Sinking Into Economic Quagmire

EghtesadOnline: Numerous ways have been pursued in Iran for countering inflation over the past decades, except for the reasonable, logical and scientific one, Hossein Haqgou, an economic analyst, wrote in an article published by the Persian-language daily Ta’adol. A translation of the article follows:

News ID: ۷۸۷۳۲۹

22 November 2021

Do you know of any country in the world whose government announces the prices of bread and chicken? Recently, the Iranian government once again set the prices of 25 food items and warned of tough penalty against violators.

Regrettably, the incumbent government [led by President Ebrahim Raeisi] is pursuing the same path as its predecessors, which path has already proven to be futile and leads to a quagmire that drags you further in as you tread harder.

The latest examples of such policies were taken by former industries minister, Reza Rahmani, who unveiled a hotline number (124) for enquiring about the prices of 100 top-selling items. His successor, Alireza Razm-Hosseini [the incumbent minister], ordered the formation of Market Regulation Headquarters with the participation of all ministries, commerce chambers, guilds and tens of specialized committees, and issued countless directives to control prices.

You can hardly find an Iranian government that did not make such hasty moves. Not only has the situation failed to improve over decades, it has in fact worsened. Why? That’s a question President Raeisi asked economists in a recent meeting.

The answer is simple: Never have the governments ever moved in the right direction to solve the problem.  That is true even about governments formed before the Islamic Revolution.

Jahangir Amouzegar, who served as minister of commerce and minister of finance for then prime minister, Ali Amini [from May-July, 1962], once said about this situation: ‘The success of an economic plan in a world whose missiles have landed on the moon depends on accurate targeting and employment of prudent, scientific measures. If we continue to follow the tradition of Middle Ages, for example, by whipping retailers to force them to lower their prices and put landlords in prison to make them reduce their rents, or try to improve production by rounding up beggars, we’ll face economic stagnation. Iranian solutions to the Iranian problems do not include the caning of the butcher or throwing the bakers into bread furnace to lower the prices of meat and bread. You cannot expect to gain useful results until you haven’t replaced baseless fantasies with certain economic principles.’

Economic Principle

Economic theorems are very simple; the same thing Sa’di, the great Persian poet, said a few hundred years ago: “If thou hast no income, spend but frugally.” That is the backbone of modern economics: the necessity of striking a balance between scarcity of resources and people’s countless desires and wants. Sadly, heedlessness about this obvious economic principle is the root of all economic, political crises and problems, protests and revolutions.

Regardless of this key principle, governments engage in spending through money creation. The inflation resulting from disruptive manipulations of prices and elimination of competition leads to a bankrupt economy and puts people’s businesses and livelihoods at risk of crisis and collapse. The solution is for the government to get involved with its own special responsibility instead of interfering in various small and large matters, i.e., the supply of public goods, including establishing order and security, safeguarding individual and collective rights of citizens, forging appropriate interaction with the world, stabilizing macroeconomic variables, improving the business climate and protecting the environment.

If the honorable governments delegate the affairs of meat, chicken, egg, onion, potato and cars to the market, prices will definitely decrease and the quality of goods will increase as a result of competition among economic players and improvement of productivity (and not through distribution of rent.) This is the same approach taken by developed countries; it has formed global markets and improved the volume and quality of goods and services.

As American economist and statistician, Milton Friedman, said: “If the government were to take over the Sahara Desert, there would be a shortage of sand in five years.”