Bank of Israel Governor Stanley Fischer's press conference yesterday gave us a brief lesson in what every economist already knows: People do better when they focus on their relative advantages; that way, they avoid embarrassment. The Bank of Israel ought to focus on managing monetary policy and leave management of the budget to the Finance Ministry. That would mean less infighting and would be better for the economy, and for all of us.
The bottom line is that Fischer's proposal consists entirely of recycled ideas taken from here, there and everywhere. The plan contains nothing new, nothing revolutionary. Essentially, Fischer said people should spend a little more on whatever they have already decided to spend on.
The plan includes all the old, well-worn ideas: expanding the negative income tax, applying the welfare-to-work Wisconsin plan nationwide, putting employees of troubled companies on unpaid leave, speeding up infrastructure projects, expanding government guarantees for foreign trade risk insurance and increasing unemployment benefits. And that's the whole story.
All these are programs that already exist, and with which the treasury is in almost complete agreement. So why did we need the dramatic press conference?
Indeed, the problem is not with the recommendations, but with how they would be paid for. And here, the Bank of Israel is making a great mistake. It is behaving like the politicians, who are always proposing plans to increase government expenditures but never offer ideas on where to cut the budget to pay for them. After all, increasing expenditures is easy, and popular. But reducing them is difficult - and very unpopular.
The Bank of Israel's plan would increase the budget deficit. That means it would increase our foreign debt, raise long-term interest rates and push the private sector out of the capital markets. In short, it would impede growth and employment. This is an utterly irresponsible position, because if it is right to increase the deficit to 5.8 percent, why not to 8 percent, as Histadrut chairman Ofer Eini is demanding? After all, in a competition to play the good fairy, Eini will always beat Fischer easily.
The Bank of Israel could have taken a more responsible position - albeit a much less popular one - by presenting a plan to spur economic activity that was accompanied by detailed proposals on how to cut an identical sum from the budget. That is the correct economic policy, which would increase the government's credibility and maintain economic stability. And that stability is currently our top priority.
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