It's the credibility, stupid
One of a politician's most important assets is credibility. It's important because when it comes to economic plans, psychology is as significant - if not more so - than the plan itself.
One of a politician's most important assets is credibility. It's important because when it comes to economic plans, psychology is as significant - if not more so - than the plan itself. If the public perceives a leader as someone credible, who says what he thinks and does what he says, they'll believe him when he says that the economic situation is going to improve, so they shouldn't run to the banks to pull out their savings and collect dollars. Instead, they'll buy ore and invest more and continue preserving stability.
Therefore it's worth taking a closer look at the press conference Ariel Sharon and Silvan Shalom held yesterday when they presented the economic program that is supposed to pull the economy out of recession.
Right at the start, Sharon said, "I supported private members bills in the past, at times of economic prosperity." Not true. Sharon and Shalom supported the Negev law and the Large Families law when the economy was already deeply in trouble. It was the end of 2000, after the intifada broke out, after the Nasdaq fell, and after the high-tech crisis. That same quarter, production dropped drastically. They supported the populist laws because they wanted to be in power - without any consideration for the dire economic results that those two laws and others like them posed.
They wanted the Negev voters and Shas to topple the Barak government. They didn't care that all those laws were bad for the economy. All the efforts of then finance minister Avraham Shochat to persuade Sharon and Silvan Shalom to vote against the bills, failed. They wanted power, now, and fast, and to hell with the economy, to hell with growth and to hell with the unemployed.
Sharon went on: "We lowered the growth forecasts right after September 11, like the rest of the world. Not true. Five days after the Twin Towers fell, on September 16, Sharon and Shalom brought a bogus budget to vote in the government. The budget assumed there would be imaginary growth of 4 percent in 2002, and a 4.5 percent increase (!) in tax revenues - totally baseless data. They made the government vote for the budget, which was totally inaccurate, and then continued supporting and backing the bogus numbers in that same budget.
Only two to three weeks ago came the change, when it was clear that if they didn't do something, we would face an economic disaster in 2002, and they'd be thrown out of office. So they came up with the current budget cuts.
For dessert, Sharon said, "It would be a lot easier for me to give to everyone, but I love this people and this land, so I have to do the right thing." So, maybe he now loves us and is trying to do the right thing, but from the day the government was formed in March 2001, he was told from morning to night by economists and commentators that he had to do the right thing immediately - in other words, annul the Negev Law, and the Large Families Law, and raise the price of water (something he still refuses to do), and not hand out anything to any sector in the economy. But Sharon preferred to be good, and give handouts to everyone, "because it's much easier to give to everyone," as he said yesterday.
And what about the finance minister?
He opened his speech by insulting David Klein, the central bank governor. "I came to make sure the interest rate does indeed go down," he said, as if hinting that if he didn't show up, Klein would renege on his promise. And then he began a recital of what he did in the last nine months - blaming Klein for everything. Klein's to blame for the interest rates, for unemployment, the lack of growth; Klein's to blame for the mortgages and poverty and lack of investment. All that was missing was Klein being responsible for the intifada.
It's true that the governor held the interests rates too high in the last two years. It's also true that high interest rates hold back growth, and that increases unemployment. But there's no room for comparison between the huge importance of the budget policy and its reforms, and the interest rate policies. The main power is in the hands of the Finance Ministry. The secondary power is the central bank. It's simply untrue to blame Klein.
Shalom went so far as to promise that investors will not hesitate to come to Israel now, so a new wave of investment will take place in the economy. We all wish that to be so. But that also won't happen. The investors won't come as long as Israel appears on the international news networks as a country at war. Nobody invests in a country that closes a city because of fear of a terror attack (as happened in Haifa yesterday). Nobody invests in a country with a raging intifada. For investment, a country needs peace and quiet, and that's something that neither Ariel Sharon nor Silvan Shalom can arrange.
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