How to Design the Perfect Tax on Hipsters
Income taxes are so over
It's an obscure tax you've probably never heard of.
Everybody talks about income and payroll taxes, but nobody, outside of a few econohipsters like Greg Mankiw, talks about "Pigovian taxes." (Okay, that's not quite true, but I got caught up in being faux ironic). The brainchild of economist Arthur Pigou back in 1920, they tax things with social costs not included in the private cost -- what economists call "negative externalities." The classic example would be driving a car. You pay for your car's gas, but not for your car's pollution. The Pigovian solution is to equalize the marginal individual and collective costs by taxing gas more so people drive less.
Now, you might like Pigou's early work better, but his analysis of externalities is the best way to think about the most important policy question of our time: Should we tax hipsters? A recent Public Policy Polling (PPP) survey found that 27 percent of Americans support a special tax on hipsters for being "so annoying" -- with near equal support among Republicans, Democrats, and independents.
As a normative matter, singling out specific groups for specific taxes is anathema, but not so when it comes to negative spillovers. It's possible that second-hand irony is an under-appreciated health hazard begging for a Pigovian remedy. Hipsters annoy non-hipsters with their pretentious, well, everything, which could theoretically drive up blood pressure (study results pending). A levy on infinitely recursive irony might just help bend the long-term healthcare cost curve. (Or not).
But have you ever tried to tax a hipster? It's a bit like hearing your favorite indie group on the radio: a total nightmare. After all, you can't exactly ask people if they're hipsters, and then tax them. The first rule of being a hipster is not calling yourself a hipster. Instead, it'd have to be a hipster consumption tax. In other words, a tax on stuff hipsters like. That would be everything from fixed-gear bikes to home brewing gear to vinyl records to skinny jeans to flannel shirts to moustache wax to [whatever else you think of in the comments].
These taxes would get played out -- and fast -- because hipsters would substitute away from the taxed stuff and find clever new ways to be annoying. This idea that a real world relationship might change when policy changes is what economists call the Lucas critique. In the 1970s, economist Robert Lucas argued that central banks couldn't exploit the historical relationship between higher inflation and lower unemployment, even in the short-run, because people would start expecting higher inflation if central banks tried -- and the past relationship would break down. Similarly, if the government taxes, say, fixies, then hipsters will move on and imbue some other cheap, retro thing with ironic meaning. (The hipster Segway boom is waiting to happen if prices come down).
Hipsters might not be reasonable. But they are rational. As a result, subjecting them to a special tax would change the definition of hipsterdom more effectively that it would purge the economy of irony. Unfortunately for all of us, you can't tax annoying.