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David Frum: Pigovian

January 8th, 2008

Who’d of thunk it? But David Frum has, in his newest book Comeback: Conservatism That Can Win Again, come out in favour of a Pigovian Tax. To start, here’s a primer on Arthur C. Pigou, from Terence Corcoran’s NoPigou Club:

Arthur C. Pigou was an early 20th-century British economist, one of the fathers of welfare economics. He believed governments can shape policy for the better by raising taxes on bad things and subsidizing good ones.

Pigovian taxes these days tend to mean a carbon tax. Everybody seem to be on board except, thankfully, our current government. The idea is tempting, replace current taxes with taxes on carbon, thereby allowing you to lower your tax load by conserving energy. Except governments first and foremost protect government revenue. It is simply what they do, as evidenced by Toronto Hydro’s rate hike last March:

…last weeks Toronto hydro rate increases being a classic example what’s wrong with using the tax system. As customers have reduced, Hydro’s profits have decreased, thus they increase rates. The next step is to ask yourself, why should I conserve?

And Terence Corcoran has an article today, Carbon Tax Looks Like Roadkill, suggesting some of the problems with a carbon tax. Chief among them is that nobody is being even remotely honest about how high a carbon tax would have to be to be effective. If I’ve said it once, I’ve said it five or six times, here in Canada sixty cents a litre is the starting point for serious carbon reduction; Corcoran makes a case that it would be more.

So what has come over David Frum? I will quote from an excerpt of his new book, Comeback: Conservatism That Can Win Again, that appeared in the National Post last Friday. I have not found a link to the excerpt, so you’ll have to trust me on the contents, or go buy the book and check it yourself:

Oil is a globally traded commodity. There is a world oil market, one world price. If Iran uses its oil revenues to underwrite a nuclear program, what does it matter whether those revenues are denominated in dollars, euros or yen? If Osama Bin Laden were to seize control of the Saudi state, would it console us that comparatively little of his oil wealth derived from U.S. sources?

While increased North American oil production would be helpful, only substitution and conservation can achieve the important national security goal of reducing the power of unreliable oil suppliers…

There is a simpler and better way to encourage consumers to conserve while denying income to producers: Tax those forms of energy that present political and environmental risks – and exempt those that do not…

That is, surprisingly from David Frum, a Pigovian tax scheme. But I’m still not buying.

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  1. Lemon
    January 8th, 2008 at 11:36 | #1

    Great post, Bri

    Love reference to Toronto Hydro.


  2. Brian
    January 8th, 2008 at 12:41 | #2

    Thanks Lemon

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