It’s the Economy, Stupid. Or Is It?

The economic narrative of this election has been how dismal it all is. But the truth is things are not bad and Netanyahu is benefiting from that.

David Rosenberg
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Stocking up at a Jerusalem supermarket. Data show that the economy is bouncing back, with a 7.2% growth rate in the last quarter of 2014. Credit: Reuters
David Rosenberg

“It’s the economy, stupid.” That piece of advice offered to Bill Clinton’s campaign workers on the way to his 1992 election victory has since become a byword of politicians running for office everywhere.

Actually, Clinton’s campaign chief, James Carville, only offered the economy as one of three points to focus on (the others being “change versus more of the same” and “healthcare”), but the addition of the word “stupid” ensured that the economy graduated from a laundry list item to become an aphorism for the ages. In any case, unlike many aphorisms, it’s usually true. In normal countries (of which we in Israel, needless to say, are not), people vote with their pocketbooks first.

Under the circumstances, the election next month looks like a no-brainer. Netanyahu has been in power since 2009 and before that was finance minister at a critical juncture in Israeli economic policy-making, when the policies still more or less in place today of fiscal restraint and deregulation were first implemented. So for better or for worse, whatever state the economy is in today he is the man responsible.

The impression you get these days is that it’s all for the worse. Understandably, Bibi’s opponents have a vested interest in portraying the things in the worst possible light – consumers are struggling with grocery bills and spiraling housing costs, tycoons and monopolies are gouging us, the government is beholden to special interests and couldn’t care less about the little man, etc. Less understandably, the media, which are supposed to be the guardians of truth and all that, broadcast the same narrative.

In fact, the narrative is so powerful that not a few politicians believe it, too. Not just Moshe Kahlon, who is betting his entire political future that his Kulanu Party will attract people voting for butter issues over their traditional preference for guns.

The Zionist Union has made sure to put an economist (Manuel Trajtenberg) in a high-profile position instead of the usual ex-general with security credentials. Yair Lapid is still hoping to repeat his 2013 performance with a mainly-economics platform. Not the Palestinians, nor the security threats Israel faces, nor the sorry state of the educational system, but the economy (stupid) is this year’s election theme. Well, there’s Sara Netanyahu pocketing the taxpayers’ bottle deposits as well, but that’s also an economic issue as much as a character one, further evidence how disconnected the prime minister and his wife are from the sad economic realities of the other 99 percent.

It’s not the economy, stupid

The economy shouldn’t be this year’s election theme — and the big secret of this year’s election is that it probably isn’t.

The latest piece of evidence is the figures for fourth-quarter economic growth released this week. You may recall that over the summer the conventional wisdom was that Operation Protective Edge was the last nail in the economy’s coffin; growth was slowing and now the missiles raining down on us would send it into a slowdown or even a recession. What happened is the economy eked out some growth even during the third quarter while the war was raging and has since rebounded, with the preliminary growth rate for the fourth quarter a China-sized 7.2%. Exports were up sharply, capital spending revived and consumer spending, which is supposed to be in the doldrums, accelerated.

The other piece of evidence came this week, too. Consumer prices fell 0.9% in January and are down 0.5% for the last 12 months. Normally this kind of deflation is a cause for concern – people will stop buying and businesses stop investing because they expect prices to fall even further.

However, Israel’s deflation isn’t that kind at all. It reflects to a large extent the plunge in world oil prices since last June, but also lower prices for consumer goods, a consequence of the growing competition among supermarkets and other retailers. That, despite the wisdom broadcast by media and politicians that Bibi and Lapid wasted two years coddling tycoons and monopolies. The fact is that it’s not true. The latest cartel to be broken also came this week, with the end of the Bezeq-Hot Telecom duopoly over Internet and landline phone service.

Israel does have fundamental economic problems. The first is its yawning income gaps. But the fact is this is a global phenomenon occurring even in the vaunted egalitarian economies of Northern Europe. Tackling this problem will not be easy if for no other reason than no one knows exactly what is causing it. But owning up to this is a non-starter for politicians: What kind of candidate can mount a campaign by telling voters, “My opponent isn’t responsible for the problem, and I don’t have a solution”?

Housing? Not a crisis for everyone

The housing crisis is real and was created here in Israel, so it can be solved here, too. It is a particularly dangerous one, threatening to consign the up-and-coming generation of middle class families to a lower standard of living or worse because the price of a home and the mortgage needed to buy it eats up so much of their monthly income. But is it an issue that sways voters? It may be cynical and short-sighted, but for the vast majority of Israelis rising home prices is money in the bank that’s paying a higher return than they could get almost anywhere else. Will they opt for the party that has the best plan to contain (or heaven forbid lower) home prices? Almost certainly not.

The fact that the economy has become the No. 1 item on the election agenda is because there is nothing else. As painful as it is to say, there’s no Palestinian crisis to move the voters. That will take a Third Intifada, it seems. The opulent, state-funded lifestyle of the Netanyahus is gross, and the crisis Bibi has fomented with the Obama White House is worrying (a better campaign message might be, “It’s our alliance with the U.S., stupid”). But for many voters, even those who don’t like them, the incessant attacks on the Netanyahus’ household expenses seems petty and vindictive; many other voters, the Likud’s natural constituency, don’t like Obama and are happy to see Bibi treat him with a little disrespect.

There’s no reason to pass judgment here on the electorate’s wisdom, only to note that in spite of an intensely hostile media and an economy that is supposedly sinking deeper into the abyss by the day, Netanyahu’s Likud is running neck and neck with the Zionist Union. Kulanu, the cost-of-living party, is struggling in the polls while Yesh Atid, which was supposed to be dead after Lapid’s mismanagement at the treasury, is surging because Lapid himself is such a good campaigner.

The story of the election is this: Mrs. Cohen from Kfar Sava watches the evening news and then some campaign video clips. She sighs at the sorry state of affairs in Israel as she orders tickets for a holiday abroad (a record number of Israelis traveled overseas last year) and checks the latest Marker-Yad2 home-price survey to see what her house is worth (7.6% more than a year ago). She worries about how her daughter and son-in-law are going to buy their own home and about her son who just went into the army. But she’s not convinced that anyone, Bibi or the others, has any answers. She lives (and will vote) for today.

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