A.C. Pigou, Public Choice Economist, on the Use of Government

8 Comments / Economics, Electricity, Energy markets, Environmental policy / By

Michael Giberson

At the end of a comment on Windfall, a new documentary on the effects of wind power development on a community in upstate New York, Michael Munger pulls out the key Pigou quote.

Pigou is relevant because the best possible case to be made for subsidizing wind power production involves correcting for the externalities associated with conventional electric power production. Maybe we imagine a Pigovian tax on conventional generators as a sort of first-best solution, and direct subsidy to alternative generators as a second- or third-best solution.

Well, here Munger whips out the Pigou:

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.

From A. C. Pigou, Economics of Welfare, chapter 20, paragraph 4, available online free via the Library of Economics and Liberty.

Yes, well before James Buchanan, Gordon Tullock, Mancur Olson, Robert Tollison or even Michael Munger were objecting that government intervention may go awry, Professor Pigou was already there.

[ASIDE: I was led to wonder why this insight was seemingly lost from economics for several decades after Pigou published his work. Maybe someone has researched the question carefully. In the absence of someone setting me straight, I’ll blame Paul Samuelson.

Samuelson’s influential Foundations of Economic Analysis refers to Pigou several times, according to the book’s index, but so far as I noticed just once it mentions that the presence of Pigou’s external costs means “there is of course need to interfere with the ‘invisible hand’.” (p. 196)  Samuelson neglects Pigou’s qualification: “The case, however, cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously.” (And then Pigou continues with the public choice-like lines Munger quoted.)]

8 thoughts on “A.C. Pigou, Public Choice Economist, on the Use of Government”

  3. Michael Giberson

    We certainly love Coase around her, but in this particular case Pigou is publishing about 40 years before Coase’s “The Problem of Social Cost,” so I wouldn’t claim any influence from Coast to Pigou. (And similarly don’t claim that Pigou was the first to notice that government policies don’t always match the ideals invoked in support of government action. It is only interesting to observe that even Pigou, whom many economists have leaned on as a crutch for easy justification of government action, warned that analysts must do much more than note that private action isn’t perfect before concluding government action is preferred.)

  4. David

    I concede that point completely. My point was that Coase’s characterization of Pigou is much more of a caricature than this pithy quotation would suggest. I know about Pigou’s views from reading the Coase paper, not so much from my textbook treatment.

    Perhaps a more interesting question is does this have any implications for the Pigou Club?

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