Toilet paper shortage is always and everywhere a monetary phenomenon

Toilet paper shortage is always and everywhere a monetary phenomenon
This is from Sky News:
Venezuelans have been hit by a chronic toilet paper shortage, leading to empty supermarket shelves and long queues to snap up the remaining rolls...When new stocks arrive at supermarkets customers have been rushing in to fill their trollies.
It started with a food shortage and now it is the lack of toilet paper that is the latest economic problem in Venezuela. It is pretty clear that Venezuela's chronic shortages of essential goods are a result of the combination of excessively easy monetary policy and price controls. If monetary policy is excessive easy you obviously get high and rising inflation. There is only on way of stopping excessive inflation and that is by slowing the money printing press. Instead the Venezuelan government continues to fight inflation with draconian price controls. The toilet paper shortage is just the latest round of news that confirms the absolutely failed policies of the socialist Venezuelan government, but as usual the government is unwilling to accept any responsibility for the social ills it is causing. Instead the Venezuelan government blames the media:
Commerce minister Alejandro Fleming said "excessive demand" for the tissue had built up due to a "media campaign that has been generated to disrupt the country." He said monthly consumption of toilet paper was normally 125 million rolls, but current demand "leads us to think that 40 million more are required". "We will bring in 50 million to show those groups that they won't make us bow down," he said.
Anybody who have studied economics for 3 minutes of course knows that Fleming's explanation of the toilet paper shortage is outrageously wrong, but I guess that the Minister himself is unlikely to have problems getting toilet paper supplies himself as the Venezuelan government is massively corrupted and Ministers certainly do not seem to suffer from the social ills that average Venezuelan have to struggle with. Radical fiscal and monetary reforms are needed  I have earlier argued that at the core of Venezuela's economic policies is the fact that the central bank basically has been ordered to finance excessive public spending by letting the printing presses run overtime. There is only one way of stopping the inflation pressures and that is by stopping this monetary funding of public expenditures and then to implement radical monetary reform. This is reform that I earlier have suggested:
Market Monetarists generally speaking favour nominal GDP targeting or what we also could call nominal demand targeting. For large economies like the US that generally implies targeting the level of NGDP. However, for a commodity exporting economy like Venezuela we can achieve nominal stability by stabilizing the price of the main export good – in the case of Venezuela that is the price of oil measured in Venezuelan bolivar. The reason for this is that aggregate demand in the economy is highly correlated with export revenues and hence with the price of oil. I have therefore at numerous occasions suggested that commodity exporting countries implement what I have called an Export Price Norm (EPN) and what Jeff Frankel has called a Peg-the Export-Price (PEP) policy. The idea with EPN is basically that the central bank should peg the country’s currency to the price of the main export good. In the case of Venezuela that obviously would be the price of oil. However, it is not given that an one-to-one relationship between the bolivar and the oil price will ensure nominal stability. My suggestion is therefore that the bolivar should be pegged to basket of 75% US dollars and 25% oil price. That in my view would view would ensure a considerable degree of nominal stability in Venezuela. So in periods of stable oil prices the Venezuelan bolivar would be more or less “fixed” against the US dollar and that likely would lead to nominal GDP growth in Venezuela that would be slightly higher than in the US (due to catching up effects in Venezuelan productivity), but in periods of rising oil prices the bolivar would strengthen against the dollar, but keep nominal GDP growth fairly stable.
Maybe the toilet paper shortage could convince the new Venezuelan president Maduro to end the Hugo Chavez's fail policies and implement radical fiscal and monetary reforms - otherwise Venezuela might turn into the smelliest country in the world. HT Rasmus Ole Hansen PS This is my blog post #600.



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