The New Spin in Israeli Politics – Cost of Living

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Prime MInister Benjamin Netanyahu and Moshe Kahlon at a press conference Jan. 20, 2013.Credit: Shiran Granot

Moshe Kahlon has managed to drive the system crazy. About a month ago he announced that he would soon be launching a new party to deal with the cost of living by opening the market to competition – and Prime Minister Benjamin Netanyahu, Finance Minister Yair Lapid and Social Affairs Minister Meir Cohen went into shock. Netanyahu heard and couldn’t believe it: How is that Kahlon, whom I taught about customs duties and competition, is stealing my thunder? Lapid was horrified. After all, he ran for the Knesset on the ticket of lowering the cost of living, and what is Kahlon doing there all of a sudden?

The response came this week. Netanyahu declared that “We have to lower and even cancel the customs duties on food imports in order to create competition that will reduce prices.” What an earth-shattering discovery. Lowering customs duties? After all that’s something that nobody has thought about, nobody has written dozens of articles about, and nobody has taught in all the schools of economics. Everything is new, up-to-date and revolutionary. The prime minister, a well-known student of economics, has suddenly seen the light: There’s a connection between high customs duties and inflated prices. Eureka! A Nobel Prize in economics is on the way.

In order to make his discovery more interesting, Netanyahu noted that lowering customs duties can be done simply “by the signing of an order by the finance minister.” In other words the guilty party has been found: Lapid. But what about the prime minister? Isn’t he involved? Isn’t he responsible for the state of the economy? Is he in charge only of the Iranian nuclear program and of adding fuel to the bonfire of the third intifada? It’s true that Lapid didn’t sign orders to cancel customs duties, and that was a big mistake. A missed opportunity. Because Lapid is a-f-r-a-i-d. He knows that if he signs orders – the best way to reduce the exorbitant food prices – all the dozens of agricultural production councils and farmers’ organizations, the kibbutzim, the moshavim, the farmers, the cattle growers, the poultry farmers and the dairy farmers will have him branded an oppressor. He will be declared the one who is destroying agriculture and causing mass starvation. They will be joined by all the major food companies from Tnuva to Osem. And Lapid is seeking love, not confrontations. That’s why he is proposing another, bizarre solution: bringing more products under price control regulation, a la Hugo Chavez, who destroyed Venezuela.

Only recently did the Knesset Research and Information Center publish a comprehensive report demonstrating that from 2005 until today the prices of price-controlled products increased by 73 percent (!), while the price index rose by only 22 percent. Every political economist knows that price control causes a rise in prices, and is good for the manufacturer and bad for the consumer. That was proven in the case of plain white bread, and in dozens of other cases. But Lapid is looking for a media accomplishment rather than a real one.

The insane new campaign surrounding the cost of living was recently joined by an impressive reinforcement player: Cohen, the social affairs minister. Cohen has already turned to the marketing chains in order to force new prices on them, to be decided by him. He will decide on the “suitable” price and will also paste a label on each such product: “sponsored by the Social Affairs Ministry.” This kind of idiotic idea could only be dreamed up by someone who always enjoyed the fat of the land in the public sector. Someone who has never even sold a single stick of gum. Will he decide on prices for the chain stores? Will he nationalize them? What does he want? Poverty like that in North Korea? Has he heard of pricing? Expenditures? Income? Profit and loss? Where is he living?

Now Kahlon is sitting back and laughing with pleasure. All he did was say a few words at a meeting with businessmen, and the political system has gone crazy. Kahlon knows that Netanyahu, Lapid and Cohen don’t really give a damn about the cost of living. Their nightmare is his new party, which will tailgate them at the polls. And that already deserves a response. That already leads to action. Because if your political career is in danger, you have to do something fast, even if it’s only a few empty and absurd declarations.

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