On June 14, 2021, Professor Steve H. Hanke, Professor of Applied Economics at Johns Hopkins University, published an insightful article in the National Review Magazine on the current economic situation in Iran. The following is a full reproduction of Professor Hanke’s article, following the upcoming presidential elections in Iran.
âWith the upcoming Iranian presidential elections on June 18, it is time to determine whether Iranians are ‘miserable’ or ‘happy.’ After all, the public mood still colors public opinion. In the economic sphere. , misery tends to stem from high inflation, high borrowing costs and unemployment. The surefire way to alleviate this misery is through economic growth. All other things being equal, happiness tends to be low. ‘thrive when growth is strong, inflation and interest rates low, and jobs abundant.
Many countries measure and report these economic measures on a regular basis, and comparing them, nation by nation, can say a lot about the state of important global economic sentiments. Iran, for example, is it more or less miserable than other countries? The Hanke Annual Misery Index (HAMI) gives us the answers.
The first poverty index was constructed by economist Arthur Okun in the 1960s to provide President Lyndon Johnson with an easy-to-digest snapshot of the American economy. The index itself has been altered several times, and its coverage has been significantly expanded, first by Robert Barro of Harvard, then by me.
My modified misery index is the sum of the unemployment, inflation, and bank lending rates, minus the percentage change in real GDP per capita. Higher readings on the first three items are “bad” and make people more miserable. These âbadâ measures are offset by a âgoodâ (real GDP growth per capita), which is subtracted from the sum of the bad ones. A higher HAMI score reflects a higher level of misery.
So where is Iran located? Of the 156 countries around the world I cover in the HAMI, Iran ranks eighth most miserable country in the world, behind Venezuela, Zimbabwe, Sudan, Lebanon, Suriname, Libya and Argentina.
The symptoms of Iranian misery are as clear as the nose on your face. Since January 2020, the Iranian rial has lost 45% of its value against the US dollar. As the table below shows, there are only seven countries whose currency has lost more than Iran’s.
The weakness of the rial has made inflation a rampant problem in Iran. Every day I accurately measure the rate of inflation, and today, by my measurement, the rate of inflation is intolerable 40 percent per year. The best option to end Iran’s misery is a currency board. A currency board issues convertible notes and coins on demand in an anchor foreign currency at a fixed exchange rate. It is required to hold anchor currency reserves equal to 100 percent of its monetary liabilities.
A currency board does not have discretionary monetary powers and cannot issue credit. It has an exchange rate policy but no monetary policy, and its only function is to exchange the national currency it issues for an anchor currency at a fixed rate. The currency of a currency board is a clone of its anchor currency.
In addition, it does not require any prerequisites and can be installed quickly. Public finances, state-owned enterprises, and commerce do not need to be reformed before a currency board can issue money. They have existed in some 70 countries since 1849. None have failed.
Like the one who designed currency boards in Estonia (1992), Lithuania (1994), Bulgaria (1997) and Bosnia and Herzegovina (1997), I can attest that they work perfectly to create stability. And while stability may not be everything, everything is nothing without it.