Without considering consumer behavior, government interventions can have unintended consequences.
by Ravahn Samati
I could be accused of being dogmatic and emotionally committed to government intervention where I see social inequality. It might be that there are limitations to the government as a creative force to solve the problems of the private sector. Furthermore, it might be that the government could be a purveyor of unintended consequences because they are attached to policy solutions and political constituents of yesteryear. Case in point is the California Legislature becoming the housing insurance company of last resort for the victims of natural fires. Insurance companies seeing the insolvency of their maintenance of the status quo amidst climate change are bleeding out of the state. Legislators would be wise to heed that risk and not contribute to incentivizing homeowners staying in the path of historical wildfires such as the City of Santa Rosa decision to approve homeowners rebuild where they lost homes.
It has been humbling to be presented with models and vocabulary for the consequence of policy on consumer behavior. A more measured approach that considers the value of each policy on a case by case basis that includes an economic analysis does not have to be an abdication of my values and attachment to my formation in organizing. There are real consequences on labor force participation, and business solvency to consider when we talk about taxes, price ceilings, wage floors, and government monopolies like the East Bay Municipal Utility District.
I was struck by a recent proposal that Oakland City Councilmember Rebecca Kaplan proposed on Lyft and Uber rides that seemed extraordinary because it was a noticeable 50-cent tax on each ride for riders. This would have burdened the riders, not the company. In Councilmember Kaplan’s defense, she said it was impossible to do the equivalent on the supply side, but the result is a regressive tax. In any case, that would be quite the government windfall and seemed usurious to me. I would like to have read an analysis of the expected impact on riders of the 50-cent additional tax. How would it affect the demand for the service? What deadweight loss would it cause? Would consumer surplus or producer surplus loss be equally distributed?
I became skeptical of the policy design and cynical of the progressive councilmember’s agenda as really being red meat for her base to claim some victories in an election year because the policy on its face seemed short on economic analysis. Her opponents have seized on the tax proposal as a job killer, which may have some basis if fewer riders participate and drivers see less traffic. Then drivers may opt out of that form of work altogether because it’s not a viable trade to ply. It probably wouldn’t come to this, but front-end economic analysis of policy design consequences has become much more essential for me if for no other reason than to make an effective case for the policy and build more ownership through the policy design process. It is probably good for my mental health as well because I don’t go around castigating people for their politics when they are more concerned about the welfare of the private sector than working people. Things are more complicated than that.