Why can’t the government just set a concrete price for everything (Rent, groceries, etc) and forbid it from ever changing? That would prevent inflation from ever happening, right?
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It would (at least in the absence of a black market), but the problem with economics is that things have knock-on effects. For example, what you’re suggesting would remove any way to make money by (say) making better-quality goods, because you wouldn’t be able to charge more for them anyway. And if the fixed price is too low, it might make producing those goods not worth it at all, meaning the supply of those goods would fall to zero.
I have a feeling if the federal government attempted to do that it would in some way subvert federalism and dual sovereignty. Arguably, one could argue this was in some way tied to the power congress has under the commerce clause but it would still be incredibly difficult and there would be several constitutional hoops they would have to jump through when writing it.
Capitalism is based on the premise that competing companies provide better quality products for lower prices, and the consumer decides what to buy. The idea is that competition forces companies to maintain good standards and fair prices, leading to a healthy economy.
What really happens is companies produce shit and sell it with good marketing, but that’s the idea.
In Belgium at least, maximum price for bread do exist
But bakeries are going out of business because of high prices for labour, wheat and gas.
They try to set fix prices for gas and wheat, but this has to be coordinated with other countries, and there are stakeholders and lob groups that oppose.
Fortunately gas is replaceable by electricity, witch can be sustainable procured by solar panels.
Wheat is very dependent of fuel and labour.
For example:
Imagine govt setting the price of a laptop of LCD at $500 in 2000, now companies wont spend money to develop LED screens because in 2000 LED will cost $600.
Now because of this, in year 2022 LED TV wouldnt have been there because no one developed it. Inversely if there was no cost control then companies would have developed it more and spent more money on R&D and finally in year 2022, you get LED screen for $300 rather than $600 in 2000.
Price of many things depend on demand and supply . And everyone can understand that demand and supply are not constant throughout a given period of time which leads to fluctuations in price of a given item or commodity + the chnage in price of one commodity can trigger a chain reaction which affects the price of multiple items . For example lack of wheat crop can cause a rise in its price which will cause the price of flour to rise due to which the price of bread , cake , biscuit and all sort of products using wheat as an ingredient will rise . And since the price of wheat has increased people will demand more salary as they would want more money to make the ends meet for thier family which in return would lead to rise in price of labour cost and them again it will start affecting price of different items . So you cant control everything. There are limitations and conciquences to every action that one takes including governments.
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Well if you read this answer you got a quick summary of how basic economics works .
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Congratulations 🎉👏
The issue is that prices act as signals and are in fact nothing but information moving from an economic agent to another (as per Hayek’s theory). So controlling prices would remove information that is necessary for economic agents to coordinate their activities. Plus, no one really knows what should be the price. Each price is unique to a specific transaction, at a specific time in a specific place between two particular transactors. If the government sets the price of bottled water to 1 dollar for instance. You would find it only in palaces where it is still profitable like big cities but probably not in sparsely inhabited areas that require lots of fuel for instance. Second controlling prices mean controlling costs and wages. If the price of an item is controlled and its components are purchased abroad and their prices increase, these items will soon become unavailable. It also poses the issue on how to value unique items such as songs, books or a painting. Moreover, it creates a disencentive for people to engage in certain jobs as a result of wage control. For instance if you limit the salary of doctors lots of people will be reluctant to invest so many years of their lives studying and will try to shift to jobs that require less education time in a bid to maximize their lifetime earnings. Finally, and it’s maybe the biggest problem if your wage does not evolve you’ll be less inclined to perform and the productivity would fall, leading the whole country to poverty. There’s an old say from the Soviet union times that sums this up: “we pretend to work and the government pretends to pay”.
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