Friday, August 18, 2006

Those Darn Subsidies


Having been wrong, yet again, on the Middle East and his prediction that Hezbollah would be blamed for the damage to Lebanon once a ceasefire took hold, in War on Daddy's Dime, Thomas Friedman takes on subsidies:
I’m not sure yet who’s the winner in the war between Hezbollah and Israel, but I know who’s the big loser: Iran’s taxpayers. What a bunch of suckers.

Isn’t it obvious? As soon as the reckless war he started was over, Hezbollah’s leader, Hassan Nasrallah, declared that Hezbollah would begin paying out cash to the thousands of Lebanese families whose homes were destroyed. “We will pay compensation, a certain amount of money for every family to rent for one year, plus buy furniture for those whose homes were totally destroyed,” said Nasrallah. “These number 15,000.”
I guess we'll leave aside for the moment the contradiction between Friedman's opening sentence, asserting that Iran's taxpayers are footing the bill, and his overall thesis, which is that Iran's rulers use state oil revenues to provide massive subsidies to keep their people reasonably content.

I understand why Mr. Friedman is upset. He predicted that Hezbollah would take a post-war P.R. hit and be blamed for the bombing damage, but here they are using Iran's oil wealth in a manner that may well further expand their popularity. It is also beyond obvious that high oil prices provide huge revenue streams to many undesirable regimes. But isn't this really an expression of his upset at having been blindsided by the obvious?

I have to admit that I am amused by statements like this:
To buy public support, Iran’s regime subsidizes housing, gasoline, interest rates, flour and rice.
What sort of nation, after all, would subsidize its oil industry? Offer subsidized housing or interest rates? Or subsidize agricultural products? Why, I even understand that there's a country which instituted subsidies on bee farming during WWII so that they would have sufficient beeswax to waterproof munitions for overseas shipment - and those subsidies remain in place, for no good reason, even today.... Where do you suppose that could be? (More here.) Perhaps Mr. Friedman should join forces with the Club for Growth.

Oh, I'm not arguing that U.S. subsidies are equal in scope, or have the same direct purpose as those in nations like Iran and Syria, but then what about Kuwait - are its subsidies okay, even though it remains a misogynistic dictatorial monarchy, because it isn't belligerent? Last I checked, its subsidies of its population made Iran's look small.
If we could cut the price of crude in half, it would mean that all of Iran’s oil income would go to subsidies — which would be unsustainable and therefore a huge threat to the regime.
Well, in theory.... But in practice, they made it through 2004 and early 2005, so even assuming an unlikely plunge in oil prices to a "mere" $35/bbl I think they would somehow keep up the bad fight.

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