Pigovian Taxes and Mankiw's Pigou Club

I am currently taking an FTE online class - The Economics of Disasters. This is a wonderful course and will be offered fall, 2009 and I recommend it highly.

In the course of an online discussion about responses to disasters a classmates mentioned Pigovian taxes as a least worst solution.

My reply:

If the world is constant externalities - that is every transaction impacts third parties in some way, then what would be the approach to considering a world of constant externalities?

The deadweight of government involvement is justified by those who have great confidence in their ability to determine social costs and benefits. This type of paternalism constitutes an incidious threat to liberty and to freedom of action, in my view.

That said, all government action in the form of tax creates a deadweight loss, taxes do not eliminate deadweight loss.

http://www.basiceconomics.info/tax-and-deadweight-loss.php

As you say, Mankiw would argue that the deadweight loss from the gas tax is justified, because the taxing authority knows the social costs and benefits. When I think about this, I wonder why I use Mankiw's text. Note to self - next semester move to The Economic Way of Thinking. Hayek and others were very skeptical that central authority can acquire and act on knowledge.

That said, as you indicate, it is indeed stimulating to explore these points of view. As I write this, I am trying to think of any tax at any time that moved society closer to socially efficient outcomes and . . .

The foundation of a free society is absolute protection of property rights. Surrendering that absolute right must be justified by significant and extraordinary potential gain.

From a source with an admitted skepticism toward taxation

CATO - the Pigovian Problem

http://www.cato.org/pubs/regulation/regv31n2/v31n2-5.pdf

and

CATO - Against the New Paternalism

http://www.cato.org/pubs/pas/pa563.pdf