Europe is considering price caps to control inflation. CEOs are shaking their heads in despair

When the supply of toilet paper started running out back in 2013, the Venezuelan authorities came up with a novel explanation. “95% of people eat three or more meals a day,” the president of the National Statistics Institute, Elias Eljuri, said at the time. The suggestion appeared to be that if only Venezuelans ate less, there would not be a shortage of materials to clean backsides. 

What the statement failed to mention was the use of price caps by the president, Nicolas Maduro—a forlorn attempt by the country’s leader to shield the public from the effects of a broken and corrupt economy. 

As any high-school economics student knows, it is applying government controls to markets which creates shortages, not eating too much. Pricing signals are obscured and loss-making items withdrawn from production (toilet rolls, for example). Far from controlling inflation, price caps upset the demand-supply relationships a free market relies........

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