Bank on a Chicago Man to Replace Stanley Fischer at Bank of Israel

The University of Chicago trained all three of Netanyahu's favorites for governor, and that's no coincidence.

Moti Bassok
Moti Bassok
Moti Bassok
Moti Bassok

There are two things that Prime Minister Benjamin Netanyahu's favorites for Bank of Israel governor have in common: A disproportionate number of them were born in the same city in Argentina, (which is certainly a coincidence) and received their doctorates at the University of Chicago (which most certainly is not).

Like his colleagues Leo Leiderman and Manuel Trajtenberg, current frontrunner Mario Blejer hails from Cordoba, Argentina's second-largest city. Born in 1948, he is two years older than Trajtenberg and three years older than Leiderman. All three received a Zionist education and already spoke Hebrew on their arrival in Israel.

Blejer seems a suitable candidate for governor, but Israel has a fair number of first-rate sabra economists worthy of the role. They were kept from being chosen by the prime minister’s whims: he doesn't believe in economists who earned all three of their academic degrees in Israel and spent their entire careers here.

Trajtenberg arrived in Israel in 1966, followed by Blejer in 1968 and Leiderman in 1969 - the last two coming after the Six-Day War, an event that sparked a surge of emotion among South American Jews and led to a large ingathering of youth from the continent –- mainly at Hebrew University in Jerusalem.

Another interesting and even more notable fact is that all of Netanyahu's candidates for governor – Jacob Frenkel, Leiderman and Blejer – did their doctorates at the University of Chicago, as did Eugene Kandel, head of the National Economic Council attached to the Prime Minister's Office, and Netanyahu's right-hand man on economic matters.

The University of Chicago isn't just any excellent U.S. school in the field of economics. Netanyahu is a diehard devotee of the monetarist school of thought that emerged at the university and reached its pinnacle in the 1970s.

Nobel Prize winner for economics Milton Friedman was the Chicago school's standard bearer. According to this approach, government intervention in the economy is generally harmful, unwarranted and unacceptable. The Chicago school sanctifies market forces and believes the "invisible hand" conceived by Adam Smith can solve all economic problems, whether of a giant econmy like the United States’ or a tiny one like Israel’s.

The Chicago school espouses tight controls by the central bank over the money supply rather than government fiscal intervention as the means for achieving price stability and economic prosperity. More recently, particularly in light of the global economic crises and the failure of Chicago-inspired policies in Europe to relieve the continent’s economic distress, the Chicago school's luster has been fading -- but not in Netanyahu's office.

Et tu Fischer

Stanley Fischer, the recently departed Bank of Israel governor, was also brought to Israel by Netanyahu when the latter served as finance minister. Although Fischer did his doctorate at the prestigious Massachusetts Institute of Technology (where Netanyahu got his bachelor’s and master’s degrees), Fischer afterwards taught at the University of Chicago from 1969 to 1973 and is considered a stalwart representative of the monetarist view. His adherence to the Chicago school during his eight years as governor in Israel was clearly felt, albeit in a somewhat restrained manner.

Israel has a long list of renowned professors of economics, in the international arena as well. But Netanyahu has no interest in them since they don't share his devotion to the Chicago school of thought, labeling them "Shelly Yacimovich," the fiercely pro-working-class Labor Party chairwoman - in other words, "socialists."

That's why excellent candidates whom any other prime minister might have chosen have fallen by the wayside – including Karnit Flug, Avi Ben-Bassat, Trajtenberg and Daniel Tsiddon. The list is quite long.

Blejer lived in Israel from the late 1960s until the early 1970s and again during the 1980s, and his Hebrew is fluent. If appointed, he will likely continue Fischer's policies but with nuances of his own. Briefly head of Argentina's central bank, he more recently served as an adviser to the Bank of England and is well versed on the ins and outs of modern-day international banking, which has undergone dramatic changes in the wake of the 2008 global economic crisis. Blejer could also serve as Israel's economic foreign minister, with an advantage over Fischer in dealing with Latin American countries and emerging economies.

First and foremost, Blejer would concern himself him financial stability and the stability of the banking system. It can be assumed that, like Fischer, he would intervene in the foreign currency market. To what degree he'd do this would become apparent in the first few months of his term. One major question is what contribution the Bank of Israel, under Blejer, would make towards areas of secondary importance to the bank, such as growth, employment, poverty, reducing social gaps and boosting state investment in education, healthcare and infrastructure. Another question is how Blejer would deal with the real estate bubble.

Some of these subjects were neglected by Fischer, while others were dealt with in ways that were at times acceptable to Netanyahu and other times not. For now it is unclear how Blejer would deal with them if he's appointed governor, and whether his approach would lean more towards a reliance on free markets, or towards social democracy.

Finance Minister Yair Lapid has made it a habit the last few months of saying that "Netanyahu and I will choose the next governor." Netanyahu then chose Frenkel and Lapid approved. Netanyahu chose Leiderman and Lapid approved. Netanyahu chose Blejer and the other three candidates –- Zvi Eckstein, Michal Abadi-Boiangiu and Victor Medina -– and Lapid approved.

Netanyahu also determined the macroeconomic outline of the state budget while Lapid had a hand in no more than a handful of macroeconomic decisions. Netanyahu will soon decide the defense budget and Lapid will nod his head. Finance Ministry director general Yael Andorn was Netanyahu's choice, even though her formal appointment was made by Lapid. Ori Yogev, who will likely be chosen shortly to head the Government Companies Authority, is also Netanyahu's man, not Lapid's.

University of Chicago campus.Credit: Dreamstime
Mario BlejerCredit: Bloomberg

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