What Does a Very Sick Economy Mean?

TEHRAN (Iran News) But a very sick economy is one in which the supply of goods cannot keep pace with this excess demand, and the economic authorities also benefit generally from the rising prices, implementing a type of management that tries to solve the budget deficit problem through price increases.

In developing economies, a major part of money supply growth arises from government budget deficits and financing them through banks, particularly the central bank.

In other words, the injected money mostly flows not toward productive investment, but toward speculation in asset markets such as housing, foreign currency, and gold and silver coins. As a result, this leads to price bubbles in these markets and intensifies inflation.

Rising inflation reduces the value of the national currency and increasingly diminishes people’s purchasing power.

People and merchants, in order to preserve the value of their money, withdraw it from the banking system and direct it toward unproductive assets, which in turn increases the velocity of money and further fuels inflation.

In Iran, however, it is not only the people who harm the dire state of the economy; the banking system and the government themselves exacerbate the condition of this dying patient. Therefore, controlling inflation without curbing uncontrolled growth and directing liquidity toward productive purposes that can absorb it is impossible.

Curbing liquidity requires reforming the structure of the government budget and reducing its dependence on raw material exports, oil revenues, and borrowing from the banking system. Unfortunately, given the high government spending, inefficiency, structural factors, and expectations of the public, this is not feasible except through small palliative measures that act like artificial respiration.

Of course, if the Ninth Government had implemented the “Justice Shares” program the way I proposed, both income inequality would have decreased, and the private sector would have been largely separated from the government. The government could have implemented a small and agile plan for itself, taken control of the reins of the unruly economy, and reduced tensions.