Playing with the facts on the campaign trail

The election campaign in Israel has scarcely begun and already Israeli voters have been inundated by facts and arguments that amount to what the vice-presidential candidates in the United States like to call “malarkey” – words intended to mislead.

Israeli voters who do not want to be surprised with what they get after the elections should spend a few minutes analyzing the statements and arguments made by the candidates. Economics is a good place to start, both because it is the ostensible reason for the new elections and because it will be central to all the candidates’ platforms.

The campaign began with a short speech by Prime Minister Binyamin Netanyahu that included a brief reference to the alleged success of the outgoing government’s economic policies.

“While other countries have economic policies that have led to mass unemployment,” said Netanyahu, his government has “created a record number of 330,000 jobs.”

The number may be right, but Netanyahu is ignoring the fact that his government has added 150,000 of these new workers to the public sector. These jobs have been financed by tax hikes and deficit spending, meaning current and future taxpayers have been and will be left with less income to spend on goods and services in the growth-creating private sector. These public-sector jobs come at the expense of private-sector ones.

Netanyahu continued by saying that “in other countries, they have enacted giant cuts whereas we have increased investments in education, health, infrastructures, transportation, etc.”

Unfortunately, you cannot have your cake and eat it, too. It is precisely the years of deficit spending on similar “investments” that are the “economic policies that have led to mass unemployment” that Netanyahu referred to, and to a massive economic crisis and possible insolvency which forced such countries to enact “giant cuts.” It is unlikely that “investments” financed by debt will lead to different outcomes in Israel.

Not that the prime minister’s challengers have made sounder or more factual statements on economics.

His main rival according to the polls, Labor Party chairwoman Shelly Yacimovich, recently argued that “under Netanyahu’s leadership the public sector has shrunk after it has been privatized, dried and cut.”

The truth is that the current government has added 150,000 jobs to the public sector and increased real government spending per citizen by 5.5 percent since 2010. So much so that hikes in the Value Added Tax, the gas tax, the corporate tax and other sources of revenue have not sufficed to meet the deficit target.

Then Yacimovich claimed that as a result of the alleged shrinking of the public sector “the middle class is forced to pay out of its own pocket for what it justly deserves.”

What citizens justly deserve is a matter for political debate, but that someone has to foot the bill is a plain and simple fact. Since the middle class forms the largest share of the tax base, it will have to pay for whatever services it receives, either through direct payments made to the service providers or through taxation. Further, in the case of government-provided services the middle class will most likely pay more, because it will be forced to pay for services it does not use and which benefit either the poorer populations or, more often, the politically powerful.

Another contender, Yair Lapid, who heads the new Yesh Atid party, called on his Facebook page for “finally talking about what really matters: education, housing, aid to small businesses....” Obviously, these are all important issues, and on his website Lapid offers proposals on how to deal with them.

Regarding housing, Lapid suggests a major state-run housing project that would include building 150,000 apartments and renting them to young couples at 35% below the market rate. He says the project, of unspecified cost, should be paid for by Israel’s “institutional investors” rather than by having the government go further into debt.

Lapid may think this sounds like a good idea, but may not want to alert readers to the fact that the “institutional investors” are essentially Israel’s pension funds, and they would be investing Israelis’ retirement savings, not money of their own. Lapid’s program would mean forcing all Israelis who save for retirement to put their money into a bound-to-lose project, reducing their rate of return and forcing many Israelis to age in poverty. Effectively, Lapid's plan would tax retirement savings and increase the public sector’s budget.

Regarding education, Lapid suggests great “investments” but does not point to any source of funding.

Regarding small business, he proposes government guarantees for loans to small businesses. This means the cost of business failures would be shifted to the government; Lapid does not suggest a source of funding for this added burden on the taxpayer.

In an unstable global economy and with tough policy choices ahead, Israelis ought to demand from their politicians candid talk about the economy. If Israelis accept their fallacious economic arguments without question they will deserve to be governed by the misguided policies the candidates propose.

The writer is a research fellow at the Jerusalem Institute for Market Studies.