Sir Mark Moody-Stuart, the former head of Royal Dutch Shell, has called for an EU ban on selling cars that get less than 35 M.P.G. Why? Because he doesn't believe in the Free Market Fairy:

Moody-Stuart, who is currently chairman of the mining group Anglo American, says he is a great fan of the free market, "but like most things, they have a failing. Without regulation to channel their power, markets will not deliver things which are of no immediate benefit to the individual making his or her choice, even though they may be beneficial to society."

Sounds like he's just switched to the government regulation fairy. Pigovian taxes are a much better way of channeling the power of markets in the light of negative externalities.

Posted by James Tauber on 2008-02-06

James,

Actually, that's addressed in the article:

Sir Mark Moody-Stuart, who spent his career working for the giant oil company, says an outright ban is needed because so-called "gas-guzzler" taxes do not work - and aren't fair because they let those with the means to pay them skirt responsibility for reducing greenhouse gas emissions.

No matter which you pick, taxes or regulation, the point is that the free market by itself won't solve the problem.

Posted by Joe on 2008-02-06

I disagree with Sir Mark and so would, I think, the majority of economists.

Importantly, though, disagreeing with Sir Mark doesn't make one a fairy-believer; and believing in Pigovian taxes doesn't mean rejecting markets.

Paul Krugman, who is hardly a fairy-believer, is a member of the "Pigou Club". Milton Friedman, probably the most famous fairy-believer also believed in Pigovian taxes as the best way to account for negative externalities.

My problem with saying "No matter which you pick...the free market by itself won't solve the problem" is that not all solutions are equal and, in fact, they can have dramatically different effects. The choice isn't all free markets or no free markets; it's between a whole range of options that differ in the extent to which they support special interests, distort price signals and interfere with incentives.

On a scale from 1 to 10, rejecting 10 doesn't implicitly mean lower numbers are better.

Which, of course, I suspect you might agree with as your original Free Market Fairy post was, for the most part, actually a ringing endorsement of markets.

However, your day-to-day experience must be very different to mine. Maybe you're an 8 surrounded by 10s and I'm a 9 surrounds by 5s.

Posted by James Tauber on 2008-02-07

From my POV, the biggest problems with the US regulation of MPG is that of defining categories. What's a 'car', anyway? The loophole that allows SUVs to avoid the limits as exempt 'work vehicles' (ie. trucks), is emblematic of the problems with most forms of regulatory capture by industry. How do we avoid this?

Posted by Michael R. Bernstein on 2008-02-09