Greg Mankiw attempts outline of limits to Pigou taxation, but may have picked poor examples of taxing Externalities. Silver and Gold colors for Cars provide the best prevention of Weather-checking of the vehicles, greatest Sight detection at Distance, greatest Sight attraction at Night, and easiest discernment of Parked condition–Day or Night. The Daughter of a Friend was trying to impose an Externality, not tax One. The other Example utilized by Greg would have created a Heat Tunnel above his residence and Lot to the benefit of his Neighbors through cooler surrounding Temperatures in summer, and spread of Heat in the Winter; an Externality which the contributing Neighbor should charge for from his neighbors. I can readily understand Greg’s intent, but this Post dealt with the creation of Externalities, not the taxation of them.
Mark Thoma gives a path to a George Ip article in the WSJ about rising Inequality of Income, implying that most Americans blame this Inequality on Trade. Here is the Statement which counts: Americans who think Trade is driving this Inequality are Right! A national economy with a higher Standard of Living cannot increase Exports to economies of lesser Standards of Living, without long-term equalization of Living Standards. The Optimum would be foreign rise of Living Standards to match the wealthier nation, but there are extreme conditions forestalling such a universal Rise: lack of Educational Funding, lack of Infrastructure capitalization, lack of Community Services, and Wage Scales tied to Traditional domestic production. The Reality is that Living Standards lower to far greater degree, and more rapidly, than Living Standards have ever risen. It is not a Process which enhances either the wealthier nation, or the poorer economies.
Modern Economics advocates a Policy of Trade Equalization as Means to raise Living Standards of All. There is a basic fallacy in this Position, and One which is extremely Costly for all Participants. Wealthier nations face degraded Standards of Living and rising Income Inequality, while poorer nations find the majority of their Developmental Capitalization devoted to Export products unsuited for native consumption–and therefore, their economies become enslaved to Maintenance of Export levels to retain their own Living Standards. Everyone recognizes a certain level of Trade is necessary for efficient economic performance by all Participants. A real Mistake arises, though, when the increased Profitability from this Trade is seen as a medium for raising internal Living Standards. The amount of real necessary Trade levels are relatively small, though almost universally the most Profitable of all Native production; still, curtailment of domestic Capitalization in favor of Export Trading is a form of economic Suicide. lgl