The papers, radio and television have been competing with each other on how to describe with the most frightening nomenclature the negative inflation rate for September. They called it a disaster, a collapse, terrible damage, and lumped together all those dreadful years when annual inflation was close to zero, including 2000.
But the year 2000 (until the intifada erupted in October) was one of the best years in the annals of the Israeli economy. The inflation was zero, but growth reached 7.4 percent! In other words, you can achieve both stability and an impressive rise in standard of living.
For years we prayed for low inflation, even zero, to give us stability, so that we could know that on our monthly salary we could buy exactly what we bought the previous month. But once it arrived, all types of false messiahs have been flooding us with their baseless predictions of doom.
What would it be like if we were in exactly the same recession and unemployment, but with inflation of 10 percent a year? That would be a case of stagflation. Our wages would be eroded, and claims would pour in from left, right and center for wage increases and CPI increments, but the employers would not be able to afford them. Industrial discord would lead to strikes and the mood would be far worse than it is today. Exporters would be demanding devaluation, economic uncertainty would prevail and, with it, activities would drop. Everyone would be chasing their tails, raising prices, Klein would put up interest rates, Netanyahu wouldn't even be able to dream of cutbacks in wages or efficiency plans in the public sector.
So zero inflation has its advantages. It brings stability. It brings industrial quiet. It makes businesses concentrate on what matters: export and marketing and not financial game-playing. All taxpayers would benefit, as their monthly burden would not increase. The government's CPI-linked payments on bonds and National Insurance payments would be zero, and that would constitute an enormous saving. In other words, the problem is not a negative inflation rate, but the heavy recession which is the result of the intifada.
And while we're talking about negative economic data, take a look at The Economist's figures this week on gross domestic product around the world. The weekly paper wrote that Israel's GDP per head, in terms of purchasing power parity, was $19,000 in 2001, but $18,000 in 2003.
For comparison, GDP per head in purchasing power parity terms was highest in Norway at $36,000, with U.S. second at $34,000.
For comparisons of international living standards, it is better to use GDP per capita adjusted for inflation; you could have a high GDP per capita, but with a high cost of living, then standards of living would be lower. See Japan.
Setting aside the CPI linkage factor, we can see how far we have deteriorated in the past three years. In 1996, our GDP per capita stood at $16,000, rising to $18,000 in 2000, and now we are back to $16,000 per person. In other words, the intifada has set us back seven years.
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