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Net Prices

April 7th, 2019 | Posted by pftq in Blabberbox | #
Prices should be shown net of cost. Then everything would be clearly shown relative to each other as they actually are, and people would see when things are getting more expensive vs the illusion of everyone having more money.  It would also make clear who is overcharging with unnecessary premium, creating a stigma that socially discourages excessive spending or pricing.  For example, if every house on sale was at a net price of $1K but yours was randomly at $1M, it would reveal you are charging way more than what it cost you, making yourself look a little shameful but also making buyers think twice before blindly handing over money, driving prices up higher, and rewarding the greed. Since all businesses have to track expenses for audit by the IRS and most even already calculate cost of goods sold, it actually is practical in real life with all the pieces ready to go if a law passed for it.

Other side benefits indirectly permeate throughout the economy. It would conversely reveal when big corporations are selling below cost to unfairly bankrupt the competition (often local businesses).  People who care would not be willing to pay negative dollars to a corporation when they realize a smaller business is fairly asking for very low profits already.  If the corporation can make the case that something ought to be free, then consumers are fine with it and things go their natural way.  It only discourages unfair hostile business practices.  Along similar lines, it would make fraud or fake goods much more difficult if merchants are selling something but have no cost (they are selling hot air or operating a Ponzi scheme); their net price would skyrocket and they would also now risk tax fraud if they lied about their expenses to get a realistic net price.  Lastly, it becomes much easier to see when your own buying power actually increases, instead of it just being inflation, and who actually has more money than they'll ever need, instead of it just being a high cost of living.  For example, a $100k salary sounds like a lot in most of the country, but it's not even enough to afford a tiny studio in San Francisco (the 3x rent to pass the rental application is over $100k).

A good transition might be to show both net and nominal prices side by side at first, like they do with calories on a menu.  Then as people get used to thinking in net prices, the nominal ones can be phased out and replaced with cost of good, which is paid like a fee or base rate alongside the net price by the consumer.  Comparable goods would usually have about the same base rate cost, and those that don't would also quickly be revealed, only adding to the transparency.  If it is too difficult to pass in law immediately, perhaps it works better by example if large merchants like Amazon took the lead first to get consumers acclimated.

The main counterargument to this idea would be that it discourages innovation and cost efficiency.  Why innovate to lower costs if that makes you look bad with higher net prices? I would argue that's not a bad thing.  If cost to make is the only difference between two goods, then it would encourage innovators to make higher profits by selling more quantity rather than by having higher margins.  In other words, an innovator is rewarded for building the same thing more efficiently only when society as a whole benefits from having more goods to more people.  The nice part of all this is that it doesn't forbid higher pricing, just makes it transparent.  You can still sell at high margins if supply is short or if you are intentionally only targeting the wealthy who don't care; it wouldn't be illegal.  Alternatively, it means if you want to charge higher net prices and still convince the masses, you have to actually make a better and more interesting product, not just a more cheaply made one, so that people are willing to see past the stigma and justify paying the higher net price.  In other words, you are incentivized to add quality and no longer have a reason to use lower quality materials or cut corners to reduce cost.  Rather than a race to the bottom, it encourages a race to the top.

Nothing really changes in terms of freedom to do what you want to do in the economy.  The only things lost are the illusions and lies by numbers, while society gains transparency and better alignment of incentives.
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