Tyranny of Numbers

I wanted to highlight a blog I’ve just discovered written by Djavad Salehi-Isfahani at Brookings. Tyranny of Numbers looks to set the record straight on Iran’s employment, education, poverty, and income distribution and other macroeconomic issues that are often bandied about by journalists and pundits writing on Iran’s economy. In a particularly important post, Salehi-Isfahani corrects many of the stereotypes of Iran as a desperately poor country with out of control inflation that we often see in the media:

Every time a reporter mentions Iran’s inflation or unemployment data, they feel obliged to assert, sometimes quoting unnamed experts, that actual numbers are probably twice the official rates. But most people who work with numbers know well that officials can manipulate one year’s inflation rate or two, but if the rates are misreported for a number of years, the mere effect of compounding will soon reveal their hand. If you take an inflation rate twice the reported rate for the last 15 years, the price level in 2008 would be about 130 times higher than it was in 1993, nearly ten times higher than the official rates indicate. It is easy to show that under reporting inflation by 50% each year for 15 years produces some very absurd results. For example, think of what such under reporting would do to the purchasing power of unskilled construction workers. Their wages increased by a factor of 20 during the fifteen year period 1993-2008 (you can easily verify this number can by asking people in the construction business in Iran, if you do not trust the Central Bank index). The official data that show a 14-fold increase in prices during the 15-year period suggest that unskilled construction workers experienced a 42% increase in real wage over 15 years, or 2.4% per year, which is rather low because it puts the increase in their real wage just below that of per capita GDP. If one believes that actual inflation was higher than has been reported, one is saying that construction workers did even worse. How much worse? Let us assume that the so-called experts are correct and inflation is in fact twice the official rate. In that case the real construction wage in 2008 should be only 15% of its value in 1993 (then about 6000 rials per day). Clearly, even a superficial knowledge of the change in the living standards of unskilled workers in Iran would confirm that the 42% increase is much closer to the truth than an 85% decline.

The overblown accounts of Iran’s economic problems that Salehi-Isfahani looks to correct are often used to further a political agenda of portraying Iran on the verge of collapse or to fuel wishful thinking that Ahmadinejad stands no chance of re-election due to economic mismanagement. The more sober picture we see from Tyranny of Numbers, is of an Iran that lags a bit behind Turkey and its Gulf neighbors, but that is certainly nowhere near an economic meltdown linked to hyperinflation or plunging living standards.