A member of the Expediency Recognition Council seriously criticizes the “hidden subsidy” fallacy / Davoudi: How expensive can you make it? – rahnam

According to the economic correspondent of rahnam news agency, In this meeting, which was held at the invitation of Shahid Beheshti University’s Economics Department Scientific Association and with the presence of a group of professors, experts and students, this direction-building and key field, which is the basis of key and strategic policies in various fields, was discussed by this veteran professor of economic sciences. , was carefully examined.

** Policy requirements in the economy

At the beginning, by explaining the requirements of analysis in human fields and their essential differences with natural and mathematical sciences, Davoudi noted: In mathematical and experimental sciences, you are faced with events that are usually quantitative and are justified by physical and natural laws and are therefore predictable. ; But when you enter into policy-making in the field of humanities, you are actually faced with human beings or human and social institutions in which qualitative factors prevail over quantitative factors. Also, in another way, you are faced with communication between humans, while humans have authority and their behavior changes. Therefore, the action and reaction of humans towards a policy and its actual effect may be completely unfamiliar and unpredictable for the policy maker. In this situation, it is naturally not possible to justify all aspects of the matter by simply quantifying and seeing mathematical relationships.

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In the same context, he added: For example, the policymaker increases the amount of money or the wages of workers for certain purposes, but when he does it, people may make a different decision, and other conditions may arise that were not predicted and desired by the policymaker. Because there are countless factors and conditions such as mathematics, physics and natural sciences cannot be predicted; Therefore, we say here, the politician should be an artist rather than a scholar. That is, while observing the basic factors, he should be able to draw like a fine and flexible painting, not to draw the drawing line with a formula or, for example, only 45 degrees, according to what was taught in the class. Of course, it is not possible without scientific elites. A policymaker should be an artist, in addition to being a specialized scientific aristocracy and surrounded by related sciences and knowledge of society. It is even possible that a person has a master’s degree or a doctorate in economics, but is not an artist and cannot make a correct policy.

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** Does the increase in liquidity necessarily lead to inflation?

Referring to the definition of liquidity and its importance in the economy, the member of the Expediency Recognition Council, Shah Beit considered monetary policy to be a liquidity issue and said: Creating liquidity has two components, one of which is the monopoly of the Central Bank according to the law, and the other is done by the banks. . I touch here on a concept of money that leads us to hidden subsidies.

He went on to explain the quantitative relationship (MV = PQ) and considered the left side as the representative of the demand side and the right side as the representative of the supply side. If it does not have (in other words, the more vertical the supply), the production will not increase and naturally the price will go up; But if production capacities can be increased (in other words, the more horizontal the supply curve is), the production will increase with the increase in liquidity, and naturally the prices will remain constant. In some situations, depending on the economic capacities, we have both modes with different proportions.

He concluded: Therefore, whether the increase in liquidity causes inflation or not depends on our structures.

** The right of lordship, the right of dominion or the right of multiplication

This faculty member of Shahid Beheshti University’s Department of Economics further investigated the concept of “multiplier” in order to reach the concept of “hidden taxes”.

He said: If we have only 10 units of goods and 10 units of money in the whole society, the average price of each product will be one unit of money. If the central bank issues 10 new units and surplus money, and the supply of goods remains the same 10 units, and then the government enters the economy as an applicant, what will happen? Naturally, we have 20 currency units and 10 goods here, and the average price of goods here will be two currency units. In this situation, the previous people will have the buying power, half of the previous conditions, and therefore they will get half of the goods, and 5 units out of 10 units of goods will be taken by the central bank! By issuing money, since the amount of goods is fixed, the money issuer owns half of the goods and half of the purchasing power of the society.

** Hidden tax

He pointed out: With this mechanism, it is said that the first 5 people have given a hidden tax or an inflationary tax to the Central Bank. This is the theoretical basis of “hidden taxes”.

Davoudi continued: Of course, we have another situation; To have empty and standby capacities in the production of goods, and the arrival of additional liquidity will lead to double production and proportional to the growth of liquidity. In this situation, we do not increase the price. Although the issuer of money will appropriate the amount of surplus production here, and this is an example of a hidden tax, it is not an “inflation tax”. The state between these two states is also possible, where the publisher takes part of the goods, and the price increases. Be careful, someone who has the right of a gentleman, and people trust him, can take hidden taxes.

** Is the government allowed to take hidden taxes?

The former first vice president stated whether or not the central bank is allowed to take hidden subsidies in the form of a value analysis, as follows: Judgment about the permission of hidden taxes is possible when we see whether the taxes have been spent on public benefits or not. It means that we can neither accept it nor reject it. For example, in times of war, governments inject a lot of money into the society to finance the war and allocate a series of real resources of the society to the government “to maintain security”. Well, it is justified here, but it is not justified if it is spent on unacceptable and luxurious things. So just raising the price by the government is not enough to analyze whether it is useful or not, and we must make a value judgment.

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** Hidden subsidy

This economic science expert further pointed out that the hidden subsidy is mainly about energy, fuel and basic goods and said: What do the people who bring up the hidden subsidy say? They say that compared to the new adjusted prices, the price of basic goods is low, and therefore the government is doing a favor by keeping basic goods or gasoline and other things cheap, and in this regard, it is paying attention to the people!

He emphasized the incompleteness of this view by openly criticizing: Gentlemen do not say that there was another normal and equilibrium price before, that price increased due to the government’s malfunction and reached the new price. they analyze; They don’t say, for example, that the government’s problems raised the exchange rate, but they claim that the price of gasoline is low compared to foreign or European or Persian Gulf prices. » We give you a hidden subsidy!

** The key to the “hidden subsidy” fallacy: analysis of the currency market

This economist said in the basic forms of the hidden subsidy fallacy: Pay attention to the hidden subsidy issue, first the governments who have the right to rule, increased the liquidity and the amount of money and actually taxed the people first, and then claimed to give the hidden subsidy at a new level of prices. They have created themselves!

He added: We said that we should have a value analysis on the price, and the mere price increase cannot be a criterion for permission or non-permission. In fact, we have to see which is the normal and real price, primary or secondary price. This is also obtained from the analysis of the currency price should and should not be. The price of 70 cents of gasoline is multiplied by what conversion number to get the price of gasoline in riyals?

A member of the Council of Expediency of Expediency said on the issue of analyzing the problems of the exchange rate jump: With the increase in the price of the currency, in addition to the increase in the price of export goods such as pistachios, we also face an increase in the price of intermediate imported goods. With these conditions, manufacturing companies have to take more loans to secure higher capital turnover, which means the volume of money increases. In addition, complementary goods will also increase, and in short, with the rise of the exchange rate, all prices will rise.

Analyzing the structure of the disrupted foreign exchange market, he continued: We are looking at the foreign exchange market. Who are the actors? First, big companies and big banks, big importers and exporters, and smugglers have 70% of this market and are the main players in this field. Similarly, parallel markets such as Herat and Sulaymaniyah, etc., also affect our market. There are also big domestic speculators, for example, copper company adjusts the Rial price of its product immediately with transnational markets and free currency prices. It is like that the shares of a certain bank gain 54 hemat due to the increase in the exchange rate.

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He asked: Are the players of our currency market according to the economic theories of real and small exporters and importers who manage the market with supply and demand? It is clear that this market is not healthy and they are dominated by monopolies and other problems.

Criticizing the currency market mechanism, Dawoodi added: Now that such actors as monopolists, smugglers and speculators have multiplied the exchange rate, how should we analyze it? Let’s say which price is normal and original? Let’s say there is no problem with such a disrupted market? Let’s say the market determines the rate?! It is like the condition of war, which is public interest or should it be prevented?

He added: Now that we have such a situation, can we claim and blame people that I am giving you a hidden subsidy?!

** Two other key forms of the hidden subsidy fallacy

This veteran professor of economics stated that after defending the sacred at least 5 times with this mechanism of price increase, you tried to correct the situation, but the situation never moved towards correction. Speculators and smugglers and big companies and big banks and foreign pressure are still there.

He continued: Suppose we increase the exchange rate again to correct the price and solve the problem. what will happen? For example, at the beginning of the current government, you increased the currency from 4200 to 28500 to solve the problem. became? A currency of 50 thousand tomans was created; You say again that we have hidden subsidies. Again, you cut the price up, when it is corrected, it will increase stepwise and will not stop. At every step, the fight is the same fight, the rent is the same rent, only its level has been upgraded to a higher rate.

He added: This rate increase has a bigger problem; Our structural inflation has increased from 20% to 40%, that is, we have expanded inflation by increasing the exchange rate. With this mechanism, the pressure on the lower floors is irreparable.

Davoudi concluded: the concept of “hidden subsidy” in our economy is not acceptable and justifiable in any way due to the background of the currency market.

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