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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1) more wealth for the average consumer? Depends on the measure of “wealth”. If people all have $1m but no water and food, is that a wealthy society? You can’t buy something that someone isn’t willing to sell. Broadly speaking, that is what price caps do – reduce supply.
2) still profitable corporations (albeit not the record profits that they continue to reach) – Probably but we don’t want protected profits. So the risk is short term price stability but long term industrial ossification. Most economies want dynamicism and innovation. Price cap punishes risk takers.
3) more equitable wealth distribution? It is very unclear how this happens. Industries producing less generally means employing fewer people. And the bulk of income in most nations is earned by workers. So reducing aggregate income increases equitable distribution?
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