting that an externality exists is not enough. One must carefully define the relevant property rights to resolve any conflicting rights.
PolishRight
Aug 5 2021 at 2:46pm
I think you’re trying to be nit-picky about the words here. The phrase “valuable natural objects” is obviously meant to exclude human beings. Mike specifically said
You can strawman Locke’s theory of property acquisition in the same way. If you become an owner of a thing by mixing your labour with something, it would imply that the children are forever property of their parents and just I can destroy a car that I own I may multilate my own children. Obviously, while in general producing something grants you ownership rights over that thing, it doesn’t apply to owning intelligent beings. Principle of self-ownership overrides the normal Lockean story. In the same way Georgist may say that self-ownership overrides equal rights to “valuable natural objects”.
I’m not sure whether the negative intuitive reaction to the story you tell is caused by the inherent wrongness of Georgist taxation or that the act of taking the law in our own hands by taking someone’s posession away in property disputes that are not 100% clear causes revulsion. If you imagine a third party arbiter with no axe to grind that adjudicates the dispute between the islanders and rules that the one who arrived there first owes compensation to the late-comer, it doesn’t seem bad to me anymore.
When Huemer tells story in POPA about a guy essentially starting a new government that catches criminals and locks them in his basement and extorts neighbours to pay for protection, the extortion isn’t the only thing that strikes people as wrong. They think it’s dangerous that this one guy takes on the role of punishing criminals, because they doubt that he’s principled enough to judge fairly and treat prisoners humanely. Something like that may also apply in this case.
—-
When it comes to the issue of Pigovian taxes, Huemer probably did not express himself clearly enough, but if you read him carefully, you will see that he in fact agrees that not every kind of harm merits such a tax.
In any case, Huemer in his paper against the War on Drugs in section II specifically says that only some ways of harming others merit punishment. For example, straining relations with your family does not count.
Mark Young
Aug 5 2021 at 6:08pm
Huemer writes about Pigovian taxes:
So how much external harm is done in your examples?
No one is out of pocket at all in the first and third of these — no person or property is harmed except in their feelings. The Pigovian tax rate on these would be zero.
And painting your house an objectionable colour may harm your neighbours’ resale value. I have some sympathy for considering that an actual harm (I am a home-owner), but I think there are perfectly reasonable arguments that there has been no actual harm to your property, since you’re not continuously (or even continually) selling your home. Arguably also a zero-rate tax.
Of course the government (or local bully’s association) might set the rates higher than they should be in order to skim some off the top, but that would be wrong. That’s not how those taxes are supposed to work, and his position is that used properly they would not constitute theft.
The implied accusation that he is supporting taxes on speech, aesthetics and religion is, I conclude, unfair.
Jon Murphy
Aug 6 2021 at 9:40am
That’s only true if we assume people value their preferences at 0.
Mark Young
Aug 6 2021 at 2:26pm
If someone had paid to have their preferences accommodated, then there’d be harm in having them violated. If I were to pay you $10 not to say I’m ugly, and then you went ahead and said it anyway, I’d be out of pocket $10 and have a moral claim against you. But even if I were willing to pay you $10 for your forbearance, the fact that I haven’t done so means that I’m not out of pocket if you do call me ugly. You’ve hurt my feelings, not my pocketbook.
So I don’t see what difference it makes how much anyone values their own preferences. If there’s no contract, there’s no monetary harm. If there is a contract, then the tax is not required.
Jon Murphy
Aug 8 2021 at 9:59am
A negative externality is not a pecuniary externality. It occurs regardless of whether or not (and often times because) money hasn’t changed hands.
John Thacker
Aug 9 2021 at 1:27pm
You do seem to be attempting to reduce externalities to only when gains or losses are realized, but even granting that I don’t think it works. It would obviously invite the question of demanding compensation at the point when you do sell your home. In the end, I think one has either admit that some externalities cannot and should not be taxed / compensated because of rights issues, or bite the bullet and admit and accept some obvious moral injustices.
There have, of course, been many times and places where people viewed the presence of those of other races and ethnic groups as negative externalities, and certainly made arguments based on property values. Surely doesn’t justify a Pigouvian tax based on ethnicity.
Mark Young
Aug 5 2021 at 6:25pm
But that’s not a Pigovian tax; that’s what happens now.
The Pigovian tax would be a payment that you need to make based on how much damage your vehicle is causing. Paying for (and using) a catalytic converter would reduce your tax. You do the math for your expected usage, and decide what makes most sense for you.
Jon Murphy
Aug 6 2021 at 9:41am
I’m not sure I understand your point. Your second paragraph implies that the catalytic converter is a Pigouvian tax.
Mark Young
Aug 6 2021 at 2:28pm
I don’t think that’s right, either. A mortgage is not a tax, but if you have a mortgage you can use it to reduce your (US) taxes. Why would your example be any different?
Jon Murphy
Aug 7 2021 at 9:54pm
The example is different because we’re talking externality, not mortgages.
Jon Murphy
Aug 8 2021 at 8:04am
From a technical perspective, an externality is when not all resources are allocated to their highest use. In the case of a negative externality, too many resources are being devoted to producing something. There are spillover effects that affect a third party, so the original party(ies) are not paying the full price for their activity. In technical terms, they do not internalize all the costs.
The role of a Pigouvian tax is to force the party(ies) to internalize all the costs. The optimal Pigouvian tax is set to the difference between the current price (which is too low) and the socially optimal price (that is, the price where all costs are internalized). Thus, anything that increases the costs to the producer of the externality necessarily reduces the size of the Pigouvian tax (this is John Nye’s point in his 2008 paper “The Pigou Problem“).
To bring it all back to the car example, if a car causes a negative externality, then anything that increases the cost of operating a car (which is the cause of the externality) necessarily reduces the Pigouvian tax.
So, let’s say operating a car causes $1,000 worth of damage per year as an externality. For further simplicity, let’s assume zero information and knowledge costs and zero transaction costs (these are merely simplifying assumptions and, though unrealistic, do not change the underlying point). If there is nothing else, then the optimal Pigouvian tax is $1,000. If a catalytic converter is installed and it costs $750, thus increasing the cost of the car and reducing the externality (since demand curves slope downward), then the optimal Pigouvian tax is no longer $1,000 but $250 ($1,000-$750=$250). The converter acts as an implicit Pigouvian tax.
Mark Young
Aug 8 2021 at 11:35am
Thank you for that clear explanation of your position. But I still disagree.
The optimal tax level is determined by the amount of harm done, not the cost of producing that harm. If the CC were useless at reducing harm, then its price would (or at least should) be irrelevant. Even if you pay $750 for the darn thing, your tax stays at $1000, because that’s still the amount of harm you’re doing.
If the CC reduces the harm you cause (and thus your tax) from $1000 to $250, then it’s worth $750 to you. If you can get it for less than $750, then it’s a good deal. If it costs more, then it’s a bad deal.
If there were a $500 way to reduce the harm of driving from $1000 to $250, then it’d be stupid not to buy it — if there were a proper Pigouvian tax. Without the Pigouvian tax, it’d be an out-of-pocket expense for other people’s benefit, and a lot of people would choose not to pay it.
And that is why we have a mandate for CCs — to force drivers to reduce the harm they do even tho’ it puts them out of pocket. The amount of harm it reduces is irrelevant — there’s no tax reduction for buying a CC that’s better at reducing harms, and so no one will pay extra for one that is. It’s not a Pigouvian tax; it’s an alternative.
Jon Murphy
Aug 8 2021 at 11:56am
It’s one and the same. The harm comes from the production. Increase the cost of production, you reduce the supply, and thus the quantity supplied, and the harm goes down. That’s how Pigouvian taxes work: they increase the cost of production. So, even if the catalytic converter is entirely a placebo, if it reduces the amount produced (and thus the harm done), it still acts like a Pigouvian tax.
In fact, the point that the tax can be placed on either party to an externality is part of Coase’s famous point in his 1960 paper The Problem of Social Cost. All that matters is that the cost is internalized somehow (which is to say, either the quantity of harm produced falls or the person harmed is compensated).
Jon Murphy
Aug 8 2021 at 1:56pm
I should probably note that the use of the word “harm” when it comes to externality is a little wishy-washy. One of the things Coase points out in The Problem of Social Cost is that externalities are reciprocal. A polluter harms the person whose lungs are damaged from the particles. But, likewise, the person who reduces the amount of pollution harms the polluter. Thus, it’s not obvious prima facie who is at fault and thus ought to pay compensation. Even more interesting is that who pay is not the person who suffers the most (it may be), but the one who faces the lowest cost of abatement.
Mark Young
Aug 8 2021 at 10:37pm
I suppose you mean that the person who makes the polluter pay is harming the polluter, since that makes sense. (If someone were pulling pollution out of the air on their own dime, I don’t see how that could plausibly be considered a harm to the polluter.) If someone punches me in the nose, they’ve harmed me — even if they did it to stop me beating someone else up.
From a moral point of view, the person making the polluter pay is much like the person who punches me to stop me beating someone else up: causing harm in order to reduce harm. I think that corresponds to the “not the right kind of harm” that Huemer was talking about.
Of course if the person punched me in the nose to stop me calling someone else ugly, then the puncher would be in the wrong — the harm prevented is less than the harm caused. And I fully understand that the pollution example might work out the same way — the economic cost of ending the pollution may be greater than the cost of just compensating the people harmed.
I still don’t understand how you can say that the amount of harm done is equal to the cost of producing that harm. It seems like that’d mean it’s less harmful to shoot someone dead with a cheap gun than an expensive one. But I think I’ve already taken up enuf of your time. Thank you for your patience in trying to explain it to me. Maybe one day I’ll get it.
Jon Murphy
Aug 9 2021 at 8:22am
“Pay” either in the monetary sense or forcing them to reduce output. Externalities are reciprocal. In Coase’s famous paper, he uses the example of a candy maker and a doctor. The vibrations from the candy maker’s machines make it harder for the doctor to do his job. But, likewise, reducing the vibrations make it harder for the candy maker to do his job. The externality is only caused by the interaction of the two parties, not the action itself. This is something my co-authors and I discuss in our paper on teaching externality.
They’re not equal, but they are connected. The harm comes from producing, so one wants to reduce production. Thus it comes to the same thing to say that increasing the cost of producing the harm reduces the harm. That’s how Pigouvian taxes work (check out the textbook link I sent a while ago).
Mark Young
Aug 14 2021 at 9:42am
Finally took the time to read the book chapter you linked to. I had assumed (mistakenly I now know) that a Pigovian tax was only what the chapter describes in the section Pollution Charges. The others–particularly command and control–don’t seem like proper taxes to me.
Thanks for making me learn something.
SK
Aug 6 2021 at 3:19pm
Externalities: How about the fact that huge percentage of Medicare costs are attributable to obese and type 2 diabetics; and both are lifestyle issues.
I guess as % of obese and T2 diabetics keeps going up at some point it might not be an externality, say if the whole population suffers from those maladies. Just kidding!
D
Aug 8 2021 at 4:48am
B: “but if we follow this line of argument to absurdity, we will reach absurdity”
Michael Huemer
Aug 8 2021 at 4:10pm
For the record, I would not support a tax on natural talents, nor on hailing Satan!
benjamin d weenen
Aug 21 2021 at 11:14am
Your natural talents do not exclude me from my natural talents. Far from harming me, they benefit all.
Caplan misrepresents Georgist thought.
Natural resources are supplied free of human input thus cost. Income derived from them is thus cost free money. Anyone excluded from such a source of income suffers a loss of opportunity, which if uncompensated, leads to excessive inequalities and resource misallocation.
Paying compensation for imposing such a loss is, in principle, no different to the payment of wages or for goods/services received.
However, in order to persuade with Caplan, who I believe is blinded by his distrust of the state, it should be noted that all uninternalised costs that are collected, belong to each citizen as an equal share. Not the state.
Knut P. Heen
Aug 9 2021 at 10:32am
I find Pigouvian taxes annoying. Should Pigou and his followers be taxed in order to compensate me for being so annoying?
Mark
Aug 10 2021 at 5:12pm
If we redo the island story a bit, don’t we come to very different conclusions? Imagine you are the first person to the island and you claim land containing a natural spring of clean fresh water and a grove of coconut trees. And the remainder of the island is bare.
A: Welcome to the island!
B: Thanks! We’ll be sharing that water and those coconuts of course now that I am here.
A: This is my land. I’m the one who found it. I was going to give you some to help you out, but you’re scaring me.
‘A’ seems a bit crazy in this case. I don’t think we have good intuition for what % of the value of land is due to the improvements. But looking at the extreme end of zero improvement, it seems very intuitive that A is obliged to split the bounty.
Brian Holtz
Aug 11 2021 at 3:10pm
It’s sad to see such obvious strawmen from Caplan, from whom many of us learned the concept of steelman. Commenters have already diagnosed them, and the proper steelman arguments are readily available in nearly any writing from Fred Foldvary, who coined the term geolibertarian.
On the other hand, Caplan’s paper with Gochenour is a formidable critique, and this reminds me to ping the geolibertarian community to ask what (if anything) is the best response so far.
benjamin d weenen
Aug 21 2021 at 7:22pm
Quite simple. An auction whereby best use thus values are in the public domain would conflate search costs with raw land value, thus be a tax on land and human inputs. No Georgist in their right mind would advocate such a system. It’s a misrepresentation of Georgism (like Caplan’s article above) thus a strawman.
PD
Aug 17 2021 at 4:19am
First time commenter here, long-time reader.
“In a deep sense, freedom is the freedom to create negative externalities with impunity as long as you don’t non-consensually use other people’s bodies or property in the process.”
When you pollute you use other peoples property and bodies non-consensually. There is only a difference in degree, not kind, between polluting from your car or dispersing nerve gas from your property. It harms other peoples bodies (through e.g. increasing respiratory diseases or cancer) or their property (19th century cities covered in sooth, low-lying island getting flooded due to climate change).
So by your own argument you are wrong.
This, by the way, is different from e.g. selling fast food: fast food also causes diseases, but no one is forced to eat it. And it’s obviously different from hailing satan or having av alternative lifestyle, which doesn’t non-consensually use other people’s bodies or property.
I think you’re wrong on georgism as well, though other people has already argued why better then I can do.
I think the nice thing with both pigouvian taxes and georgism, besides being logically reasonable things, is that they make a libertarian society both practically possible and morally consistent. Society does need som taxes to function (ancap is an utopian fantasy) while protecting the environment is an obvious moral good.
benjamin d weenen
Aug 21 2021 at 8:47pm
Yes, “Anything can be a negative externality”. However, as Huemer said, Pigouvian Taxes should only be employed “if and only if the total cost created by it exceeds the total benefit.”
So ” a society where all negative externalities were taxed might be economically efficient, but it would definitely be a tyranny”, would be a cost not worth bothering with. The increase in GDP outweighed by reduced welfare.
These debates about the balance of costs are ones society has every day. Our laws and norms are there to internalise costs. In doing so, we hope that fairness leads to better resource allocation thus greater wealth and welfare.
In many grey areas, policy makers get this balance wrong. But its not theft. So neither can Pigouvian Taxes be, even if their deployment are misguided.
The Georgist Tax on land is also best though of as a Pigouvian Tax. Once two or more people want exclusive rights to a resource supplied free of human inputs, those excluded suffer a loss of opportunity. Clearly everyone is entitled to keep the fruits of their labour. We compensate on the basis of loss of opportunity when pay wages or for goods and services due to the cost of labour/capital expenditure.
Caplan’s logic amounts to some folks being consigned to work harder than others for the same income based not based on talent or enterprise but merely exclusion from a part of the Earth by force of law or threat of violence. That inequity if uncompensated is theft.
Possession of a talent harms no one else. Quite the opposite.
Thomas Basbøll
Aug 26 2021 at 11:32am
Nobody seems to have pointed this out yet, but isn’t the Georgist tax determined according to the unimproved rental value of land. Surely, the rental market on this island (with two inhabitants) is going to be in a bit of slump. A’s answer should be:
“I’ll pay you half of what you would pay to rent all my property on this island if I hadn’t made any improvements. Of course, I mean ‘would’ in a sense that implies ‘could’, so you’re either going to have to get to work extracting value from the land I haven’t yet occupied, or take a job from me. Then we can talk about how your purchasing power affects the rental value of the various plots on this island. Deal?”
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