A Little Pigou Is A Dangerous Thing, Part 1

by Mario Rizzo  

A little Learning is a dang’rous Thing;
Drink deep, or taste not the Pierian Spring:
There shallow Draughts intoxicate the Brain,
And drinking largely sobers us again.  

Alexander Pope 

Sometimes in the course of scientific development an idea gets introduced with various qualifications and limitations that are “forgotten” in an effort to simplify or make ideas textbook-ready. In other cases the innovators may look to how their ideas are being used and, after some time, seek to caution practitioners.  

I recently came across an article by Arthur Cecil Pigou in a 1954 issue of the journal Diogenes that seems to illustrate the second phenomenon mentioned above.

Pigou is the new Keynes

by Sandy Ikeda

A full-page article in today’s Wall Street Jounal begins:

At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today.

The winner, according to author John Cassidy, is A.C. Pigou, the new flavor of the day.

The article implies that Pigou was the first to articulate the concepts of externalities and market failure.  I’m not sure that’s right, though I haven’t gotten around to reading The Economics of Welfare, but I believe we do have to credit him with the Pigou tax.  So in some ways he’s been almost as dangerous as his “smarter colleague,” although I’ve always felt sympathy for someone who was so much in Keynes’s shadow.

The article also has a sidebar quoting Mises (as well as Friedman, Kindleberger, and of course Keynes) apparently calling last year’s economic crisis.