The Theory of Policy Analysis

Abstract

Pigou’s economics is generally understood as a body of policies, particularly ‘Pigouvian’ taxes and subsidies, designed to maximize economic welfare. This view is embedded in leading economics textbooks, the basis of the early socialization of economists and the principal artefacts in which ideas are institutionally certified as economic truths. Older books identify presumptively Pigouvian policies by attaching his name to them. Newer texts retain the policies but drop his name, indicating the extent to which the received view is woven into the conventional wisdom of the field. One notable result of this reading of Pigou is the ‘Pigou Club’ founded by Gregory Mankiw. Numerous economists have been inducted as members, amongst them Gary Becker, Robert Frank, Paul Krugman, Nouriel Roubini, and Lawrence Summers.¹ Pigou’s place in the disciplinary consciousness of contemporary economics is nicely documented in a remark by William D. Nordhaus in an essay on the economics of energy use. Taxes on negative externalities, Nordhaus observes, are ‘sometimes called Pigouvian taxes after their first important advocate, English economist Alfred [sic] Pigou’ (Nordhaus 2011, 30). So much for the conventional view of Pigou’s thinking.