Pedal to the Metal

Many people believe that rapid economic growth follows war, which means that from an economic standpoint war is not so terrible. They point to the accelerated growth in Germany, other European states and Japan immediately following the end of World War II.

But if war and destruction lead to rapid growth, why don't we just bomb ourselves every few years to keep the economy rolling? The very question shows the absurdity of this bit of folk wisdom. The error comes from misreading the results of war.

When post-war growth is measured, the enormous destruction to cities, villages and housing stock is ignored. Take for example Kiryat Shmona, where the war has destroyed the city's commercial center and rendered many of its homes uninhabitable.

As soon as the war is over, massive reconstruction efforts will be launched to replace the lost apartment buildings and commercial areas. We will count it as growth and as part of the GDP. Because construction is a fundamental industry with many branches, the growth will be significant, and many will point to this as the silver lining of the cloud of war.

They would be wrong, however, because an accurate measure of the growth would also take into consideration the drop in the Kiryat Shmona residents' standard of living due to the destruction of stores, roads, cultural centers and, in many cases, their homes. That is a very real cost of war. It will take billions of dollars and many years of work just to restore the city to its prewar state. For this reason, the growth that will be recorded immediately after the war is a deceptive type of growth, an optical illusion.

What's the damage?

Were the war to stop now, the Bank of Israel estimates the economic damage would be about 1 percent of GDP. Other economists put the cost at about 1.5 percent of GDP, since who would have believed, one month into the war, that missiles would continue falling on the North and that the war's effects would reach as far as Tel Aviv?

With this in mind, some politicians and economic commentators are already urging the government to rescind its recent tax cuts, restore the 1 percent cut in VAT and to raise corporate and income taxes, all to fund the war.

There could be no greater mistake. It is precisely when the economy is struggling and recession is a possibility that taxes should be cut in order to spur economic activity. Reducing the VAT encourages production and marketing because it lowers prices and thus leads to greater spending. Cutting corporate taxes does the same thing, as does reducing income taxes.

According to a recent study by D r. Omer Moav and Dr. Eric Gould, Israel's brain drain is fueled by the high tax burden placed on earners in the two highest deciles, and the low quality of life. The higher the level of education, the greater the tendency to emigrate from Israel. Cutting taxes, therefore, is also an important weapon in the fight to keep Israeli scientists at home.

Rare courage

Trade, Industry and Employment Minister Eli Yishai (Shas) in speaking to the media does not restrict himself to discussing the economic situation and compensation for workers and their employers.

Rather, he eagerly responds to questions about the conduct of the war. He unhesitatingly demonstrates rare courage: "Hezbollah must be dealt a mortal blow and the war must be pursued with tremendous force," Yishai said on Sunday.

Yishai knows the parents of non-observant and national-religious soldiers cannot sleep at night, while the ultra-Orthodox are in no danger of someone knocking on their door in the dead of night bearing terrible news.

So perhaps it would behoove the head of a political movement whose ideology includes not serving in the army to demonstrate a measure of restraint when it comes to "pursuing the war with tremendous force."