It is hard to believe that just two years have passed since the Days of Awe were made truly awful by a hurricane that devastated the world and paralyzed Israel's economy. All businesses ground to an abrupt halt, and businessmen awaited the future in terror. Banks stopped giving credit; stocks plummeted; and people started to worry about their jobs and pensions. This is the end of capitalism, said the angry prophets. The United States is sinking, they gloated, adding that the situation was worse than 1929 - they had glee in their eyes.
Regrettably, for these critics, capitalism has not become extinct, and the U.S. is not drowning in the Atlantic Ocean. It's now clear to everyone that capitalism remains the best available economic system.
That said, the crisis taught us that capitalism is not immune to hard times, and when the crises come, only the state has the power to intervene and stave off collapse. That is its job. For that reason, it takes taxes from the public. Modern capitalism is not 19th-century laissez faire. Modern capitalism reserves considerable room for government intervention. In fact, Western governments intervened in the crisis with all their might. The U.S. government, in particular, presented a $700 billion recovery and incentive plan. That prodigal sum is almost equivalent to Israel's gross domestic product. Custom says the crisis began on Monday, September 15, 2008, when the venerable investment bank Lehman Brothers went bankrupt. Yes, the world convulsed: The public lost confidence; stock markets crashed, banks went bankrupt; and around the world people began to panic. Despite the magnitude of the surprise, the collapse could have been forecast. It resulted from an entire decade of the good life in the U.S. and some European states. The Americans increased their standard of living by buying on credit heedlessly; house were purchased, as were cars and all sorts of technological wonders. The government acted in a similar fashion; its deficit spending upped the national debt.
Everyone was happy, until it became clear in 2007 that the public was unable to repay its debts - the sub-prime crisis. In 2008, the sub-prime problem transmogrified into a huge financial crisis, accompanied by bank and insurance company bankruptcies. So 2009 was a year of government-sponsored recovery programs. In 2010, the world started to worry that Western governments would also prove unable to repay their debts, and the problems would turn into a government debt crisis. Greece (with huge debts ) was the first to crash, and then came spending cuts in Britain, France, Spain and Portugal.
The thread running through all the years of this crisis comes down to one thing: debts, debts and more debts. The financial free-for-all involved citizens, banks and governments. Stated simply, people were living beyond their means, at the expense of someone else until he finally stood up and said: enough. Then came the crisis.
Israel managed to get out of the crisis quickly. Here we are now enjoying nice growth and low unemployment because we behaved responsibly.
The public did not go wild with private consumption; the banks did not follow adventurist policies; the government followed a course of low-deficit spending and lowering the debt burden. In addition, we experienced a long series of reforms and privatization policies over the past 25 years, which strengthened the private sector and enabled it to absorb the blows without collapsing.
The conclusion is clear: Finance Minister Yuval Steinitz, and Israel Bank Governor Stanley Fischer should return us to the policies that saved us during the crisis. They should encourage private saving, convert the budget deficit into a surplus and continue with reforms and save the banks.
Despite successes up to now, Israel remains a country confronted by security threats. A regional crisis can strike us, without any connection to wider global trends. So we must establish right now a protective shield against the next hurricane.
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