Wednesday, June 27, 2007

Ahmadinejad's Inflammable Blunder Ahmadinejad's Inflammable Blunder

Pajamas Media: Ahmadinejad's Inflammable Blunder by Meir Javedanfar points out that the Iraqi government, and in particular, their president, have screwed up royally when it comes to gasoline. It is heavily subsidized, costing a fraction of what it should cost. That was because Ahmadinejad used low gas prices to bribe the less wealthy to vote him into the Iranian presidency. But, the problem with an artificially low price is that consumers respond by greatly increasing demand for the product. But Iran, one of the richest countries in the world in terms of oil reserves, imports some 40% of its gasoline, due to a shortage of refineries. Instead of building refineries, which would have helped to reduce this, the government committed to spending money on any number of less urgent, but more politically advantageous products. So, with demand exceeding supply, which is inevitable with subsidized pricing, the government imposed severe rationing. To make matters worse, the purchase of more buses was also left mostly undone, again because infrastructure money was spent elsewhere. The result is not surprising - there are a lot of very angry Iranians right now. Not the rich, because they easily find ways around the gas rationing, but rather, the lower and lower middle classes.

None of this should be a surprise. This is economics 101. But it did point out the failings of the socialist philosophies off the Iranian leaders to understand how economics really works. Of course, if they did understand economics, they probably wouldn't be socialists.

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