Plastic bags, taxes, and nudges

The cool, discrete way right now to say that government can have a beneficial impact on society is to talk about nudging.  It’s a simple way of saying that regulations and simple government programs can have significant, positive impacts on society, so we shouldn’t always oppose government in everything it does.

An example of that process in actual life is happening at D.C. grocery stores right now.  Washington D.C. just enacted a 5-cent tax on each plastic bag used at grocery stores, and the dramatic decrease in plastic bag consumption has surprised everyone.  Plastic bag consumption has decreased by 50%, and shoppers are going to extreme lengths to not pay 5 cents per bag.  It’s amazing how responsive we are to the littlest economic change and how that response aligns with a larger goal of environmentally-conscious politics.

Here’s Matt Yglesias explaining people’s reactions:

My key observations are that I hear a ton of whining about how terrible this new tax is, and also a lot of people engaging in tax-avoiding behavior—canvass bags, cramming stuff into backpacks, carrying items by hand. In other words, it looks to be a stunning success! The five cent fee is actually very small but people really hate paying it.

There are a lot of interesting implications in the D.C. experiment.  First, such a fee must be enforced throughout a significant jurisdiction: if a single store decides to go green and charge a bag fee, its customers will flee, whereas if all the stores in a large city face that fee, it shifts society to a more positive social equilibrium without affecting the competitors’ relative standings.  Second, the fee must not be so large as to seem punitive and therefore fail in the legislative process.  In August 2009, Seattle voters shot down a 20-cent bag tax.  A city introducing a similar tax should aim for a low tax since the behavioral impacts will still be quite significant.

Third, it’s a feature, not a bug, if the fee does not raise much revenue.  Here’s the Washington Post explaining:

City officials say they won’t have a tally on the revenue collected through the bag fee until the end of next month. But so far they are pleased with the reported drop in the numbers of bags being used, even if that means less money going to the government.

If the city’s receipts from the bag fee fell to zero, “We would love that,” said Charles Allen, chief of staff to D.C. Council member Tommy Wells (D-Ward 6), father of the bag bill. “That’s our goal. That would mean people have made the shift and are no longer using the disposable bags, which represent 47 percent of the trash in Anacostia River tributaries.”

Finally, there are a lot of other areas where a Pigovian fee could be profitably applied.  A clean-air fee (carbon), a soft reintroduction of the gas tax, a tax on plastic in other forms (such as utensils), or a tax on fast food: all would nudge people towards behavior that matches with pragmatic goals such as less energy importation, reliable infrastructure, and lower health care costs.    It’s a pretty third-way way of going about things, but in this case it could be the best of both worlds.

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