Coping with Iran
What to do with Iran? The U.S. government should apologize, watch, and do nothing
May 1, 2006
Fred Foldvary, Ph.D.
Economist

What to do with Iran? The U.S. government should apologize, watch, and do nothing.

It was one of the hottest times of the cold war, but there was no good excuse. Dr. Mohammad Mossadegh, the democratically elected Prime Minister of Iran Mossadegh, favored socialism and nationalized the oil industry of Iran. The U.S. chiefs feared Iran would be friendly to the USSR, which borders Iran. In 1953, the U.S. government, with some British help, engineered the overthrow of Mossadegh, and the Shah of Iran became its absolute monarch and dictator.

The repression of the Shah and continuing resentment against the coup d'état led to the Islamic revolt of 1979, the occupation of the U.S. embassy, and the hostage crisis. The kidnaping of Americans by the Iranians, after the admission of the Shah into the U.S for medical treatment, was unjustified. However, the U.S. should have apologized for the 1953 intervention.

It is not too late. President Bush should go on television and apologize for the 1953 overthrow. He should also apologize on behalf of the USA for having helped Iraq in its war with Iran during the 1980s. This apology would in no way excuse the hostage taking, nor any other actions taken by the government of Iran, but it is the right thing to do, and would help reduce the perception, quite justified, that the U.S. chiefs have been arrogant and supremacist.

The U.S. should then remove trade barriers with Iran and offer to restore diplomatic relations. The U.S. government should cease its tirades against the nuclear program of Iran. It is not accomplishing anything, and it elevates the importance of the Iran chiefs. According to news reports, the Iranians are several years away from possibly having nuclear weapons. There is no need to have a crisis at the present time.

The U.S. should just wait and let Iran collapse on its own. The poor of Iran voted for the current president not to destroy Israel but on the hope that he would raise their living standards. Surely a pure Islamic economy would lift living standards to almost heavenly level. The Qur’an forbids theft. That implies no taxation of labor and the fruits of labor. That implies true free trade and complete economic freedom.

But the Heritage index of economic freedom report ranks Iran as the world’s 156th country from a total of 157, higher only than North Korea. Besides taxes, restrictions, and insecure property rights, Iran’s economic troubles stem from its land tenure.

In 1963, the Shah, under American influence, initiated a “White Revolution” land-reform program. The program was plagued by corruption, and the gap between large and small land holdings became even larger. With customary tenure weakened, Iran became dependent on imported food. After 1979, some of the large estates were broken up, but many landowners were able to keep their estates.

Islamic governments traditionally levied a Kharaj, a land tax, either as a share of the agricultural produce or as a fixed amount per year. In Islamic law, Kharaj must be imposed on land conquered by force and left to the original owners or allocated to non-Muslim settlers. Iran would be best off untaxing labor and investment, and replacing these taxes with a levy on the rental value of all its land.

The oil revenues of Iran, $50 billion per year, tap that natural resource, but much of the money goes to the military and Iran’s nuclear program. Nuclear energy is a good investment in Iran, enabling it to export more of its oil, but evidently the program has a large military angle also, in developing missiles and warheads.

The promises of the Iranian president to bring about prosperity have yielded bitter fruit. Half the population of Iran is poor, according to a report by the Iranian Central Bank. Workers are protesting unpaid salaries and low wages.

Pride in their new status as a nuclear power may provide support for the government, but eventually, hunger will compel dissatisfaction. Tehran’s bus drivers went on strike, even though strikes are illegal. The poor of Iran hoped that the president’s program of “Islamic socialism” would bring them prosperity, but socialism could not bring prosperity to Russia or eastern Europe, and it cannot do so in Iran either. Iran’s economy is most likely to continue deteriorating.

The U.S. government should apologize for its past intervention, and then just sit back and let the economy of Iran collapse. Oil has been a curse, not a blessing, to many economies such as in Venezuela and Nigeria. When the chiefs have oil revenue, they don’t need to allow prosperity. But the people eventually become disillusioned with the propaganda, and will rebel.

The lack of free trade, insecure property rights, and an unequal land tenure, will propel Iran to an economic crisis. The US should drop trade barriers so that its trade restrictions will not be blamed for that collapse. Of course the Iranian government will continue to influence politics in Iraq and back violent action against Israel, but its economic weakness will limit Iran’s power. Let’s not give the Iranian chiefs an excuse to blame America for its economic troubles.

Apologize and watch, but otherwise do nothing. That’s the policy the U.S. should follow for Iran. Economics will do the rest.

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.