This is a novel (to me) line of thinking, and I’m happy to hear about it! I’m not sure it’s feasible, as one of the things the public hates more than price increases during a shortage is higher taxes any time.
That said, the REVERSE of this—slightly raise taxes in normal times, and make emergencies a tax holiday, might really work. This gives room for producers/distributors to raise prices WITHOUT as much impact on the consumers. Gets some of the good bits of market pricing, with less of the bad bits (both limited to the magnitude of the tax change relative to the scarcity-based price change).
one of the things the public hates more than price increases during a shortage is higher taxes any time
Maybe? Though in this case what we’re taxing is the disliked activity—price increases during a shortage. So possibly this would be popular, like taxes on alcohol, tobacco, or gambling?
make emergencies a tax holiday
The main good bit of market pricing this would miss is the demand reduction and reallocation caused by the higher prices. I might be willing to buy 100lb of ice at $1/lb but only 10lb of ice at $5/lb: it’s easier for me to just dump a bunch of ice into my fridge, but if I prioritize and put the important stuff into a cooler I can make do with much less. If the government is subsidizing suppliers to keep the price at the pre-disaster rate I don’t have this incentive to ice more efficiently.
The main good bit of market pricing this would miss is the demand reduction and reallocation caused by the higher prices
True. The main thing the “tax a price increase” misses is that it mutes the supply incentive effects of the price increase. I’d need to understand the elasticities of the two (including the pre-supply incentives for some goods: a decision to store more than current demand BEFORE the emergency gets paid DURING) to really make a recommendation, and it’d likely be specific enough to time and place and product and reason for emergency that “don’t get involved at a one-size-fits-all level” is the only thing I really support.
This can be effectively implemented by the government accumulating tax revenues (largely from the rich) in good times and spending them on disaster relief (largely on the poor) in bad times. It lets price remain a signal while also expanding supply.
This is a novel (to me) line of thinking, and I’m happy to hear about it! I’m not sure it’s feasible, as one of the things the public hates more than price increases during a shortage is higher taxes any time.
That said, the REVERSE of this—slightly raise taxes in normal times, and make emergencies a tax holiday, might really work. This gives room for producers/distributors to raise prices WITHOUT as much impact on the consumers. Gets some of the good bits of market pricing, with less of the bad bits (both limited to the magnitude of the tax change relative to the scarcity-based price change).
Maybe? Though in this case what we’re taxing is the disliked activity—price increases during a shortage. So possibly this would be popular, like taxes on alcohol, tobacco, or gambling?
The main good bit of market pricing this would miss is the demand reduction and reallocation caused by the higher prices. I might be willing to buy 100lb of ice at $1/lb but only 10lb of ice at $5/lb: it’s easier for me to just dump a bunch of ice into my fridge, but if I prioritize and put the important stuff into a cooler I can make do with much less. If the government is subsidizing suppliers to keep the price at the pre-disaster rate I don’t have this incentive to ice more efficiently.
True. The main thing the “tax a price increase” misses is that it mutes the supply incentive effects of the price increase. I’d need to understand the elasticities of the two (including the pre-supply incentives for some goods: a decision to store more than current demand BEFORE the emergency gets paid DURING) to really make a recommendation, and it’d likely be specific enough to time and place and product and reason for emergency that “don’t get involved at a one-size-fits-all level” is the only thing I really support.
This can be effectively implemented by the government accumulating tax revenues (largely from the rich) in good times and spending them on disaster relief (largely on the poor) in bad times. It lets price remain a signal while also expanding supply.