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 been a lot of good posts about equilibrium price in here but I want to add something I know a little bit about.
So prices are up at the grocery store, right? So why not just mandate that the box of max and cheese that used to be $2.50 and is now $3.25 needs to stay at $2.50?
Well, there’s a lot of steps that happen before you spend $2.50 on a box of mac and cheese from Kroger. They buy it from a vendor and they ship it in a truck. The vendor is charging more and gas is more expensive. Okay, you say, price cap the vendor and gas. Okay well the vendor didn’t make that Mac and cheese appear out of thin air. They need flour and cheese and 800 types of preservatives and those are all getting more expensive. So price cap all of those. Oh and also, labor costs are up because we’re coming out of a period with a hot job market. I doubt you want to cap labor costs, do you?
So in short, you can’t just cap the end price, there’s dozens or hundreds of components and if you break the chain at any point you can really fuck the economy.
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