Some Warnings for Modern Pigovians (from Pigou Himself)
We live in a time of optimism about government’s ability to improve upon the unregulated state of affairs. From health insurance to financial markets to the types of fats we eat, cars we drive, and sources of energy we consume, there is a sense among our political, media, and academic elites that our privately ordered affairs are out of whack and can be improved by government rules. These elites rarely stop to ask whether the private ordering whose malfunctions they are seeking to correct is, in fact, private; in reality, it’s often not (see, e.g., the role of Fannie and Freddie in creating the housing bubble at the heart of the financial crisis, the role of the tax deduction for employer-provided health insurance in eviscerating the price competition that would constrain health care costs). Rather than asking how government meddling may have contributed to an undesirable situation, the elites usually look for a market failure — some systematic defect in the system of private ordering — and then invoke that failure as the rationale for a governmental fix.