Wednesday, October 4, 2006

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So much for Ahmadinejad's soft power.

It appears that Mahmoud Ahmadinejad's performance for the past year has disenchanted some Iranians:

While President Mahmud Ahmadinejad is busy running a high-voltage campaign against the United States and its policies, Iranians are wondering whether he will ever make good on election promises to crack down on corruption and distribute Iran's vast oil revenues more equitably.

"My whole family voted for Ahmadinejad because he promised to improve our lives. He said he was going to fight corruption and create jobs. He said oil money belonged to the people. I haven't seen any of the oil money in my house yet, but I have to deal with the ever increasing prices anyway," said a a 67-year-old pensioner who asked to remain anonymous. "I'm running a family of three on less than US$220 a month and the price of the cheapest cut of meat is $6 per kilogram. Thank God I'm not paying rent or we wouldn't have anything to eat."

A political analyst in Tehran said: "Dissatisfaction with the administration of President Ahmadinejad is not yet widespread, but it is growing fast. The hardline government that outran reformists on a plank to check inflation, lift living standards, create employment, and take a bite out of the corrupt and the rich and give it to the impoverished has not only failed to deliver those promises, but has clearly moved in the opposite direction."....

"Results of an opinion poll reported by Mehr News Agency in September show that in May, 61% of those asked found his team successful in the nuclear issue, 44% in managing inflation and only 37% in fighting corruption.

"The report doesn't mention percentages but says those asked consider unemployment and inflation the administration's most urgent problems. It seems Ahmadinejad has concentrated his efforts more in foreign policy rather than in the more challenging economic arena."....

Economic indicators now show a huge decrease in the stock-market value and private banks claim they are on the brink of bankruptcy resulting from lowered interest rates. The inflation rate is said to be just above 12% now, and is forecast to rise to 14% or 15%. There is a huge budget deficit, amounting to $8 billion. Even Iran's top judiciary has warned about capital drain. The highly subsidized, oil-revenue-dependent Iranian economy is struggling with inflationary stagnation, they believe.

"It's still too early to make a good assessment of the government's economic performance, but some of the contradictions resulting from lack of a clear economic theory are already becoming evident," said Saeed Leylaz, an economic analyst in Tehran....

Leylaz added: "On the other hand, the government's slogans and its domestic and foreign policies have scared away investment. The stock market has lost 50% of its total value compared to its peak time."

The huge amount of subsidies paid by the government is widening the gap between the rich and the poor, economists warn.

"The Iranian economy will be injected with around $50 billion worth of subsidies this year," Leylaz said. "But it will do little to help the poor. Fuel subsidies comprise one-third of the total subsidies paid by the government, and more than half the fuel subsidies, for example, will find their way into the pockets of the top 10% of the population who have and use cars, meaning that the top 10% are getting one-sixth of all subsidies.

Other polls seem to generate similar results: "Last year Ahmedinejadís approval rating was 60%. Now it is down to 35%."

These findings suggest to me two things: 1) Fareed Zakaria might be onto something.

2) If push comes to shove, the administration is wrong to reject gasoline sanctions. Those sanctions would bite the precise segment of the population that benefits from Ahmadinejad's regime.

posted by Dan on 10.04.06 at 06:26 PM


Rather than gasoline sanctions, increasing the gasoline federal excise tax would accomplish precisely the same thing only sound much better. (Like an environmental thing instead of punishing Iran.) There's some evidence that the incidence of gas taxes is such that a significant part of any gas tax increase would come from the producers rather than consumers.

Whereas, of course, a gasoline embargo would also increase the price at the pump for consumers, too.

posted by: John Thacker on 10.04.06 at 06:26 PM [permalink]

"Last year Ahmedinejadís approval rating was 60%. Now it is down to 35%."


Hm. That's 4 points lower than Bush's approval rating here.

Re who pays for a gas tax- the consumers pay.

Perhaps the producer's margins will thin somewhat for a while, but the producer will pass on as much of any increase as possible. They are in business to make a profit, and if they can't make a profit, they will go out of business.

One way or another, the consumers will pay.

Repeat after me: "profit is not inherently evil" and "the economy is not a zero-sum game".

posted by: rosignol on 10.04.06 at 06:26 PM [permalink]

rosignol is correct.

When is there going to be a recognition by the world of punditry that the consumer always pays? If not not a particular class of direct consumer, then classes of indirect consumers will pay. There is only one payer and that is the general population. Some segments pay less than others but ultimately the populace pays! The idea that self-interested producers will pony up; or that in some magical way government will invent a costless currency and bear the burden of the marketplace is infantile. The populace is the payer. The question is never who will pay. The question is who will benefit. The burden on one class may increase or decrease, the marginal cost for other classes may be affected, but in the end there is only ONE payer. Benefits on the other hand, are the flotsam of the economic tide and ability to skim them is the mark of privilege.

posted by: Terry Vinson on 10.04.06 at 06:26 PM [permalink]

the contradictions resulting from lack of a clear economic theory

From what I've read this is a major problem with Islamism, namely that it is stuck with pre-modern view of economics, so it is unable to construct a modern industrial economy.

I could be wrong, but I think that is a more fundamental problem than authoritarian government. If an authoritarian government switches to a free market economic system, it tends to lead to democracy over the long run. Maybe it doesn't always go that way, but it does a lot of the time. But I think there are far fewer cases where a country remained non-free market but successfully switched from authoritarian government to democracy. And few if any where both changes happened at once.

Does anyone know if there is any serious thinking going on that relates Islam to modern economics?

posted by: Les Brunswick on 10.04.06 at 06:26 PM [permalink]

Does anyone know if there is any serious thinking going on that relates Islam to modern economics?

Economically, Islam is hosed.

The basic problem is interest. Muslims are forbidden to charge other muslims interest, which makes raising capital difficult.

Some outfits have come up with a workaround, but it's very ad-hoc, and continues to bias the economy in muslim countries towards favoring the people who are already wealthy... and the people who are already rich don't seem to be particularly concerned about getting richer.

Theoretically, a foreign (non-muslim) outfit could go into a muslim country and help modernize the system (because they could charge muslims interest), but then we run into the 'rule of law' and 'property rights' issues.

Is anyone confident that the government in a majority-muslim country will allow a foreign non-muslim firm to use the law to enforce payment of a debt?

posted by: rosignol on 10.04.06 at 06:26 PM [permalink]

I thought Iranian disenchantment with its totalitarian government was a given.

posted by: Alan K. Henderson on 10.04.06 at 06:26 PM [permalink]

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