New Summary #3: Airlines Grounded in Venezuelan Malaise
Author: Andres Schipani
Published: May 20, 2014

         This article continues to discuss Venezuela's never-ending economic misfortunes.  The country is in a dismal downward-spirling tunnel of economic hardships.  Schipani attributes high inflation, price controls and good shortages as the major sources of problems.  The article quotes Professor Steve Hanke of John Hopkins University when he says that Venezuela is easily the most miserable country in the world.  The article continues by saying that the economy is reeling as steel production, cement production, investment, spending on machinery & other capital goods, and oil production are all falling and shrinking.  One of the biggest problems, according to the article, is that tightening of fiscal and monetary policy us required to overcome economic distortions, however doing this will further damage the economy.  
          How can an economy survive when all of it's sources of GDP are shrinking?  In class we discussed the GDP equation, GDP = C + I + G + (Ex-Im).  When thinking about the Venezuelan economy in regards to this equation, it is hard not to be pessimistic about the situation.  As inflation increases, demand for US currency increases, and as a result there is a shortage of US currency.  Because of the currency shortage, the country is unable to import as many goods resulting in goods shortages.  Goods shortages leads to decreased consumption as consumers are unable to purchase their desired goods.  This weakens the economy and weakens future expectations leading to a decrease in investment, internally and externally.  Also leading to pessimism is that these are not small decreases in consumer spending and investment, they are large drastic decreases leading to large fluctuations in the economy and recessions, as GDP decreases.
       How can an economy escape this downward spiraling demise?  A major factor Venezuela needs to overcome is corruption in the government and an end to the political violence that results.  Another thing that would seem to help would be an increase in government spending that would combat the decreased consumer and investment spending.  However, the government has already tried to pump more money, bolivars, into the economy which has lead to further hurt with increased inflation.  Maybe the government should try investing in business and other sources of infrastructure to try and stimulate the economy and create jobs.  Somehow, someway, the government needs to try and greatly reduce inflation so that currency shortages and goods shortages are reversed.