Friday, October 05, 2012

Weimar and the Mullahs

They haven't replaced wallets with wheelbarrows in Iran yet, but it could be coming, Megan McCardle reports:

Steve Hanke estimates that inflation is running at 70% a month.  This is, as Alex Tabarrok points out, nowhere near a record.  Still, it's a Big Deal.  Hyperinflation has brought down governments--Iran is experiencing protests over the collapsing rial.  And it's not hard to see why.  At the current rate of inflation the value of a savings account (or a mattress stash) is now barely 40% of what it was one month ago.  In a few more months, even a healthy balance will be about enough to buy a pack of gum.

Hyperinflation is destabilizing in all sorts of other ways--it quickly becomes impossible to buy foreign exchange, and therefore, to buy imports; contracts become hellish to write; investment is practically impossible; and the sheer administrative difficulty of acquiring and handling enough cash becomes ever-more problematic.  In Germany, it's really true that people used wheelbarrows to car their pocket change around, and housewives really used to run to the factory gates at lunch so they could get their husband's paycheck and spend it immediately--waiting until evening would have meant losing an appreciable amount of purchasing power.  In effect, effort that used to be put into productive labor instead becomes focused on getting and spending money as quickly as possible.  

This could be a game-changer in a place where the game desperately needs to change. We'll need to pay close attention.


Anonymous said...

as much as you and McCardle would probably not like to say it, it seems apparent to me that you are tacitly admitting that Obama's approach is working. Whether or not you accept that, it's a simple fact that the Obama administration put the serious sanctions that have landed Iran in such a pinch. The current administration has built a wide international coalition against Iran.: The EU has stopped importing Iranian oil, major Asian economies (India, Japan, and South Korea) have substantially drawn down their purchases. The international Finacial community has enforced compliance, etc. Iran is largely isolated as a result. Hell, even the Chinese and Russians are falling into line. Am I wrong?


Mr. D said...

No, I wouldn't say you're wrong, good sir. How much credit belongs to Obama is open for consideration, but we'll see what happens.

The one thing we can't know is this -- whether or not the mullahs would cede power willingly. Based on their history, I kinda doubt it.