I stumbled across this articlethis article the other day as I was looking for information on EU unemployment numbers. One could assume that the disinflation and rising unemployment numbers in the EU are connected.
Though the Phillips Curve is not a perfect tool it is still taught in many economic curriculums as it shows an inverse relationship between inflation and unemployment. In the Euro zone we can see just that, not that I could say for certain that its causation or correlation, but for purposes of teaching the PC it will do just fine. The bit at the end about interest rate cuts is a nice movement into monetary policy to boot. (mirrored Japan Phillips Curve included just for fun)
Shortages enter the public mind in the form of war time rationing of butter or gasoline, but many countries of the world still experience shortages on a regular basis. Even the mighty USA sometimes experiences shortages of goods and services.What the public mind doesn’t see is that in economic terms there need never be a shortage. The invisible hand will move prices so that whatever goods there are will be allocated most efficiently. Of course there will always be people who try to game the system, buying as much as they can and then re-selling at a higher cost. When this occurs on a normal basis it’s considered good business sense, but when it touches the very fabric of our needs governments usually step in.
On a short term basis this may benefit society as price gouging may be stopped and the necessity made available at a reasonable price, thought quantity doesn’t change and some people will still be without. In the case of Venezuela this toilet paper shortage highlights the very reason why government should largely not interfere with the markets price mechanism. Toilet paper could be produced locally, but because of currency controls
introduced to stop capital flight the Bolivar is greatly over-valued, which causes the imported materials used to make the TP expensive. At the higher costs of production firms are producing less. This makes it necessary to import the additional toilet paper needed, but again the currency valuation makes this difficult as imported TP is expensive. The government can subsidize the production and imports since they have large oil exports, but that can’t last forever and it essentially undermines their intent. Letting the bolivar find it’s true value and then using cash from oil exports to subsidize local necessities might be a better option, or at least one less invasive.
In April many people hoped that the death of Chavez would signal a change in policy, but it seems like the band will play on and the people will suffer. President Nicolas Maduro, who was selected by the dying Hugo Chávez to carry on his "Bolivarian revolution", claims that anti-government forces, including the private sector, are causing the shortages in an effort to destabilize the country. May the revolution carry on.
