The Elderly, the Capitalists and the Hooligans

America's industrial leaders found the culprits behind the crisis: the establishment

1 About the cuts to child allowances, it could be said that they focus on people who mainly refuse to work. About the cuts to unemployment benefits, it could be said that this furthers government policy of encouraging people to work. About the dozens of cutbacks to education and healthcare, one could say they're steps to force wasteful systems into becoming more efficient.

But when it comes to the elderly, the finance ministry's arguments sound hollow and grating.

Finance Minister Roni Bar-On managed to push his budget for 2009 through the cabinet, though its chances of passing through the Knesset are another question. But given the political chaos wracking the nation, passing a budget that preserves responsible deficit and expenditure targets delivers an important message to taxpayers, investors and the business sector.

Under pressure from the Pensioners party, the finance ministry also decided to increase allowances for the elderly by NIS 350 million, a move meant to correct long-term erosion that reduced their value to less than 16% of the average wage - about NIS 1,100 a month.

However, the ministry did stick one nasty element back into the budget - cutting welfare stipends for about 16,000 elderly people according to a new means test. A retired couple that receives an old-age allowance of NIS 1,850 a month and a pension that brings their monthly income to NIS 7,500 won't be entitled to a full welfare stipend.

I asked ministry officials last week what the idea was behind cutting welfare stipends. The ministry spokesman said, "The economic concept is to focus stipends by level of need. Means tests are meant to ensure that old people with low income will get higher allowances than old people with high income."

The spokesman added that the ministry had suggested alternatives to the National Insurance Institute, including to cut NIS 100 million from transfers to the institute. But the NII had refused the alternatives and chose this instead.

Old people with high income? A pension of NIS 7,500 a month is high income?

The millionaire retirees from the army have dozens of lobbyists in government and Knesset - former generals; the giant monopolies have thousands of lobbyists at party centers who pull the strings of ministers and Knesset members; the tycoons have hordes of lobbyists who move parliamentarians like pawns on a chessboard.

The 16,000 pensioners who can barely scrape by on the money, the ones the finance ministry is defining as having "high income," had no lobby last week, and if they did, it was a feeble one. In Israel of 2009, only the rich, the powerful and the violent have lobbies.

During the economic crisis of 2002 and 2003, the state was forced to cruelly cut back old-age allowances because the state was going bankrupt. In 2008, it didn't face financial bankruptcy. The idea of cutting welfare stipends attests mainly to the bankruptcy of the ministers who approved it.

There is absolutely no need to cut the welfare stipends. On the contrary, they should be significantly increased and there are huge resources to draw on for that purpose, without breaking the budget.

The broader public sector has dozens of vast pork barrels - institutions, organizations, monopolies and committees with sky-high salaries, bloated pension terms and mainly, tens of thousands of unnecessary workers and functions. The finance ministry knows these pork barrels well. Welfare stipends should have been last on its list of cutbacks.

Earlier this month, a local Detroit paper revealed a secret meeting between the bosses of Big Car - Ford, General Motors and Chrysler. They didn't meet to discuss competition with Japan, relations with the unions or new standards imposed by American regulators.

No - they had a far simpler solution for improving their bottom lines. A check, a fat one, something like $40 billion, which they think the U.S. government should give them. Why does this brazen gang of carmakers think the taxpayer should inject $40 billion into their companies, through long-term subsidized loans that might never be returned?

For good reason. If everyone else is getting some, why not them? In the last year, Washington has injected vast amounts of money into a long line of companies that stumbled into trouble: the investments firm Bear Stearns is getting up to $29 billion, mortgage financing institutions will receive up to $300 million and private mortgage banks may be getting as much as $100 billion.

The Federal government is being forced to rescue the financial giants because of fear that their collapse would trigger a chain reaction destabilizing the entire financial establishment. But why on earth would anybody pay to keep Big Car driving?

Big Car has an excellent explanation: Their troubles are all the government's fault, the weak dollar sent oil prices soaring, which killed the market of their most profitable products - the gas guzzlers.

Are all car manufacturers in America in trouble? Not at all. A whole lot of them are doing beautifully. They are the foreign ones that set up shop in the U.S. such as Toyota, and they're making money hand over fist.

Moreover, much of the losses at Big Car are due to liabilities, which date from profligate benefits for their workers promised when times were good, and also from expanding into tangential businesses that didn't do well. But once the Fed starts throwing money around, pouring tens of billions into the financial markets, it becomes legitimate for every sector to demand a piece.

And what about the gigantic bonuses, the stock options and shares that top executives at the car manufacturers are now asking for as handouts, like during the good years? Ahh, that isn't relevant now. When share prices are rising, it's because they're talented, and when share prices are collapsing, it's the taxpayers' problem.

The next president of the U.S., be it McCain or Obama, will have to make some hard decisions about a lot of sectors in America. The most important decision will be whether there are two kinds of capitalism - one for good times and one for bad.

We found some comfort in an unexpected place last week. The European press has been reporting on a niggling problem: Business and service providers in Greece and other vacation spots on the continent have been complaining about bad behavior by the denizens of a certain country. The tourists from that country are loud, belligerent and pose a nuisance to the locals.

The good news - they aren't Israelis. The bothersome tourists are British, fueled by alcohol, and the U.K. Foreign Office has been advising Britons to curb their inappropriate behavior. So the next time somebody clucks their tongue at you when you're abroad and says, "Only Israelis behave like that," you can smile and shrug that it's apparently a relic left from the days of the British Mandate.