The Bottom Line / New Boy Makes Bad

If Industry and Trade Minister and acting Finance Minister Ehud Olmert had a little humility, he would wait a few days before hitting the media with his economic declarations.

If Industry and Trade Minister and acting Finance Minister Ehud Olmert had a little humility, he would wait a few days before hitting the media with his economic declarations. If he had a little less arrogance, he would learn and speak later. But Olmert is sure that he knows it all, better than any other mortal, so he began blasting his twisted economic decrees immediately.

The first was on the budget. After enormous effort, Benjamin Netanyahu had managed to instill in the ministers the understanding that the state must reduce its bloated public expenditure to allow the economy to grow and enable private-sector employment to flourish. That is no truer now than when private consumption and exports are reawakening. Elementary, Watson.

But Olmert doesn't want to learn. The first thing he said was: "Public expenditure should grow at least in line with the growth in the population... If I had compiled the 2006 budget, I would have increased it by 1.7 percent." How lucky we are that he didn't compile. How lucky we were that Netanyahu resigned only two days before submitting the budget to the government, leaving Olmert with too little time to make a pig's ear of it.

Olmert is not alone. Director general of the Prime Minister's Office, Ilan Cohen, also wants to increase state spending. With an extra NIS 1.5 billion (and increasing the budget deficit to 3.3 percent of GDP), one could satisfy more "order of priorities" for Sharon - classical election economics. Shimon Peres, Haim Ramon and Isaac Herzog also want more; they put pressure on the cabinet to increase spending exactly according to Olmert's figures: an additional 1.7 percent instead of the miserable 1 percent.

Olmert, Sharon and Peres see the electoral payoff of increasing the budget; they don't see the enormous economic damage. Bank of Israel Governor Stanley Fischer does. He understands that the gigantic national debt must be curbed, and now, so he threatened the ministers that if they dared to increase the budget deficit, it will lead to a rise in the interest rates.

There's no forgetting that interest rates are the most socially important variable of all. A low rate means cheaper mortgages that help young couples, and a cheap overdraft helps the poor. So increasing the budget does not sit well with the "social concern" Mr. Olmert.

Olmert also has yet to internalize the fact that he needs to be the nasty banker. The one who says "No, there's no money," and safeguards the coffers. When he said that it was possible to increase spending, he in effect signaled to the ministers and MKs that he was a "Yes, I've got money"-man, and he can be depended on. They will surely be banging on his door for the cash pronto, and the damage will be done. Note that the budget has yet to be passed in the Knesset.

Olmert does not understand that a finance minister cannot overtake on the left. Ministers and MKs will always strive to be "holier than thou" on the caring front. If he says you can increase the budget by 1.7 percent, they'll say it needs to be 2.7 percent bigger. That's how they get their jobs.

And if he really wanted to change the budget, he ought to do so in the opposite direction; cutting it by 1.7 percent instead of increasing it by 1 percent. How can it be that Bezeq cuts costs by 3.5 percent a year despite an increase in its activities? Have they run out of waste in the public sector? Are there no more duplications, superfluous workers there? Is there nothing that could be cut in defense?

The one setting the economic policy today is not Olmert nor Sharon, but the dictates of the capital market. If the market took Olmert seriously, we would see an immediate rise in interest rates, a rush to the dollar, depreciation of the shekel, a rise in prices, and a drop on the stock exchange. Luckily, the market is simple and doesn't take him seriously. And all the players hope that Olmert, despite everything, will learn.