Give the Islamic government under the just-deposed Egyptian president this much credit: It was the Obama administration’s equal in economic illiteracy and incompetence.
Mohammed Morsi tried to control prices and supply in Egypt’s energy sector in the same way that Obama has gone about trying to dictate prices and supply in health care and other parts of the U.S. economy. The two men have just as happily ignored the law of supply and demand as a baby rolling off a changing table ignores the law of gravity. It is only surprising that Morsi was the first to get his bell rung hard enough to be forced out of office.
If you fix the price of gasoline (or diesel oil in Egypt’s case) at the half the world market price, you might expect to have a problem with people buying large quantities of cheap fuel at the subsidized official price and either smuggling it abroad — or selling it on the side to others inside the country who are willing to pay a premium price for fuel that is no longer available at the official price.
Unfortunately, neither Morsi nor Obama has any notion of the problem that Milton Friedman pointed out when he wrote:
Economists may not know much. But we know one thing very well: How to produce surpluses or shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail. Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail.
In touring the Valley of Kings, Abu Simbel, and other ancient wonders in Upper Egypt in February of 2012 — a year after the revolution that toppled the government of Hosni Mubarak — I saw lines of idled cars and trucks around gas stations stretching for three or four miles. I was not surprised. As a former foreign correspondent who spent four years in the Middle East, I had seen this kind of government failure in Egypt on previous visits.
Today there are long gas lines all over Egypt. That is one of the reasons why millions of Egyptians went into the streets to protest against the Morsi government. And it is not just diesel fuel to power cars, truck, buses, and cruise boats that is in short supply, but also LNG cylinders used in many households, along with natural gas delivered on the state grid, for home heating and cooking. These other fuels are also subject to strict price controls.
According to a recent report in eneergypedia.info, “Protests, sit-ins, and strikes about LPG shortages have forced Egypt’s police and army to provide armed guards for gas deliveries.”
In fact, Morsi’s government was only perpetuating the policies that it inherited from Mubarak. But due to widespread anarchy — and to its continued reliance on the hated and untrustworthy police — the Islamic government’s execution of those policies no doubt made a bad situation worse. This is how Fouad Ajami described the current situation in yesterday’s Wall Street Journal (“Egypt on the Brink — With No Clear Way Back”):
In a note of supreme irony, the secular crowd now proclaims that “the people and the army and the police are one hand.” Yet the revolt that swept the old order in early 2011 had been motivated by a consuming hatred of the police. The police under Mubarak had been lawless, cruel and corrupt. They were seen by secularists and Islamists alike as thugs in uniform; torture and perversity ran rampant in their detention centers.
Yet unlike its approach with the military, the Morsi government chose not to take on the police. Indeed, it gave them new weapons and financial concessions in the hope of pacifying them. They did not return the favor: Policemen have been out in the streets demonstrating against the government, and they have steadfastly refused to maintain public order.
Fat chance, then, that the police would be any more effective today than they were under Mubarak in guarding against smuggling and black market sales of fuel — or in declining to make a nice profit from those same practices.
It has been comical to listen to Sherif Haddara, Egypt’s petroleum minister, try to explain the distress and chaos in the energy sector.
In mid-June, Haddara told the Turkish news agency Anadolu that Egypt would run out of its strategic reserves of vital fuel products by end of June.
Changing his mind a week later, Haddara told reporters in Egypt that the long lines of motorists at the nation’s gas station would end “within days.” But of course they haven’t.
Haddara has blamed the fuel shortages on everything from hoarding to “false rumors that the government plans to halt the supply of octane products.” He has even blamed a new-card system recently implemented by the government at most gas stations. He and his colleagues have also played the blame-game — in accusing gas station operators of withholding supplies and threatening them with severe penalties.
Of course, Morsi’s departure from the presidential palace in Egypt will have zero impact on solving the country’s economic problems, which trace back before Morsi and before Mubarak — to Gamal Abdel Nasser, the socialist dictator who was the dominant force in the military coup that overthrew King Faruk back in 1952.
Nasser was the Barack Obama of his time and place. He dreamed big and talked big. And he left behind a bloated government and totally stagnant economy.
A sad thought for the Fourth of July weekend, but that may be the legacy that our self-proclaimed “transformative” president leaves for United States.