Garth Brazelton thinks so, in an argument I find somewhat persuasive:

My issue is that he keeps saying 'sin taxes' are not Pigovian. I've disagreed on this point, and I disagree continually. A basic definition of a Pigovian tax is: a tax levied on a particular behavior in the market that is generating negative externalities. The idea is the tax re-aligns the real social cost with the benefits of the activity. Mankiw distorts this defintion and implies that negative externalities can only occur as an action by one group negatively affects another... The externality is there - it's not external of self at that time, it's external of self OVER time. It's correcting behavior that, if a person had complete foresight and 20/20 clarity of the totality of their life, one likely would do less of. ...And this is ignoring the very real argument that many 'sins' DO have real negative external consequences at a given point in time - consequences on family and relationships that, while often non-pecuniary, cannot be ignored.

I have never thought of it that way before, but hyperbolic discounting and other forms of time-inconsistent preferences may be a form of externality. Can today's self impose a burden on tomorrow's self by drinking too much beer? And does that burden constitute an externality?

I wonder if branding such behavior an 'externality' is beside the point. If imposing these sin taxes is welfare improving, does it really matter if we use the externality label?

I am a supporter of the VAT, so I was interested in reading Veronique de Rugy's anti-VAT piece The Wrong Policy at the Wrong Time. I was surprised to find that there were two sentences I was in complete agreement with:

Which suggests a final thought: Focusing on revenue mechanisms such as a VAT in deficit-reduction discussions misses the point that spending and revenue tend to be very loosely correlated. Governments spend when don't have revenue and they spend when they do have revenue.

That sounds an awful lot like my anti-'Starve the Beast' argument from Will Higher Taxes on Gasoline Lead to Higher Government Spending?

Arnold Kling quotes from a terrific piece by Eric S. Raymond:

We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it's not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can't pull enough weight to justify a paycheck; it's the marginal ones, the mediocre, and the mildly dysfunctional.

As a small business owner with a number of employees, I agree wholeheartedly with this. The expense of hiring and retaining a worker goes beyond wages and include training costs, employer-side payroll taxes, health insurance and many other items. Some of those (though not all) are direct functions of government regulation (payroll taxes and the minimum wage for low-wage jobs).

If a country really wants to reduce unemployment, the best solution would be to find ways of reducing the costs of employing workers. Eliminating employer-side payroll taxes would be a good start; the revenue can be made up through increased use of value added sales taxes. Swapping the minimum wage for a negative income tax would also increase employment and promote economic efficiency. The Second Welfare Theorem illustrates that altering the market price of a good (such as a price floor on labor) will necessarily lead to inefficiency. We can better achieve the outcome society wants through a straight wealth transfer, such as a negative income tax.

Five years later, We Will Never Run Out of Oil is still one of my most read articles and the source of the majority of the angry e-mails I get. I wonder how many Prof. Boudreaux will receive for For oil, tap ingenuity. I particularly enjoyed this part:

Human creativity and effort also are at work finding not only substitutes for oil, but also new supplies of oil. Each success on this front increases the supply of oil. The reason is that oil deposits that remain unknown are economically nonexistent.

The same is true of oil deposits that are known to exist but are currently too costly to tap. Oil in the Earth's crust that is out of reach with existing technology is no more of a resource today than is oil on Pluto. But if and when human creativity discovers cost-effective techniques for extracting that oil, it then -- and only then -- becomes a resource. In effect, more of the resource "oil" is created.

Of course, as a matter of physics, there is indeed only a finite amount of oil in the Earth. But we have no idea how much. And our ignorance of this physical fact is economically relevant.

For a longer version of this argument, see: We Will Never Run Out of Oil.

The international trade / public policy course I teach at Ivey is quite Keynesian. Next time I teach the course I will give my students Arnold Kling's How I Think About Keynesian Economics - it is absolutely brilliant. I particularly find this part useful:

Imagine that all of us were chefs, each with a different specialty. In good times, I patronize others' restaurants and other people patronize mine. That is economic activity. In a recession, for some reason we stop going out to eat. I don't enjoy eating my own cooking every meal, but I don't think I can afford to go out. Since I am not patronizing your restaurant, you think you have to cut back on eating out, also. Economic activity declines.

Thinking about the economy in these terms, the idea of using government deficits to boost economic activity makes perfect sense to me.

This reminds me a little of Paul Krugman's baby-sitting scrip story - people stopped using the babysitting scrip, which meant others were not getting additional scrip, which cut back on their use of babysitting scrip and the amount of babysitting declined.

As such I do not think Don Boudreaux's money has to be taken from somewhere else story (that implies fiscal stimulus cannot work) is necessarily correct - that money may be horded (like the babysitting scrip). In theory, fiscal stimulus could work if the money goes from being horded to being spent. Of course, that does not mean that fiscal stimulus is the best option - increasing the supply of money (or scrip) seems far more effective,

In general, I do think fiscal stimulus is highly ineffective, but my criticisms are more practical in nature.

Paul Krugman makes an excellent argument based on behavior economics on the benefits of higher inflation:

I would add, however, that there's another case for a higher inflation rate -- an argument made most forcefully by Akerlof, Dickens, and Perry (pdf). It goes like this: even in the long run, it's really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts.

Agreed with all of this. Absolutely correct. But Krugman errs when he concludes:

So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis.

That is possible, but not certain. What it could also lead to is higher use of labor contracts with cost of living allowances - that is, labor contracts that are indexed for inflation. Using inflation to cut real wages only works if wages are paid in nominal terms. But if the labor market expects inflation to be high for a significant period of time, then we should expect to see wages paid in real terms, at which point the added inflation gets you nothing.

Of course, one possibility is to ban the use of COLA clauses in labor contracts. I would be surprised if any economist, let along Prof. Krugman, would advocate that step.

A terrific post at Worthwhile Canadian Initiative - Rethinking Canadian macroeconomic policy. A good read even if you're not Canadian. Most interesting is the suggestion is for the Bank of Canada to raise the target inflation rate from 2% to 4%. I am skeptical of our ability to measure long run inflation, but in the period of a year or so we can certainly do so.

I do not believe a higher inflation rate would cause too many economic problems so long as the Bank of Canada could keep it stable between a 3 and 5% bound. I can't imagine the menu costs problem is a great deal more of a problem at 4% rather than 2%. There would be some distributional effects - the Bank of Canada would earn more in seignorage, people on fixed incomes would lose, the Canadian dollar would depreciate (assuming our trading partners did not follow the same policy), so exporters would win but imports would become more expensive.

I agree with Stephen Gordon when he states:

My point of departure is 'If it ain't broke, don't fix it'. And it's not at all clear to me that the 2% target has failed as a policy... We could probably safely trade low and stable inflation against higher and stable inflation as an insurance policy against hitting the lower bound, but it's not clear that this choice is available to us... Did we hit the lower bound, or did we just graze it? The Bank never did see fit to actually implement a policy of quantitative easing, even though it (quite rightly) laid out the groundwork to do so.

One frustrating thing through this whole recession or crisis or whatever you want to call it is how many have equated monetary policy with setting interest rates. However, that is far from the Bank of Canada's or the Federal Reserve's only policy option, despite claims to the contrary by well known economists. As someone who teaches macroeconomics, I must take my share of the blame. For a generation we taught that monetary policy was simply altering the Federal Funds Rate. Occasionally we talked about altering the reserve ratio. I guess it is not surprising that so many believe the zero bound problem is such an important one - we never taught students that there are alternatives!

Some terrific links here: We're Not Running Out Of - Or Even Low On - Sources of 'Nonrenewable' Energy.

I am not a geologist, so I am not going to provide any commentary on physical reserves. What I can comment on is the bad economics behind the peak oil theory (see: We Will Never Run Out of Oil). Peak oil theorists are a lot like basketball's Washington Generals - they haven't got anything right since 1971.

Just because I haven't posted this in awhile: SUPERKIDS:

From the dim recesses of the 1970s comes SUPERKIDS, a free educational comic published by the Office Of Energy Conservation of the Department Of Energy, Mines, and Resources of Canada and charmingly illustrated by Don Inman!

The comic is a fun read. I, for one, am glad we didn't run out of gasoline in 1986!

Tyler Cowen asks: Is there a case for a VAT?

I'm shocked he has to ask this - of course there is! The U.S. federal government has very few options to dig themselves out of their fiscal hole. Their fiscal options are:

1. Significant cuts in spending, which sounds good in theory, but what to cut?
   
   
2. Hold spending at the level of inflation and let government revenues grow as the economy grows. Easier than cutting spending - but it will take at least a decade for the economy to grow large enough to raise government revenues enough to eliminate the deficit.
   
   
3. Raise taxes.

If you choose option 3, then a value-added tax makes the most sense, for the reasons described in The Efficiency of Value Added Taxes (VATs) over Income Taxes.

Frederic Sautet worries that "VAT rates generally go up quickly but rarely go down", which sounds funny to this Canadian, as our 7% GST, introduced 2 decades ago, replaced a 13% MSFT and has been reduced twice and is now at 5%.

King at SCSUScholars on the evidence (or non-evidence) that the stimulus package "worked":

Most of what we write about the effects of stimulus are just that, "an attempt to gain knowledge." A bureaucrat writes down some numbers. Reporters and bloggers find flaws. Econometric models estimate the effects, but those models were used to propose the policy put in place. It's not likely those models would go back and say the proposed plan didn't work: Econometric models aren't built to do that: If the model has as a premise that future government spending will create jobs, it isn't going to tell you that past government spending did not. Meanwhile, those in political opposition will look to find contradictions when none really exist. (GDP growth can lead employment growth.) And people get angrier and cynical.

There is nothing wrong with saying we don't know. It might have worked; it might not have. What we know is there are between three and four million fewer jobs than a year ago, and the deficit is larger. We want to know more. We are trying to know more. And if the volume of studies since 2000 of the Great Depression are any indication, we'll still want to know more a century from now.

Terrific stuff. I agree whole-heartedly with King - little evidence can be gained directly from the statistics. There is no shame in saying that we cannot be certain. Because the direct evidence is necessarily so spotty, theory is important. An analysis of the theory behind fiscal stimulus shows that, as the theory is constructed, it cannot work in the real world for anything but very severe recessions.