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What’s On My Mind?

1. My default view of economic policy, even very effective policy, is that at best policy changes move us only a little bit of the way toward our stated goals as compared to an array of far larger and more important forces. These forces are often beyond our control, including biological ones, and include cultural and social ones too. To get your mind around what I mean, ask yourself what, in a perfect world you would envision as a terrific educational intervention that would improve learning outcomes for grade schoolers. Smaller classes? More highly trained teachers? More time in class? Better books? And now, even ignoring the cost, compare those changes to the other factors that may impact learning outcomes. The implications deserve a separate post.

2. I think our thinking that “Pigovian Taxes” are “efficient” is wrong and not for the typical reasons it is thought to be wrong. The traditional thought is that taxes are not necessarily the least cost way of solving externalities problems if transactions costs of negotiation are large because they require that we “pick” the lowest cost avoider of the problem as the party to be taxed. That may be the case, but I think deeper reflection should be given to what, exactly, we are taxing. Take the case of particulate emissions from cars. You might think that a standard tax would be a tax on fuel, but I view that every much as I would an input regulatory standard. If we simply put a tax on fuel, we are saying that the way to reduce particulate emissions is to reduce fuel use. But that is like “picking a particular production process” rather than truly taking advantage of market incentives. The idea would be not even to tax particulate emissions, but if it were possible (it is not) we would want to penalize the actual external cost (the incidence of disease that may come from it, for example). If you are taxing the act of purchasing gas, that is not at all going to ensure that the lowest cost way of avoiding the particulate damage is going to be employed. What if, for example, it is really cheap to stick something on the tailpipe that removes all emissions? With a tax on gas and not on the damage itself, there will be little incentive for these technologies to be rolled out.

3.Our own Professor Jones’ daughter Laura was instrumental in the passage of Canada’s Red Tape Reduction Act. I’ll believe in unicorns if such a thing ever were passed here.

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