Tyranny of numbers

Debating the economy in Iran’s presidential election

Posted in General, Inequality, Poverty by Djavad on June 9, 2013

One of the weakest aspects of Iran’s presidential election is fact checking for economic claims made by the candidates.  For example, the other day candidate Gharazi seemed to imply that as Minister of Oil for the Rafsanjani government in the 1990s he was responsible for keeping the world price of oil high.  He claimed that the world oil price dropped by about 50% when president Khatami replaced him by a reformer.  It is a tall claim that a minister responsible for less than 5% of the world oil supply could have such a large influence on the global market.

Mr. Rezai made a similar exaggeration when he said the rial has lost two-thirds of its value since last year.   True, in the free market for foreign exchange the rial fell by two-thirds last year, but prices have not tripled, as his remark implied.  This is because imported goods account for only a proportion of consumer goods, and not all imports are bought with this rate.

But perhaps the prize for exaggeration goes to Mr.  Aref, the reformist candidate, for claiming that 44% of Iranians are poor. If you assume that the 44% poverty rate also held for 2011, the last year for which Iran’s Statistical Center has released the raw data, it is easy to deduce the level of per capita expenditures (pce) that he has in mind as the poverty line.  It is a whopping 61,500 rials per day (roughly $12 using the World Bank PPP rate of 5006 rials per USD for 2011).  Unfortunately for Mr. Aref, the same poverty line implies a higher poverty rate for 2005 (47%), the last year of the reformist government in which he served as vice president.

Of course, these outcomes are not entirely the result of government policies, and Iran’s economy faces different challenges in 2011 than it did  in 2005.  But such cavalier use of data by politicians is not becoming for a country that claims to have reached a high level of scientific maturity and which wants to take its electoral process seriously.

The graph of the cumulative distribution functions of the pce for 2005 and 2011 also show that if we pick a lower poverty line, one more in line with international standards, of about $4, or 22,000 rials, we we notice a larger drop in poverty, from 7.1% to 4.3%.  The cdf’s also show a decline in inequality.  This is most likely the result of the cash transfer program administered under the Ahmadinejad government.  Whether or not this was the best way to help the poor is another matter.  I have been critical of his liberal import policy that hurt the Iranian economy during these very years, but that criticism is based on the poor losing jobs, not cash.  I happen to believe that giving the poor work is much superior to giving them cash, but then that is a debate for another time.

lpce2005_2011

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6 Responses

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  1. Amin Sadeghi said, on June 12, 2013 at 10:42 pm

    There is a fatal flaw in the calculations presented in this article. This article is an analysis of Dr. Aref’s statement: “44% are people are poor”. This statement is made in June 2013. But the calculations are presented assuming that the statement is made in 2011.

    Clearly 2013 was worse than 2011 in terms of poverty and Dr. Aref wouldn’t have made such statement in 2011. This difference has caused the miscalculation of the unexceptionaly high poverty line of $12 (that Dr. Aref is critisized for). The author argued his assumption — that the statement is made in 2011 — was because 2013 data isn’t out yet, however, there are more fair baselines that the author could adopt.

    To fix the poverty line estimation and we need an estimate of the loss in the purchasing power from 2011 to 2013. I don’t have accurate statistics but I would expect more than 30% drop in purchasing power. Economists should give a better estimate of this but I’m sure the result will indicate we have more poor people in 2013 than in 2005.

    Note: I’m convinced that there were fewer poor people in 2011 than in 2005 and I’m not critisizing that aspect of the argument. I also believe that poverty improvement has mostly been due to the increased oil revenue. I also thank the author for pointing out to the job market in conclusion.

    • Djavad said, on June 13, 2013 at 12:15 am

      Thanks for your comment. I guess we will have to wait for the 2013 data to come out before you will agree with me. The reason I defend that assumption is that the best estimates today for economic growth in Iran are zero or positive. Your 30% estimate of drop in purchasing power is impossible unless the economy drops by as much. I think you are thinking of a person on fixed income. Yes, they will experience a drop in personal income at the full rate of inflation. But for others, many of whom are at the receiving end of high prices, there will not be such a drop. Just talk to cherry growers in Neishabour!

  2. masoud said, on June 11, 2013 at 2:56 pm

    استاد بزرگوار جناب دکترصالحی عرض سلام و خسته نباشید دارم پرسشی است که از چند اقتصاددان سعی دارم بپرسم پیرامون بخشی از برنامه نامزد ها برای بانکداری و آن اینست
    آقای دکتر پرسشی انتخاباتی داشتم.در برنامه ی نامزد ها آقای جلیلی برای اصلاح نظام بانکی گفتند که نرخ گزاری سود بانکی مبتنی بر بانکداری ربوی هست.آن ها بر آنند تا سیستم مشارکت در سود و زیان طرح توسط بانک را اعمال کنند به گونه ای که مشتری دقیقا» در سود و زیان طرح سرمایه گزاری شده سهیم باشد و البته ادعا میکنند همواره سود پرداختی به سپرده گزار از میزان حقیقی آن کمتر است.
    در نقطه ی مقابل دکتر قالیباف در برنامه هاش برای سیستم بانکی کشور آزاد سازی نرخ سود سپرده ها رو وعده داده.
    میخواستم بدونم شما به عنوان یک کارشناس کدوم یک از این دیدگاه هارو میپسندید؟

    • Djavad said, on June 13, 2013 at 12:32 am

      I prefer to let the markets do their work in this case. The people who
      want to save their money in rial should have the same chance as those who
      want to save it in gold and dollars. Banks should be able to attract their
      money by offering higher interest rates just as in other markets, such as
      real estate, gold, and forex, buyers are free to offer what they can to
      attract sellers.

  3. news said, on June 11, 2013 at 12:09 pm

    mr. Djavad Salehi-Isfahani hellow!
    I enjoyed reading your blog and I want to offer you to participate in the news and talk about the upcoming elections in Iran.
    I would like if you kindly could contact me at the following email: news51513@gmail.com
    and I will elaborate more.

    thenks

    • Djavad said, on June 13, 2013 at 12:27 am

      Thanks, but I am not able to participate because I am traveling.


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