Wednesday, June 27, 2007

Private channel to Ahmadinejad 

Mahmoud, buddy.

A wise man once said, "You can control prices, or you can control quantity. You can't control both."*


Angry Iranians have torched petrol stations in protests against the sudden imposition of fuel rationing in one of the world�s most oil rich nations.

Protests rage over petrol rationing in Iran
Youths set a car and petrol pumps ablaze in the capital

The rationing was announced on Tuesday only three hours before it was due to begin at midnight, leading to long queues at service stations as Iranians rushed out to fill up before the clampdown kicked in.

...Iran has to import more than 50 percent of its petrol needs because of its low refining capability, despite being the second biggest exporter in the Organization of Petroleum Exporting Countries (OPEC).

To make matters worse, consumers are being forced to use smart cards to keep track of their purchases but problems in distributing the cards have delayed implementation of the plan, while pumping petrol into vehicles is only possible when the smart card is inserted into the pumping machine.

The price of gas is still controlled at $.10 per liter. (The story has some questionable conversion rates; they report 1000 rials/l., and the rial/dollar rate is 9276, the rial/British pound rate is 18,527.) The use of smart cards as a rationing device is rather new; the likelihood of cash black markets is quite high. These protests won't last long, only until the clever subjects of your country work out the new black market arrangements.

Mahmoud, my friend, the best rationing device in the world is the price system. Of course, that would reveal to your compatriots the cost of ignoring the West as it comes through sanctions that cripple your ability to refine oil. Tough choices, but that's why they pay you the big rials.

(h/t: Captain Ed)

*--I'm pretty sure I heard Art Laffer say this first, but I'm betting he got it from somewhere else. It's too common in economics to not have been around a long, long time.