Sasan Baqerpana analyzes the economic situation in Iran and points to the economic dangers arising from uncertainty. He explains that the economy does not only react to current events, and economic behavior is heavily influenced by expectations and future assumptions.
Impact of Crisis on Economic Decisions
Baqerpana states that before major crises occur, the economy may bear a significant portion of their costs. This leads to delays in investments, halts in hiring, and businesses prioritizing survival over development. Consequently, the situation becomes a kind of "apocalyptic economy." He explains that in these conditions, economic decisions are more often based on the worst possible scenarios.
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Uncertainty and Collective Behavior
Baqerpana distinguishes between "risk" and "uncertainty" and emphasizes that in conditions of uncertainty, even the likelihood of various scenarios cannot be accurately calculated. This causes investors and businesses to adopt more conservative decisions due to increased risk. He notes that individual rational behavior can turn into collective behavior, resulting in a kind of "coordination failure" in the economy.
Households are also affected by these conditions. Baqerpana refers to the theory of "precautionary savings" and states that when future income becomes uncertain, households reduce their consumption. This behavior, although rational for a single household, can lead to a decline in business sales if millions of households reduce consumption simultaneously, exacerbating initial concerns about income and employment.
Ultimately, Baqerpana emphasizes that this situation can have permanent effects on the economy. For example, a project that is not executed today may face the same fate next year, while the unemployed workforce does not acquire the necessary skills.
The solution to this situation is not to deny risk. Baqerpana stresses that professional management must consider various scenarios, create liquidity reserves, and plan for crises. He advises policymakers that, in addition to managing inflation and liquidity, they should also seek to reduce "avoidable uncertainties."
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