Raid to shops in north of Tehran selling luxury imported clothing and shoes

Tapesh
by Tapesh
04-Jan-2012
 

Related ministry of commerce team and Islamic institution in charge of controlling prices raid on Wednesday 4 January shops in North of Tehran selling luxury imported clothing and shoes with exorbitant prices .

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 A state of war only serves as an excuse for domestic tyranny.--Aleksandr Solzhenitsyn.


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This move will backfire. Do you know why?

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Having punished and jailed real economists and replace then with IRCG generals (a move similar to replacing university scholars with Islamist mullahs) the ruling thugs have no clue about how supply and demand works or the dangers involved in interfering with both forces. 

In normal economies, supply and demand "set" prices naturally.  To interfere with that for political reasons always has major consequences.

Consider what happened when prices of oil were kept artificially well below the natural market price via subsidies. That had several consequences. First, Domestic buyers wasted cheap energy, leaving windows open in cold weather for example.  Second: lost revenue, the same wasted fuel sold for 35 cents a gallon could earn ten times abroad in hard currency or gold.  Thirdly, once anything is subsidized, the subsidies become addictive to most people and the political risks in eliminating them very high.

In the USSR, where agricutural prices were kept very low to encourage urbanization, shortages became a peretual problem.

Recent reports from Iran say that stores selling many goods such as laptops and other goodies have simply stopped selling. It is from a natural fear of getting stuck with raidly depreciating currency. Expect more of this sort as an alternative to arrest or forced selling at a loss.

LIKELY EFFECTS:

1. Shortages: When merchants are ordered to sell goods at less than they aid for them, goods will disappear from the shelves, as in Soviet stores.  If they don't they'll be driven out of business.

The same goes for manufacturers ordered to produce at less than the cost of production.  Ditto for workers asked to worked when pay comes in depreciating currency.  As the old Soviet joke went, "They pretend to pay us and we pretend to work."

2. Many bankruptcies: Those stores or factories that stay open and are forced to sell at low prices or face arrests obviously cannot stay in business.

3. Rise of black markets: The goods that disapear from the shelves reappear on black markets at much higher and more realistic prices. 

4. Political risks: Alienation of merchants and bankruted producers.  Alienation of workers who already suffer payless paydays.  The regime may take advantage of this opportunity by paying them with depreciated currency worth half what they were owed. 

5. Loss of trust has future effects: The German government was able to eliminate its debt to World War I bondholders with worthless currency once hyperinflation got underway.  This is how Ahmadinejad hopes to balance the budget--by cheating people.  The problem is that people betrayed so badly are unlikely to trust government bonds in the future. Similarly, after the bank crash in America of the thirties, many people who lived through it buried their savings in cans and said, "Never again."

Conclusion:

Previously rigged elections and police statre tactics made the regime a huge number of enemies. Now economic troubles are making new enemies among people on whose support the regime could once count.  At the same time, all regime promises of a brighter tomorrow are no longer effective thanks to outrageously inaccurate promises in the past.  

Distrust for this regime of swindlers is now omnipresent for so many good reasons.


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