Wednesday, December 2, 2009

Price controls in Iran

Today's NYT has a front page article on Iran's debate about phasing out subsidies for gasoline. Despite being an exporter of crude petroleum, Iran has to import a large share of its gasoline because of insufficient expertise and capacity. Three immediate reactions: (1) Iran must realize that sanctions are on the way and that they need to start making adjustments now; (2) the subsidies are being withdrawn and replaced by a new scheme that tends to favor supporters of Iran's theocracy and penalize the mullahs' political opponents; and (3) most shockingly it shows that NYT news reporters understand basic economics:

There is widespread agreement that selling everyday goods at far below market prices, which costs the Iranian government an estimated $100 billion a year, makes little economic sense. It encourages over-consumption of gasoline and other products, discourages domestic production and makes Iran more dependent on imports, economists say. The subsidies are also regressive, because the rich pay the same artificially low prices as the poor and consume far more. And they encourage smuggling.

Maybe we will see the same understanding the next time NYT runs an article on the minimum wage or subsidies for "next-generation" fuels. Maybe not.

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