The Bottom Line / Can't See the Forest for the Advisers

Up to now, our prime ministers have made do with a single economic adviser and two aides. By law, the PM also has another economic adviser: Bank of Israel Governor Prof. Stanley Fischer, who has free access to the bank's consulting department with its dozens of economists including many with a Ph.D.

But all these mean nothing to Ehud Olmert. He is cutting NIS 4 billion from the state budget and hitting everything that moves, especially the poor. On Sunday he announced the formation of a new body, the National Economic Council, to be headed by Prof. Manuel Trachtenberg, who until now was "only" the prime minister's economic adviser.

Trachtenberg will create his own little empire that will publish studies which will miraculously match Olmert's desires. The empire will include a research department headed by the council's deputy head, with at least five economists with advanced degrees (preferably doctorates).

And if that does not satisfy Olmert's megalomania, the cabinet will appoint a consultative body for the council, which will be led by yet more "senior economists."

I have a research proposal for Prof. Trachtenberg's first project: to find out how many economic research bodies are already operating in the public sector, including the Ministry of Finance and the country's universities, and to close one of these economic councils in favor of establishing the National Economic Council.

Otherwise, we will find that the NEC has forgotten the first lesson of Economics 101: the transformation curve. It teaches that resources are finite and one must always choose from among the available options.

The NEC has also apparently forgotten the second lesson of economics: the law of diminishing returns. Perhaps it is because the council will bring us to a new record of negative returns.

As the number of research organizations continues to grow, they will begin arguing with each other, eventually resulting in a drop in total output.

Only in a cynical banana republic could a new entity, incredibly expensive and completely superfluous, be created instantly at the height of painful cuts to social welfare spending. The saddest discovery is that Finance Minister Abraham Hirchson supported the NEC's creation. That's how it is when you are a personal appointment of the prime minister.

The industrialists care for the needy

Last weekend the Manufacturers Association of Israel set out to battle for the disadvantaged. President Shraga Brosh said the 2007 state budget should not be cut: "The less well-off must be cared for despite the war," he said.

The naive reader might think the End of Days is nigh, and that Brosh is proposing ways to transfer resources from the industrialists to the poor. For example, he wants to increase corporate taxes from 34 percent to 40 percent and the marginal tax rate from 49 percent to 55 percent, or, for the sake of example, to waive for one year tax benefits, rapid amortization, grants, subsidized loans, R&D grants, capital investment incentives and a few more billions that this poor state grants to its rich industrialists, and transferring this money to low earners.

But two days have passed and even the most naive readers have wised up. All at once it is obvious that Brosh is not mad at the finance minister for cutting social spending, but rather for cutting the benefits of the industrialists. The "social-welfare" arguments are there only to prove to Hirchson that the industrialists, too, are capable of hurting his image.

Now, in anticipation of the budget meeting, the industrialists are demanding billions. They want the budget for the Capital Investment Encouragement Law to increase from NIS 250 million to NIS 1 billion and R&D budgets to rise to NIS 1.5 billion, and are demanding an end to cuts in the quotas for cheap, foreign workers for industry, because who cares about Israeli workers, anyway?

Brosh's view on the minimum wage? That is does not need to be raised at all. Instead, the government should shoulder the burden by paying workers through a "negative income tax." The main thing is to insure that he and his buddies do not have to pay. And the poor? Let them wait in line, quietly. After the industrialists.