Tyranny of numbers

A note on measuring living standards

Posted in General, Inflation, Living standards, Macroeconomy, Poverty by Djavad on May 22, 2019

A few weeks ago, in this blog and in opinion pieces (here, here and here), I argued that during the three decades since the end of the war with Iraq (1988), Iran’s economic growth exceeded that of Turkey, such that by 2012, when US sanctions intensified, living standards in the two countries were very similar.  My analysis, which surprised some and angered others, is because of the particular data I used to measure GDP per capita (which I also refer to as the living standard).  GDP comparison is not rocket science but most journalists (and even many economists) often get it wrong.  So, in this post I try to explain why it is important that we use data specifically intended for such comparisons.


Has Iran’s inflation peaked?

Posted in Macroeconomy, Poverty, Sanctions by Djavad on November 28, 2018

Last June, I wrote on this blog about the return of inflation in Iran, when inflation had jumped from an annual rate of 18 percent in April 2018 to 34 percent in May.  In more recent months, inflation has been running at an annual rate of 78 percent per month, twice the rate in May.  But, for the past two months, October and November, the monthly rate has declined.  Is this a sign that the current phase of high inflation, which started with the collapse of the rial, is about to end?   Containing inflation is critical if Iran is to convince its citizens that economic stability is returning and that the news of hyperinflation and economic collapse are exaggerated. (more…)

Food consumption of the poor in Iran

Posted in Poverty, Sanctions, Subsidy reform by Djavad on August 2, 2018

It is now clear that the purpose of US sanctions against Iran is to make its people miserable enough so they pressure their government to agree to US demands.  One obvious response to this strategy is for the Iranian government to shift resources to groups most likely to feel and transmit these pressures.  If the government has a such a plan, who to protect and how, it seems lost in the chaos of the exchange rate market and reshuffling of government ministers.  Perhaps the past can be a guide:  how did Iran manage the last phase of sanctions, when, in July 2011, President Obama ratcheted them up.


Poverty and living standards in Iran after the nuclear deal

Posted in General, Poverty, Subsidy reform by Djavad on January 3, 2018

Many observers in the West have been quick to blame the recent unrest in Iran on high and rising poverty, which is in turn seen as a failure of the Iran nuclear deal (also known as the JCPOA), or the squandering of its windfall.  President Hassan Rouhani sold the nuclear deal to voters, who have elected him twice, as the only way he could improve their lives.  The unrest taking place in Iran’s smaller cities suggests that this promise is far from realized.  As I have written before, there is little doubt that the economy rebounded after JCPOA, but did poverty and the living standards of ordinary Iranians also improve with this economic recovery? (more…)

Trends in poverty and income inequality and Iran election debate

Posted in General, Inequality, Poverty by Djavad on May 17, 2017

This is not my first post on poverty and inequality in this blog, but I feel I need to update my previous posts on these topics because of the confusing stuff said about them by the presidential candidates. Thanks to the availability of surveys of household expenditures and incomes, we know quite a bit about both poverty and income inequality, but everyone who uses these data does not come to the same conclusion.  I have read frequently that cash transfers have increased poverty, a claim that challenges common sense and the available evidence. (more…)

Long term trends in poverty and inequality in Iran

Posted in Inequality, Poverty by Djavad on March 29, 2016

In my last post I argued that, after two years of improvement, poverty and inequality were on the rise in 2014/15.  In this post I extend the calculation of poverty and inequality measures to the entire period for which survey data are available, 1984/85-2014/15. This  post also updates the results in my 2009 paper published in the Journal of Economic Inequality, which covered the period from before the revolution to 2005.   (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 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…)

Transfers in kind: learning the old lessons, again

Posted in General, Inequality, Poverty, Subsidy reform by Djavad on February 14, 2014

President Rowhani has received well-deserved high marks in foreign policy for his management of the tough negotiations with P5+1 in Geneva, but his first attempt at dealing with Iran’s broken social protection system does not deserve a passing grade.  I explain this in my latest post at Iran Matters.    The food distribution plan that, according to an editorial in the conservative Keyhan newspaper, “could have been a gesture that the government cares about the poor …  but instead it turned into insult and humiliation.”  

The government seems to have made a hasty decision that transfers in kind are superior to cash, despite evidence to the contrary, as I argued in a recent post here.  Tadbir, which is the motto of Rouhani’s government and translates into prudence and experience in Persian, should include economics research and the experience of other countries.  Are there channels for this type of information to find its way into Iran’s policy circles?   

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.