[saghm]

> For example, when companies can produce a good at a rate X, they can up prices at rate 1.05X. But suddenly, they run out of resources and can only produce at constant, instead of rate X, but continue to raise prices due to “projected” demand.

> You have to break the cycle somewhere, and it’s painful no matter where you start, from unemployment or raise taxes or add regulations.

I know your explanation is simplified, but as you describe it, it seems like the obvious solution is to just stop raising the prices? I feel like there must be something more complicated at play, because "we need more unemployment so that the companies don't have to stop raising their prices due to incorrect predictions" is ridiculous.

[rembicilious]

It seems like capping prices would cap inflation, but I can’t think of any great mechanism to accomplish such a cap. Central bank interest rates and taxes are controlled by relatively few people. Prices are controlled by hundreds of thousands of people.

[rogersnm]

If you cap prices for a given company or product, you prevent that company (or producers of that product) from competing effectively for the inputs to that product in the broader market place (bear in mind things like labour and energy are relatively interchangeable between companies), that can ultimately mean that the company can no longer produce anything at all (if the cost of their inputs rise above their sale price cap).

The only way to make a price cap work is to set all prices in the economy, which as you observe, is not possible. The much more practical solution to maintaining a stable general price level is to adequately control the quantity of money that exists.

[jimnotgym]

There is also a government role in making sure an efficient and fair market exists for goods, by working against cartels and monopolies for instance.

The gas price shock is partly caused by a massive supply shock, but also an unwillingness of the cartel to increase supply, since they are doing just fine with the high prices.

I think we are seeing something similar with (for instance) Amazon. A gross simplification is that Amazon has achieved market dominance in many goods. This has reduced competition from smaller businesses, who can't compete in price. However those local stockholders would have been more resilient in the supply chain crisis than the Amazon ecosystem, because they bulk shipped stock to their warehouse (where they held stock), vs drop shipping it on demand from some distant place. This was costlier at the time, but arguably better for the environment and the resilience of the economy.

Right now Amazon is not the cheapest on anything and doesn't have everything in stock for 24 hour delivery any more. It doesn't fulfil its promise of being cheaper or faster. Government could put various controls on Amazon, but instead let us traditional businesses fight to stay alive against it (or be forced to sell through it!). Personally I think Amazon marketplace should be split from Amazon the store for this reason. You can't be the marketplace and a participant.

[rogersnm]

> There is also a government role in making sure an efficient and fair market exists for goods, by working against cartels and monopolies for instance.

> The gas price shock is partly caused by a massive supply shock, but also an unwillingness of the cartel to increase supply, since they are doing just fine with the high prices.

I certainly agree with these points.

> I think we are seeing something similar with (for instance) Amazon. A gross simplification is that Amazon has achieved market dominance in many goods. This has reduced competition from smaller businesses, who can't compete in price. However those local stockholders would have been more resilient in the supply chain crisis than the Amazon ecosystem, because they bulk shipped stock to their warehouse (where they held stock), vs drop shipping it on demand from some distant place. This was costlier at the time, but arguably better for the environment and the resilience of the economy.

Retail shopping remains one of the most competitive sectors in the economy. It is true Amazon has raised the bar for service, choice and price, and benefits from economies of scale, which has made it difficult for other businesses to compete, however we’re very far from Amazon having a monopoly on retail shopping (you can also see this in their very slim margin on their retail business - if they were dominating, they’d have a substantially bigger margin.).

> Right now Amazon is not the cheapest on anything ... It doesn't fulfil its promise of being cheaper or faster.

It is somewhat unfair to say that Amazon is bad because smaller businesses cannot compete on price, and also say that Amazon is expensive and other providers are cheaper - both of these statements cannot be true.

[makomk]

There are some other obvious reasons for that unwillingness to increase supply that I think you're missing. Any substantial increase in supply would require investing money in new infrastructure, since it's currently at close to capacity. For the last few years environmental activists have campaigned against any investment in fossil fuel production with some success and this makes it a lot harder to get funding. Also, you may recall that there were a bunch of articles claiming fossil fuel assets would become stranded and literally worthless due to the global push for net zero, and how fossil fuel companies were basically scamming investors by ignoring this risk. The companies are acutely aware of this risk and have been quite cautious about expanding capacity as a result.

[medvezhenok]

It would cap reported inflation, but capping prices just turns inflation into shortages (since demand > supply either way), and potentially slows down the supply response (high prices incentivize more supply).

If supply is actually restricted (and can't be increased), then capping prices makes sense in certain scenarios, and indeed price caps have been used historically in the U.S., from the 1940s through the 1970s.