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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There’s a lot of Econ 101 explanations here that are wrong. The world is never as simple as one sentence explanations like “minimum wage increases unemployment” or “price caps produce shortages.”
Price caps can produce shortages but do not necessarily produce shortages.
Let’s say I cap the price of eggs at 50 dollars a dozen. There obviously won’t be a shortage because it’s well over the normal price.
Let’s say I cap the price at 50c per dozen. That obviously would.
Now let’s say I cap the price at 1.5x the price to produce and ship the eggs with all relavent factors accounted for. This would have drastically reduced the price of eggs this last year and not lead to a shortage.
The reason is simple. Eggs were price gouged using the bird flu as an excuse. Egg production was not significantly impacted by the flu and profit margins went up 700% because the public expected them to. The largest egg producer admitted they did not lose a single bird to the flu, for example.
In this case, it prevents price gouging while keeping profits well above what the cost is, thereby maintaining an incentive to produce more eggs to capture that healthy profit margin.
If the public over buys you can introduce rationing as well. It was done successfully in the past without computers and would be far easier to implement now.
We used to do this very successfully but neoconservative economics has been the model since the 70s so we don’t use effective techniques for improving the lives of the public anymore.
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