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Hayek pointed out and quoted Pigou directly on how the knowledge problem makes by-the-textbook Pigovian welfare economics effectively impossible other than as a pretense to knowledge, a pretense built into the 'given givens' stipulated as givens to the mind in the mental constructs of welfare economics.

Here is Arthur Pigou on the Pigou Tax and the knowledge problem, as quoted by F. A. Hayek:"It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice."

A while back I asked why Buchanan never considered allowing people to directly allocate their taxes. Here's a passage of his that I just added to the Wikipedia entry on tax choice...


"If the individual can make separate fiscal choices for each public-goods program, which a structure of earmarked taxes conceptually allows him to do, directly or indirectly, he is informed as to the alternatives that he confronts, at least to the extent that the payment institutions allow, and subject, of course, to all of the qualifications noted in previous analysis. The uncertainty that he faces is clearly less than that which is present in the comparable decision on a “bundle” of public goods or services, with the mix among the separate components in the bundle to be determined in a separate decision process or through the auspices of a delegated budget-making authority. If this mix is not announced in advance to the voter-taxpayer, he must try to predict the outcome of another decision process, in which he may or may not participate, a process that need not exist at all in the more straightforward earmarking model where all revenue sources are specifically dedicated."

So I guess he had considered it...yet evidently he didn't really think of it as a viable solution.

The thing is...in a much later paper of his... Afraid to be free: Dependency as desideratum


...he takes a clearly anti-state position. Last time I said something about the plot thickening. Now it's like...how thick can the plot get?

Greg Ransom, thanks for sharing that passage by Pigou...I just added it to the collection I've got going on Wikipedia...


What's kind of funny is that the entry I created for "government success" finally received its first challenge...


Pigou not only recognized the knowledge problem but also recognized the public choice probelem. I made reference to this in a ThinkMarkets post of a few years ago:


Mario Rizzo, while you're here...here's a comment I left on your recent post...


"Actions speak louder than words" helps convey the idea that we should give more weight to people's demonstrated preferences rather than to their stated preferences...


The comment didn't show up because I always get caught by Wordpress's "spam" filters. Hah.

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