Tyranny of numbers

Thomas Schelling (1921-2016) and the Iran nuclear deal

Posted in General, Sanctions by Djavad on December 21, 2016

Thomas Schooling, who died last week at the ripe age of 95, was the winner of the Nobel Economics prize in 2005 and the economist who “saved the world,” as fellow Nobelist Roger Myerson put it.  In his essay honoring Schelling, Myerson wrote that his classic book, Strategy of Conflict (Harvard University Press, 1960), “should be recognized as one of the most important and influential books in history of social science.”

Schelling came to Harvard’s economics department in 1960, and later helped found the Harvard Kennedy School (where I am visiting this academic year).  He is also credited with the establishment of public policy as a legitimate and rigorous field of study, one that Iran’s education system undervalues.

When I was in graduate school here, in the 1970s, he was one of several residents of Littauer (the building that then housed the economics department and the School of Government, before the latter became HKS) who whisked about the building wearing bow ties and shuttled back and forth to Washington to give advice.  Although he liked to think of his role in government as helping decision-makers learn about choices and understand their consequences, he has been criticized for his role in the Vietnam war.  He had supported the bombing of North Vietnam based on the theory (in the hope?) that Ho Chi Min would see it as a signal and would thus deter his further actions. In the event, the North Vietnamese saw it as the American desire to destroy their country and fought harder.

Which takes me to Schelling’s connection to Iran and his advice for how the US should approach negotiations with Iran, in particular avoiding humiliation and overuse of threats.

 

In January 2008, he visited Iran at the invitation of Sharif University’s School of Management and Economics, at the height of the nuclear standoff.  You see him here gracefully accepting an honorary PhD from Sharif.

schelling

At the time it was reported in the Iranian press that he was critical of the US sanctions against Iran, but as far as I can tell this is not a policy implication the models of conflict for which he is famous (I cannot find any references in English to this effect).  Sanctions were quite mild in 2008 compared to what they morphed into a few years later.  He learned from his trip that foreign policy decisions in Iran are made by Ayatollah Khamenei, the supreme leader, and not by the firebrand Mahmoud Ahmadinejad.   He knew that in any conflict, identifying the actual decision makers was critical to its resolution or at least peaceful coexistence.

There were more important ways in which Schelling’s thinking was relevant for the Iran nuclear dispute.  Having learned a lesson from his Vietnam intervention, he offered more tempered counsel on how a powerful county like the US confronts a smaller adversary like Iran.   He criticized those threatening war to stop Iran’s nuclear program and considered the US refrain of “All options are on the table” unwise, preferring to say, ‘No – we’re negotiating through the U.N.; we’re not going to do anything unilaterally.”  As the talk of regime change is returning to the highest levels of US foreign policy making, thanks to Trump’s cabinet appointments, Schelling’s counsel is worth remembering.

One of the ideas for which Schelling is famous is coordination without communication and how people with opposing interest find ways to cooperate.  For example, people who lose each other in a large city can nevertheless find each other by converging on a place each expects the others to think of as a likely point of default, the “Schelling point.” In disputes between nations, his model showed how adversaries communicate by threats without having to talk directly to each other.  Nevertheless, to avoid accidents, his policy advice was for direct communications, as in the famous Hotline between Moscow and Washington.

Iran is not a nuclear power, but misunderstandings and accidents threaten the nuclear deal reached in July 2014 daily.   Direct communication between top US and Iran nuclear negotiators, thanks to personal rapport between Kerry and Zarif and Muniz and Salehi, has been credited with not only reaching the nuclear accord, but also of keeping it from unraveling due to small but inevitable mishaps. For example, the overproduction of heavy water reported by the IAEA in November could have triggered punitive action on the part of the US and escalated into the full blown crisis had it not been for the ability of the parties to talk and settle the issue before it got out of hand.  The loss of such communication will be one of the many casualties of the US presidential election, as the creators of the JCPOA are replaced with its adversaries.  This will be a serious threat to the nuclear deal even if Trump does not follow through with his election promise to tear it up.

New data on internet use in Iran

Posted in General by Djavad on October 30, 2016

It has been a while since I posted anything here.  Today, I am prompted to write because my “good” excuse for the long absence has been removed.  The website of the Statistical Center of Iran (SCI), which has been inaccessible from outside Iran since it was hacked last May, is back on.  (My other excuse — resettling in Cambridge, MA, to spend my sabbatical year (2016/17) at the Middle East Initiative of Harvard Kennedy School — is less valid every day.)
Access to the regular inflow of data from the SCI website has been crucial for my writing on this blog as well as for my academic research.  Without numbers, the blog would turn into the Tyranny of Opinions on Iran, of which there is plenty already.  So yesterday I was pleasantly surprised  to discover that access to the site for users outside Iran had been restored (hopefully permanently), and I found several interesting new reports to read and write about. (more…)

Elections in times of economic crisis

Posted in General, Inequality, Poverty by Djavad on March 13, 2016

In a post that I published earlier this week on the Brookings blog, Future Development, I argued that because Iran’s February 26 parliamentary elections took place at an economically inopportune time the success of the moderate candidates is all the more significant.  In my last post here, written a couple days before the election, I had presented some evidence for the poor state of the economy — loss of industrial jobs and falling living standards since Rouhani’s election in June 2013.  In this post I expand the discussion of living standards, poverty, and inequality in recent years. (more…)

Will a weak economy affect Iran’s parliamentary election this week?

Posted in General by Djavad on February 24, 2016

Iran’s parliamentary election this Friday promises to be very consequential for the continuation of Rouhani’s reforms — “fateful” (sarnevesht saz), is how former president Rafsanjani described it.  But it is taking place at a tough economic time.  The nuclear deal and the removal of sanctions are beginning to have an effect, but not soon enough for people to feel the benefits of reconnecting to the global economy in their pocketbook. (more…)

More of the same (austerity) in Iran’s new budget for 2016/17

Posted in General, Macroeconomy by Djavad on January 23, 2016

For the third year in a row the government has proposed a tight budget, keeping spending constant in real terms.  I am not sure the macroeconomics I studied decades ago has much relevance to Iran’s current economy, but the Keynesian in me says, given the economy’s dire conditions, a bit of fiscal stimulation could not hurt.  The government still believes that inflation rather than bankruptcies and unemployment as the enemy number one.  But perhaps Rouhani’s economic team is banking on the lifting of sanctions to pull Iran out of recession and generate a modest 5% growth.  This seems to be also what the IMF expects.
(more…)

Understanding the rial’s strength

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on January 18, 2016

Last month a headline (link in Persian) in Eghtesad News read: “Do not buy dollars, it will get cheaper”!  More surprising than the headline was who said it: Iran’s Central Bank Governor, Valliollah Seif.  As his critics were quick to point out, it was unwise for the one official whose economic predictions should be muted and very general — the US Fed’s statements about the future need expert decoding — to claim to know which way the exchange rate will move in the future (you can read here — in Persian — the CBI’s lengthy explanation for the controversial remarks). (more…)

Khodadad Farmanfarmaian: a personal remembrance

Posted in General by Djavad on December 22, 2015

Khodadad Farmanfarmaian, the chief architect of Iran’s economic miracle in the 1960s, passed away in London on December 16, 2015 at the age of 87. He was one of the Shah’s few good men, and helped launch Iran’s “decade of economic miracle” in the 1960s, before 9% annual growth rates became commonplace in Asia. He held key positions before the revolution as the Governor of the Central Bank and the head of the Plan Organization. In 1973, he broke from the Shah, whom he described as having “no real understanding of economic development,” over the ill-advised and ill-fated upward revision of the Fifth Plan in 1974. (more…)

Is the Tehran Stock Exchange a good barometer of Iran’s economy?

Posted in Employment, General, Macroeconomy by Djavad on October 10, 2015

The Tehran Stock Exchange (TSE) has been in the news lately, not because its 22-month downward slide has ended but because four cabinet members highlighted its plight in a letter to President Rouhani.  The letter was written on September 9 but came to light last week.  The brouhaha that followed, however, was not about the TSE and what its poor performance means for the economy, which appears to be heading for a double-dip recession.  Attention has instead focused on division within Rouhani’s coalition government and what it means for the future of his austerity program.  I wrote about these issues for Al Monitor last week; here I’d like to take a closer look at the performance of the TSE — how badly it has done, and why. (more…)

Will Rouhani complete the reform of subsidies?

Posted in General, Inequality, Poverty, Subsidy reform by Djavad on September 9, 2015

In principle, the answer to this question should be yes.  Rouhani’s administration professes to be pro-market and is eager to shift resources from wasteful consumption to economic growth.  What better way to remove energy subsidies and use the proceeds to fund the cash-starved development budget? (more…)

Getting the facts right on Iran’s economic growth

Posted in General, Inflation, Macroeconomy by Djavad on July 31, 2015

A post on Iran’s GDP may seem very wonkish, but it is actually very relevant to two important political debates. One is the current debate in the US about Iran’s economic prospects and the other is the never ending debate in Iran about the economic cost of the Islamic Revolution of 1979.  Neither seem to be well informed with the facts. (more…)