Taking Stock / Growth by Bibi and Bush

Israel: 4.3 percent U.S.: 4.5 percent.

For three years, economic growth growth in Israel limped. Yet in 2004, we managed to approach the levels of the countries with whom we'd like to compare ourselves.

Naturally, the gap that developed between us and the rest of the world over the last 30 years is enormous. We'd need to grow at warp speed to approach Western levels. But why not look at the bright side, where we did do well, and try to reach some practical conclusions?

There are many differences between Israeli and American economic growth. First of all, when Israel's economy grows by 4.3 percent, that means per capita growth is 2.5 percent, almost half, as Israel's population is one of the fastest-growing in the world.

But in the U.S. and the West in general, population growth is flat or negative, so 4.3 percent growth translates into much higher growth per capita. And growth per capita is the usual gauge to track the stand of living.

Public consumption

The other day the Central Bureau of Statistics published data for the second half of 2004, slipping in a datum that usually doesn't get much attention, even though it's the most dramatic economic story of 2004.

GDP grew nicely, exports shot up 13 percent, and private consumption lifted its head for the first time in four years. But there's another component in the national stew: public consumption.

This is where the news comes in. In the second half of 2004, public consumption, which means spending by the broad government, dived by 5.5 percent, and seen over the year 2004, it retreated by more than 2 percent.

The economic rally coupled with the steep slide in government expenditure is a humiliation for fans of Keynesian economics, who have been preaching for years that the way to extract the economy from recession is to increase government spending and ignore the deficits.

In the U.S., economic growth in the last three years has been accompanied by the opposite phenomenon: Public spending has soared, and the budget deficit has mushroomed to unprecedented dimensions.

That created tremendous temptation for Benjamin Netanyahu when he assumed the position of finance minister two years ago. Instead of forcing budget cuts and decrees on the people, he could have explained that what Israel needed was more government expenditure. He could have scattered money like water and aped the American system, which has also done pretty well in recent years.

They can print dollars

But Netanyahu and the treasury people knew perfectly well that what may work in America, won't work here. The Americans have a tremendous asset that we don't: they print the dollars. And foreign investors have such faith in the American economy that it can print more and more dollars, and the foreign investors will buy more and more of them.

Israel has no dollar mint. What it has is a giant national debt. To attract foreign money, we have to control spending, and reduce our budget deficits. In Israel, when the government grows, the private sector shrinks, not the contrary.

Oh, and there's one other difference between us and them: they're the global economic driver, not us. When they grow, it's easier for us to grow.

That is why we should be concerned about the reckless macroeconomic policy the Bush administration has been conducting in recent years. With each passing month, the fear grows that America's exploding budget deficits will depress the world's appetite for American assets.

The American economy has become addicted to foreign capital. To finance its trade deficit, it needs a transfusion of $3 billion a day.

Until recently, the willingness foreign investors evinced for infusions of that size was perceived as proof of America's allure. But in the last year, private investors have been scaling down their investments, and Asia's central banks, which had been buying dollars, are asking themselves whether the era has ended. Perhaps the American government and people cannot actually consume and consume and consume as though there's no tomorrow.