Economist to protesters: 'We don’t live in a magic world’

Hebrew University economist challenges housing demonstrators to back up their chants for social justice with economic theory.

By MELANIE LIDMAN
August 2, 2011 06:19
4 minute read.
Tent City organizer Dafni Leef

Tent City organizer Dafni Leef 311. (photo credit: Ben Hartman)

When Daphni Leef put a statement on Facebook defiantly announcing that she was tired of spending half of her salary on rent and decided to pitch a tent on Rothschild Boulevard in Tel Aviv to protest the rising cost of housing, she was not thinking about an entire restructuring of the economic system of Israeli society.

But two and a half weeks into a protest that has galvanized large swaths of the middle class, including hundreds of tents in several cities and marches across the country on Saturday night that drew 150,000 people, the tent protest organizers claim that only drastic change to the economic system will solve the country’s pressing economic problems.

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“We feel like the government started a war on its people,” activist Stav Shaffir said at a discussion between protest leaders and an economist arranged on Monday morning in Jerusalem. Shaffir is a master’s student in History and Philosophy at Tel Aviv University, and one of the nine original people who pitched a tent with Leef two-and-a-half weeks ago.

After the chaotic early days, when the tent cities snowballed in size and drew the support of all of the groups from this “season of protests,” including young families, students, social workers, doctors, single mothers, and supporters of the cottage cheese and gas prices struggles, the demonstrators’ requests have gelled into a common voice for the time being.

Among the requests of the demonstrators, explained Shaffir, is a restructuring of income tax brackets and a shift of the definitions of middle class and upper class. For people making more than NIS 1 million per year, they want to raise income taxes from 40 percent to 55%, which would generate an additional NIS 20 billion for social programs, said Shaffir.

The protesters are also calling for a greater emphasis on income tax, which allows higher incomes to be taxed at a higher rate, rather than on value-added tax. VAT, the 16% tax added on to products and services such as strollers or meals at restaurants, is the same for everyone and is disproportionately felt by the lower classes, said Shaffir.

“We want to change the economic system from neo-liberal to a welfare state,” she said.

Economist Omer Moav, a professor at the Hebrew University and the Royal Holloway University of London and a former head economic adviser to Finance Minister Yuval Steinitz, said he was “sympathetic” with the protesters, but cautioned them “we don’t live in a magic world.” He accused the demonstrators of making grandiose claims without finding ways to pay for their new programs.

“Budget constraints aren’t just a conspiracy from government economists,” he said. Moav pointed out that while Israel is on par with Sweden in terms of income and value-added taxes, Israelis get fewer social benefits than their Swedish counterparts because of the extra costs the state incurs, including massive budgets for the settlements, the ultra-Orthodox and the military.

He cautioned that the marchers’ demands for a welfare state will actually make it harder on the marchers themselves, by placing the largest tax burden squarely on the shoulders of the middle class.

Rather than a closed market and government subsidies, the solution is to open the market, he argued.

“The Israeli economy is not sufficiently competitive,” said Moav. “Prices are very expensive, but the solution to this is more competition. The government needs to allow imports in order to form competing prices,” he added.

“If you want a big pie to distribute, you need a market economy, it won’t work any other way.”

Still, Moav was impressed by the stamina and the passion of the protests, which represent a huge awakening by the middle class, he said.

Demonstrators acknowledged they were under a time crunch to make meaningful strides in the relative quiet of the summer, before September’s political events threatened to steal the spotlight back to security issues.

“The most difficult thing was to get people to leave their houses and Facebook and go to the streets,” said Shaffir. “We have built a new society [in the tent cities], with schools and kindergartens and lectures and kitchens that serve three meals a day and we’ve even developed a special sign language that allows us to hold discussions and vote with over a hundred people at a time...this energy was very difficult to collect and gather,” she said.

“It has to work, it must work, and it will work, because this won’t happen for another 10 to 15 years.”


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