Tyranny of numbers

The gold standard to measure change in household welfare in Iran

Posted in Living standards, Sanctions by Djavad on February 24, 2019

The anniversary of the Islamic Revolution 40 years ago this month coincided with the deepest economic crisis Iran has experienced since the war with Iraq in the 1980s.  As top Trump administration officials, who wished the crisis on ordinary Iranians in the hope of enlisting their help in regime change, excitement among the Iranian opposition abroad is palpable.   The occasion has also stimulated discussion of success and failure of the revolution concerning a wide range of issues and metrics.  Much of the discussion involved comparison of living standards in Iran between now and in the 1970s (read my own comparison in Project Syndicate here.) (more…)

Rouhani’s new budget cuts back on expenditures, big time

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on January 31, 2019

If the government of Hassan Rouhani has a plan for fighting the downward trend in Iran’s economy, the one started with the US withdrawal from the nuclear deal, it is not to be found in its proposed budget for the Iranian year 1398 (March 21, 2019 to March 20, 2020).  The budget, which may be modified by Iran’s parliament in the next few weeks, is proposing serious cuts to expenditures.   Blaming shrinking revenues from oil, the government has decided to deal with the shock of the Trump sanctions and fleeing private investment by reducing its own expenditures.  Not a surprise from a government that has made fighting inflation its top priority and jobs creation the purview of the private sector. This is reasonable logic in normal time, but not when factories are cutting back on production and employment or shutting down altogether.     (more…)

Is Iran’s inflation really slowing?

Posted in Inflation, Macroeconomy, Sanctions by Djavad on January 9, 2019

In my last blog post I suggested that Iran’s inflation may be slowing down, and the latest consumer price data from the Statistical Center of Iran (SCI) suggest that this may indeed be the case.  The Consumer Price Index (CPI) published by SCI rose by 2.6 percent for the month of Azar (November 21 to December 20), an annual rate of increase of 26 percent.  This is high by world standards but low by the standards of this summer, when in August the rate shot up to 127 percent (see Figure 1).  More importantly, it is about the same as the month before, which is why it is safe to say that calmer — not better — times are ahead.  Unfortunately, the reporting of prices has created confusion, some numbers showing inflation slowing while headlines say the opposite.  (more…)

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.

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The cost of sanctions for Iran’s economy

Posted in General, Macroeconomy, Sanctions by Djavad on July 23, 2018

There is no easy way to determine the impact of international sanctions on Iran’s economy, but looking at the growth rate of the GDP after 2011, when international sanctions tightened, is a good place to start.  The question has become more than an historical curiosity since Trump decided to pull the US out of the Iran nuclear deal and reimposed sanctions.   (more…)

The return of inflation

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on July 1, 2018

According to the Central Bank of Iran, last month (Iranian month of Khordad, which ended on June 20, 2018), consumer prices increased by 4.3 percent.  This translates into a whopping annual inflation rate of 67 percent.  The government announcement was much less alarming, using the so-called point-to-point inflation rate (Khordad 2018 over the same month 2017) of 9.4 percent.  As I explained in a recent interview in Tejarat Farda (in Persian), the point-to-point reporting is very misleading when inflation is accelerating, and does not fool anyone (any more than I could fool a police officer whose radar registered my speed at 80 miles per hour by claiming that my average speed since leaving home has been below the speed limit). (more…)

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.

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…)

Iran’s economic recovery: the view from employment data

Posted in Employment, General, Sanctions, Unemployment by Djavad on October 20, 2014

In my last post I examined if the quarterly growth in the GDP using data released by the Central Bank of Iran (CBI) that indicated a robust economic recovery during spring 2014.  As promised, I will now review the most recent employment figures released by the Statistical Center of Iran (SCI). (more…)