I’ll admit I was a bit sloppy in my last post, but I don’t see any problems with my conclusion.
First, the case for Pigou Taxes is all about “correcting” behavior to reduce external costs. If, however, an activity has external benefits — as driving and energy use do — then if those benefits outweigh the costs, the case for a Pigou Tax collapses. There is no “market imperfection” that needs “correcting.”
Indeed, as Arthur Seldon himself said in his brilliant Everyman’s Dictionary of Economics, “Almost all economic activities, private or governmental, have external effects, and attempts to prevent, or calculate and compensate for them would probably make the economy seize up. In many instances the effort to prevent or control them may be more costly than their effects, and it may be better to tolerate some of them as unavoidable consequences of human fallibility.”
So let’s not forget that externalities, while external to the market, are not external to the economy as a whole. Market actors also act within the overall economy. When a buyer of gasoline makes clear his objections to paying extra tax, he is, to an extent, taking account of the externalities in his objection. When the clear preference of a majority is against that tax, the revenue raisers had better look elsewhere.
Would people accept tax rises on gas if they were given immediate tax reductions elsewhere? Perhaps, but I suspect that is never going to happen, and even if it did, if those other tax reductions mean people are able to choose to spend more on gas and therefore drive just as often, then the externalities will still be there.