This week, Blaine Saito (Ohio State) reviews Jeff Gordon (Vanderbilt), Tax and the Law of Market Cycles (July 28, 2026).

One of the major goals of economic policy is to allow for economic growth while limiting certain volatility. Since the 2008 financial crisis, finance has increasingly recognized that risk has to be viewed at the macro level: when many firms take the same action at once, individually tolerable risks become systemic. Furthermore, macroeconomic policy has also sought to tame business cycles. But when looking at other markets, like commodities or shipping, policymakers have done little to tame such volatility, and what they have done is often far from optimal. In Tax and the Law of Market Cycles, Jeff Gordon proposes an elegant solution to tame these markets, using taxation. When prices of many of these commodities rise and overinvestment occurs, tax would operate as a circuit breaker. And when prices fall and firms become distressed, tax flips to provide a subsidy.

Gordon outlines the basic idea of a market cycle. In markets, such as commodities, prices secularly rise over the long term, which seems normal. But when one zooms in, one sees jagged ups and downs. When prices go up within a period of time faster than the trend, new investment floods in. That leads to a supply glut, causing a downswing or crash. Those who may have invested then lose their proverbial shirts. Gordon calls this the investment instability hypothesis, deliberately echoing Hyman Minsky’s financial instability hypothesis: stable, profitable conditions are exactly what breed the overconfidence that undoes them. The underlying mechanism is the century-old “cobweb model.” When today’s supply is set by yesterday’s price and a lag separates the investment decision from new supply hitting the market, prices and quantities can chase each other into ever-widening swings instead of settling down. This dynamic shows up most sharply where lags are long, markets are competitive, and the product feeds other economic activity rather than sitting on a store shelf. Key examples are primary commodities like hogs and oil, key services like shipping, or commodity-like products like polysilicon for solar panels or commercial real estate.

While there are some positives for market cycles, as in creative destruction, there are significant harms that get exacerbated when these swings are extreme. First, Gordon notes consumers get harmed. One need only think about oil prices jumping. Second, Gordon observes that this boom-bust dynamic leads toward inefficient allocation of investment over the cycle. During boom periods, the marginal dollar of investment is less productive than in the bust phase, but people do not invest during the bust phase and are investing a ton during the boom. Third, when the bust happens there are significant bankruptcies that destroy a lot of value. Finally, these cycles do tend to lead to concentration in the industry. Concentration can, of course, help mediate these cycles, but it often leads to an amount of production lower than the social optimum and higher prices, which leads to a transfer from consumers to producers.

While these market cycles sound like the usual business cycles that central bankers monitor, using those tools is not only imperfect, but also inadvisable. First, often market cycles and business cycles do not coincide. For example, there can be an oil bust while the broader economy is booming. Second, general monetary policy is aimed at controlling core inflation, which tends to exclude volatile stuff like energy and food, precisely the commodities a market cycle is about.

Gordon then provides his elegant solution, either creating an excise tax in these markets or making some changes to the depreciation rules to make them more countercyclical rather than procyclical as they are now. The former is likely more powerful, but the latter could still have some effect here.

Either way, taxation is an intervention that has many of the institutional structures and effects already in place. Pigouvian taxes to curb negative externalities, and matching subsidies, are well ensconced in taxation and are often used as policy tools. In terms of trying to measure investment, there are helpful tools that already work, like the uniform capitalization rules and the rules under the investment tax credit. These rules outline when costs must be capitalized, which are the type of investments the excise tax would want to hit. These rules also have various measures for determining when the investment is made, noting that there is a lag between the start and end of the investment. Rules like the binding contract rule can help determine the point in time for the investment. Finally, to determine when in the cycle the tax or subsidy comes into play, there can be a formula in place based on secular price trends, which is something taxation also does in other areas. Having an expert body could supplement such a formula. And taxation’s graduated structure of rates and subsidies can fine-tune the effects.

Gordon also shows why tax beats the alternatives. Cartels, OPEC being the best-known example, keep breaking down as members chisel on their quotas, and even when they hold, they share concentrated markets’ flaw. They transfer wealth from consumers to producers rather than fixing the source of the supply problem. Reserves work by releasing stored supply when prices spike, but not everything can be stored, and eventually the stockpile runs out. Windfall profits taxes have the opposite problem. If firms expect one, it deters investment across the whole cycle, not just at the peak, where deterrence is actually wanted.

Gordon’s piece provides the outline of an elegant solution to a bedeviling problem. Handling volatility in markets is key to ensuring that people and society can reap the benefits of markets without undue burdens. The problem, as Gordon shows, is that most of the interventions we already have are either ineffective or actively harmful. The aggregate economy and its long-term trend matter, but people live at a more granular, short-term level than the averages central bankers track. Gordon’s tax solution addresses precisely that gap, offering a responsiveness that broader economic policy often misses. In taming the wildness of markets, tax law may end up doing more than smoothing prices: it may help secure their legitimacy, and ours.

Here is the rest of this week’s SSRN tax roundup:

Julian Arato (Michigan), Kathleen Claussen (Georgetown) & Timothy Meyer (Duke), Presidential Power over Wartime and Secondary Tariffs, 120 Am. J. Int’l L. ___ (forthcoming 2026)

Reuven S. Avi-Yonah (Michigan), Economic Substance in US Tax Law (July 24, 2026)

Conor Clarke (Wash U) & Eric Kubo (Wash U), Foreword: The Constitution and Public Finance—Why Now and Why Ever?, 103 Wash. Univ. L. Rev. 1707 (2026)

Victoria J. Haneman (Georgia), Cryonic Trusts and the Architecture of Indefinite Control (Jul. 16, 2026)

Scott Hodge (Arnold Ventures), Closing the $2.8 Trillion Nonprofit Business Loophole: A Tax Reform Proposal for Congress (Aug. 5, 2026)

Nathan Hudson (Cincinnati, Dept. Econ.) & Evette Liu (Cincinnati, Lindner Coll. Bus.), Buy, Borrow, and Sell Anyway: Insider Share Pledging and the Limits of Buy-Borrow-Die (July 30, 2026)

Nicholas Karyeija (Cavendish U. Uganda) An Appraisal of the Impact of Tax Exemptions on the Right to Development. A Case Study of the Manufacturing Sector in Uganda (June 4, 2026)

Doron Narotzki (Akron), Tamir Shanan (Coll. Mgmt.) & Reuven S. Avi-Yonah (Michigan), The U.S. Tax Paradox, 14 Tex. A&M L. Rev. __ (forthcoming 2026)

Chaitanya Palem (NALSAR U. L.), Does the Place of Effective Management (POEM) Test Survive BEPS 2.0? Rethinking Corporate Residence in the Era of Global Minimum Tax (Apr. 20, 2026)

David J. Reiss (Cornell), Joseph Bizub (Quinn McCabe LLP) & Justin Peralta (Dentsu), Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate (Jan. 8, 2026)