In the fourth explainer this week, the Economist continues its steady transformation into a socialist magazine. Today, taxes:
MARKETS are supposed to generate a magical state, where nobody could do better without somebody else doing worse. Awkwardly, they often fail. The reason is that those directly involved in a transaction are not the only ones affected by it. A drive into the centre of town, for example, creates congestion for everyone else; a company dumping waste into a river poisons the downstream drinking water; carbon emissions warm everyone’s planet. Economists have a special name for these extra costs: they are “externalities”. Unfettered market prices do not take them into account.
The much-lauded market dumps hidden costs on the people. Nothing new to socialists. So, the Economist, after Arthur Pigou, proposes taxes:
Pigouvian taxes are now central to well-meaning governments’ toolkits. A tax placed on plastic bags in Ireland in 2002 cut their use by more than 90%. Three years after the British government introduced a charge on driving in central London in 2003, congestion had fallen by a quarter. Carbon taxes are currently applied in Finland, Denmark, Chile and Mexico. By using prices as signals, a tax should encourage people and companies to lower their carbon emissions more efficiently than a regulator could by diktat.
The Economist does hedge here, new as it is to socialism. That they see Pigouvian taxes as a superior alternative to regulation, while most socialists would consider both depending on circumstances. But the only thing keeping the Economist from renaming itself the Tax Collector is that they see externality taxes as a technocratic lever for a rational state bureaucracy to pull. They fail to imagine, as socialists do, that such policies have their most potential as a tool the people can wield to build a more just and fair society – after, and not before, they who would be free themselves have struck the blow.
The idea of externalities is elegant in theory. But responding to them involves the real world, which is harder.
The Economist hurls a chair onto the barricade, sweating in the shadow of their young nation’s tricolor waving above the morning fog. The hereditary tyrant’s regulars advance on them through the narrow streets of the capital. The Economist hands their last letter to an urchin, promising a silver coin if the boy delivers their last words to their pregnant widow. “I pray this letter finds you, my love,” it reads. “In this springtime of peoples born in the blood of our sacrifice, the community of nations will rise.”
The regulars loose thunder and advance with bayonets fixed. Struck by a musket ball, the Economist staggers off the barricade, their blood running in rivers between the filthy cobblestones. In their last moments, the Economist mouths the final words of their testament. “The ancient tyrants will fall,” the Economist gasps, as agony gives way to oblivion, “and the triumphant Republic will levy user fees whose marginal effect on individual behavior will trend towards Pareto optimum in the aggregate.”