So I try to stay on top on economic news, and one thing that is confusing me is why government enforced price caps on products wouldn’t work? All I hear is about how strong the economy still is, record profits for corporations, and increasing wealth of the country’s most affluent people. Wouldn’t price caps cause: 1) more wealth for the average consumer 2) still profitable corporations (albeit not the record profits that they continue to reach) 3) more equitable wealth distribution?
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Price caps force suppliers and retailers to operate at a loss. You can cap the price on gas, but you can’t coerce the gas station to supply it, or an oil company to drill and refine it. Short term, you might get away with some price limits, so as to prevent gouging, but in the long term, you’re putting the businesses who supply the goods you’ve controlled **OUT OF BUSINESS**. Classically what happens is that the goods come off the legitimate market, and the same goods show up in the black market at their *actual* price.
>All I hear is about how strong the economy still is, record profits for corporations, and increasing wealth of the country’s most affluent people.
And those are lies. The reason there are “record profits” is because those profits weren’t amortized over the two year lockdown when companies were losing tons of money. Big picture, what we’re seeing is the economy recovering from the pandemic. People are rehiring, the subset of businesses which survived are doing well, because they have less competition. But the overall health of the economy is still far worse than if the pandemic had never taken place.
>Wouldn’t price caps cause: 1) more wealth for the average consumer 2) still profitable corporations (albeit not the record profits that they continue to reach) 3) more equitable wealth distribution?
No. When prices go up, they encourage more suppliers to enter the market, and enable existing suppliers to devote more land, labor, and capital to the delivery of that good or service. When you remove that, you exacerbate the problem you’re trying to fix, literally choking off the flow of the good your consumers want.
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