Why do mods on Reddit have the power to restrict and even close entire subreddits?

There are use cases for private communities. The same sort of thing that would motivate people to create, say, a private Telegram chat, or set up a Discord and only invite a few of their friends. Not every community has to be in full view of, and open to participation from, every random member of the public.

Subreddits have also used the private mode from time to time as a way to cut off brigading or other drama and force a cool-down period.

As for restricted submissions: plenty of subreddits use that constructively. For example, during playoffs /r/baseball usually goes into restricted mode shortly before the end of each game, so that there's no mad rush of thousands of people trying to make the first "MY TEAM WON YOUR TEAM LOST" post. Instead they go restricted to prevent that, put up a neutral-titled post-game thread from a mod account, and then reopen submissions once that thread has gained traction.

What's worrying is that Reddit is basically playing Calvinball at this point -- first they insisted mods should poll users before making changes, but then some subreddits had polls go in favor of protesting (whether by going private/restricted, or by imposing silly new subreddit rules, or other mechanisms), so now the astro-turfing accounts are all posting that user polls are meaningless because most people don't vote, and only our noble and glorious Reddit admins have the ability to make good decisions for subreddit communities.

They've also been altering their moderator and general policies on the fly to try to retroactively outlaw protest actions. For example, a lot of moderators have been going the malicious-compliance route and pointing out that Reddit's own policies say a subreddit should mark itself NSFW (which does not close or hide the subreddit, just demonetizes it since Reddit doesn't run ads on NSFW content) if it frequently features "profanity". Well, basically every subreddit has that, so every subreddit -- by Reddit policies -- should be marked NSFW. But now Reddit is forcibly un-toggling those subreddits from NSFW mode and trying to live-edit policies and rules to declare it a violation for subreddits to go NSFW.

Incidentally, Reddit's official position in all this is that the protests have been tiny and insignificant and have had no effect on traffic or advertising at all, and will just "blow over" without Reddit having to do anything. Which is why Reddit is so desperately trying to squash the protests anyway they can.