The Irresponsibility of Barak and Braverman

Once, the Labor Party was the symbol of national responsibility. Today, the responsibility is long gone and the party is busy with petty politics, enslaved to its longing for power. It does not matter that the entire world is being battered by a financial hurricane blowing in from Wall Street, nor does it matter that the public is panicking and begging for a new, stable government.

Ehud Barak has all the time in the world. What is important to him now is how to leverage the present crisis to improve his image. For that, he is willing to sacrifice stability, economic growth and employment. All for another few votes.

Standing alongside Barak is MK Avishay Braverman, who has a clear price tag for Labor's entry into the new government: increasing next year's budget by 2.5 percent, or another NIS 2 billion - which will be spent on worthy causes, of course. Braverman says this demand stems from the expected economic slowdown. But in 2007 and early 2008, when the economy was growing at a rapid 5 percent clip, Braverman said that precisely because of this rapid growth, we should increase spending by 2.5 percent. Then, too, of course, he was talking about very important causes.

In other words, it really does not matter whether the economy is growing or slowing. It does not matter whether the economy is stable or the stock market is collapsing. We must always increase, expand, spend, waste - because that is what the public loves, that is what the pensioners want, and they want it in large doses.

The Braverman-Barak explanation for why spending should increase during an economic slowdown - in order to encourage economic activity - is an antiquated one, based on an outdated Keynesian model from 1933. Since then, everything has changed. That model was appropriate for a closed economy, but today there is globalization, an open economy, free movement of capital and worldwide competition. Nothing has remained the same since 1933.

The latest economic thinking holds that precisely because this is a time of crisis and fears of recession, it is of the utmost importance to increase spending only by the modest 1.7 percent already approved. That would make it clear to the public that it has a serious and trustworthy government, which stands behind its decisions and does not surrender to the Labor Party's political needs.

The public is not as stupid as Barak and Braverman seem to think. The public will not be mesmerized by the baubles the two plan to pass to out. The public knows there is no such thing as a free lunch. It understands that if the cabinet increases spending now, it will be unable to proceed with the plan to lower income and corporate taxes, and then investments will fall and the economy will retreat.

The public knows that next year's deficit is expected to be large, due to declining tax revenues, and therefore, adding an additional burden now borders on criminal irresponsibility.

The public even knows that if the government increases its expenditures as a result of irresponsible pressures from parties such as Labor, the day will come when a government will be forced to implement a "New Economic Plan" that includes harsh decrees, raises taxes and eliminates everything that had been added. We have been there several times already. Therefore, the minute the cabinet raises spending, the public adopts a defensive posture, cuts back on private consumption and investments - and turns an economic slowdown into a serious recession.

Given the sensitivity of the global economy's current situation, credit rating agencies will not wait even a moment before lowering Israel's credit rating, should the cabinet dare to increase spending. The large deficit resulting from such an increase would require a massive issue of government bonds, and this would seriously harm the private sector, which would be shouldered out of the capital markets and would thus be forced to retrench. That in turn would lead to less growth and more unemployment.

A responsible government needs to think about the possibility, far-fetched as it may be, that the global economic crisis will reach Israeli financial institutions, too. Then, the government would be forced to reach deep into its pockets and implement an expensive bailout plan. That is why it needs to keep a few billion in reserve, and not waste them now on the political ploys of Barak and Braverman.

Barak and Braverman believe that if they can just get NIS 2 billion, it will be perceived as a political victory for them. But the truth is that it will merely boomerang and hurt them politically, because the public understands that a time of uncertainty and global crisis is not the appropriate time for political extortion. The public will see the "achievement" that Barak and Braverman are seeking as a gamble with Israel's economy. Therefore, not only will it not gain them a few more votes, it will bring them contempt and derision.