One of the single achievements of Prime Minister Naftali Bennett’s first six months in office was getting Israel through the fourth coronavirus wave without imposing another punishing lockdown. Delta came and delta went, and the recovery from the COVID recession of 2020 continued uninterrupted.
Although the number of new cases is still low, it is rising rapidly, and Bennett and the health care establishment are now warning us that Israel is on the cusp of a fifth wave, thanks to the emergence of the omicron variant. We need only look at what’s happening in the United States and Europe to expect that omicron will be here in a very big way, and very soon.
Like generals traditionally are wont to do, Bennett and his team are getting ready to fight the last war, i.e., use the same tactics that led them to victory the previous time. They plan to fight the fifth wave just like the fourth wave, by getting more Israelis to vaccinate (last time with booster shots; this time with child vaccinations); keeping the economy up and running (with some glaring exceptions, like the tourism sector) and limiting international travel.
European leaders started the war on omicron by employing the same kind of limited tactics. Who can blame them? European Union economies were recovering nicely pre-omicron, and no one wanted to disrupt that. And with the Christmas holidays coming up, they had extra reason not to bring economic activity to a standstill with lockdowns: They would have hurt retailers and the travel industry at the worst time of the year, and been met with more than the usual popular resistance.
Yet European countries are gradually succumbing to lockdowns one by one. The Netherlands, Germany and Ireland have already imposed full lockdowns; holdouts like Britain and Portugal are considering further measures – after Christmas, of course. Even highly vaccinated countries such as Denmark are imposing severe restrictions.
It’s far from certain that omicron is quite the same enemy as its cousin delta. Just as frustrating as it is for policymakers to have to mount yet another war against the virus that won’t die, they face the additional frustration of having to act without being quite sure how the omicron enemy behaves. It is certainly more contagious, but so far it seems less virulent. If the new variant leaves a lot of people with mild symptoms but out of the hospitals, there’s no reason to be shutting down the economy.
But by the time scientists can say for sure that this is how omicron acts, it may be too late. The variant is spreading too quickly for policymakers to take a wait-and-see attitude, and a widespread pandemic of mild symptoms may still put large numbers of patients in the hospital. Under the circumstances, it seems Israel will almost certainly be left with no option other than calling another dreaded lockdown. But at what cost?
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The psychological toll will almost certainly be high. The world in general, and Israelis in particular, have lost patience with the restrictions and obligations COVID has placed on them. That includes people who have no principled objection to mask and vaccine mandates. In Israel, we’ve been spared the worst of COVID populism, but we can see a quiet, private protest in the increasingly poor vaccination rates: Even as the population eligible for inoculation is expanding, the number getting vaccinated has slowed to 21,000 daily.
With the current COVID fatigue, it’s hard to imagine Israelis consenting without protest to being sent home once again, even if it’s for a couple of weeks.
For the economy, however, a lockdown wouldn’t be the disaster that Bennett and Finance Minister Avigdor Lieberman seem to fear. In that respect, they are also fighting the last war – or, more precisely, the war Israel fought during the first three waves of the coronavirus, when the economy took a massive hit.
Today, the economy is expanding smartly by almost every parameter, including the labor market that many had assumed would suffer from long-term high unemployment in the post-COVID era. That’s not simply the rebound effect from the low baseline of the 2020 recession; consumers are spending, and the high-tech sector is thriving like it never has before.
The economy is not only performing strongly enough to survive a lockdown, it is better prepared for one than it was on the eve of the pandemic. Businesses have adapted to remote work and to conducting negotiations and making deals with overseas customers without traveling. A lot of jobs that used to be performed on-site have been eliminated altogether, with workers replaced by computers. Everything from shopping to many personal services is increasingly being done online.
Israel has another advantage that most other economies don’t have. Thanks to the strong shekel, Israeli inflation has been relatively contained – our consumer price index was up 2.4 percent in the last 12 months and is expected to trend lower going forward. That compares, for instance, with 6.8 percent for the United States and 5.1 percent in Britain.
What that means is that the Bank of Israel doesn’t face the same dilemma as the U.S. Federal Reserve or the Bank of England – whether to keep interest rates low to give a boost to omicron economies, or raise them to fight inflation and make it harder to weather the variant.
Israeli government finances are also in unexpectedly good shape. The budget deficit over the 12 months through November was just 4.9 percent of gross domestic product, down from a peak of 11.9 percent last spring. The government coffers are swelling with revenues and spending has only risen modestly. And there’s a budget, for a change, to maintain fiscal order.
Lieberman and treasury officials have warned that lockdown or not, they have no intentions of disbursing government aid to any and all – business and individuals alike – as was the case in previous lockdowns. At best, there may be some targeted aid of limited duration. This might be nothing more than a starting point for future cabinet discussions on aid or negotiations with pressure groups: Start with a firm no, and it will be easier to reach an acceptable compromise later. No matter, a brief lockdown – and certainly one that is honored as much in the breach as not – won’t require the state to open its wallet.
But Lieberman should be ready to open his wallet if need be. Now that the economy is more COVID-ready than it was at the start of the pandemic and government finances are in reasonable shape, he can afford to be a little generous.