Bibi masquerading as Eini
If we, a tiny country, were to adopt this irresponsible policy of increasing private consumption that Yaron Zelekha is recommending to Netanyahu, it would end in a major crisis not after seven years of rampant consumption, but after seven months.
It will be interesting to see where else Benjamin Netanyahu goes in his eager pursuit of voters' hearts. He wants so badly to sit in the prime minister's chair that he is even willing to scrap his entire economic worldview and masquerade as Histadrut chairman Ofer Eini.
He has no problem supporting a "broad safety net" for the public's savings, even though this would contradict the capital-market reform that he himself introduced. He is even willing to praise Ehud Olmert, whom he loathes. Perhaps Olmert will toss him a kind word or two, and that will give him another one and a half votes.
Netanyahu's goal is cynical and populist: pulling the wool over everyone's eyes. He knows that this "safety net" is a regressive, antisocial policy that no other country has adopted. And who knows better than he that the people have not lost anything in the provident funds, but have in fact earned a profit? From 2003 through 2007, these funds posted a very nice profit - 66 percent. Only this year have there been a loss - 20 percent. In other words, the gains far exceed the losses. So why should we be transferring money to people who made a profit?
But Netanyahu knows that the public wants a broad safety net, and on the eve of an election, that is what he will promise it. To hell with the capital markets and the economy.
Netanyahu has also recently turned spendthrift with the state budget - again in defiance of his own economic beliefs. His "broad safety net" will cost billions of shekels. It will increase future budget deficits to frightening dimensions and compel the government to cut spending on education, infrastructure and welfare. It will also change the funds' investment policies.
But all that is nothing compared to the daily doses of oil he has been pouring onto the spending bonfire. Netanyahu has declared himself in favor of every stimulus and bailout plan, without ever recalling that cuts must be made in compensation. As far as he's concerned, the budget is unlimited.
With the scent of elections in the air, Netanyahu has changed his spots and promised Shas an increase in child allowances - which he himself cut. All that matters is defeating Tzipi Livni. He also voted in favor of redividing adjacent Druze villages whose merger he himself brought about.
Netanyahu even voted in the Knesset for a long list of populist bills that would require the budget to be expanded irresponsibly. These include higher pay for soldiers doing their compulsory service, tax subsidies for Negev communities, recognizing day care as a tax-deductible expense, extending maternity leave by two weeks, another increase in old-age pensions, a bigger increase in the "health basket" of subsidized medical care, expanded rights for occupants of public housing, and the creation of a free trade zone in Eilat - and this is only a partial list. We will not be surprised if he also soon comes out against privatization and in favor of nationalization.
He is naturally also in favor of cutting taxes "in order to stimulate private consumption." After all, who doesn't like low taxes? Yet even this is a mistake by Netanyahu. The mistake is not his support for tax cuts, but the reason he gives for it - because growth cannot be achieved by increasing private consumption.
The United States invented this lie, and its economy did indeed grow for seven years by increasing consumption and reducing private savings to zero. But this populist interlude ended in the financial hurricane now exacting such a heavy price from both America and the rest of the world.
Moreover, the U.S. grew by increasing private consumption because it is the U.S.: Only to it would China have agreed to lend hundreds of billions of dollars every year. Does Netanyahu imagine that China would agree to purchase shekel-denominated bonds from the Israeli government?
If we, a tiny country, were to adopt this irresponsible policy of increasing private consumption that Yaron Zelekha is recommending to Netanyahu, it would end in a major crisis - not after seven years of rampant consumption, but after seven months.
Growth can only be achieved by increasing savings, which translates into increased investment. Growth can only be achieved by devoting more of the state budget to improving infrastructure and education. Increased consumption would indeed increase economic activity over the short run, but it rests on shifting sands. It is populist. It is like injecting heroin directly into a vein: The immediate sensation is marvelous, but the next day, you wake up to a dangerous addiction that can only end badly.
So if Netanyahu's policy is low, cheap populism, who needs him? Why do we need a pale imitation? Let's just go with Eini. At least then we would be getting the original.
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