Listen to the economic sages

Even worse than pipe-dreams is overlooking the obvious: An emergency plan must actually deal with the emergency at hand.

By
November 22, 2008 18:44
3 minute read.
Listen to the economic sages

lots of money 88. (photo credit: )

 
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The new economic "emergency plan" unveiled by Finance Minister Ronnie Bar-On last week is so little and comes so late that it does not obviate the need for government intervention in Israel's financial markets. In fact, such intervention - especially with regard to corporate bonds - is inevitable. Each day's delay merely increases damages and raises the cost of shoring up sagging confidence. Bar-On's plan is way off the mark. Its most disturbing aspect is an uncanny resemblance to another emergency plan concocted in late 2005, also just before elections, by Ehud Olmert. At the time Olmert initiated his much-touted "emergency war on poverty." Like the current Bar-On version, it too was announced without any budget money to back it, without a stable government and minus concrete specifics. At most it signaled an intent to funnel more funds into the parched economy. Bottom line? Despite the hype, it was never implemented. The danger is that Bar-On's recycled "revolutionary blueprint" will be just as forgotten. LONG-TERM solutions have their place, but they must not rely on wishful thinking. The Bar-On scheme hinges on a whole set of wish-fulfillments, envisioning among other things the mass conscription of yeshiva students, the mass disappearance of foreign workers and the mass transformation of jobless high-tech workers into school teachers. Even worse than pipe-dreams is overlooking the obvious: An emergency plan must actually deal with the emergency at hand. It must devote immediate attention to the here-and-now. This means short-term moves to calm the current panic. Significantly, virtually the entire political and economic leadership of this country - whatever their differences - agree on this. The only ones who apparently don't get it are the finance minister and his crew, who insist that we have weathered the international financial tsunami magnificently. The only problem is that stocks are halved in value and that the most conservative bond investments lost at least a quarter of their worth, severely affecting the savings of average citizens in pension, provident and mutual funds. The latest word from Olmert is that the savings of these regular folks could be saved if Shas and Labor agree to pass the 2009 budget. The subtext: Hundreds of thousands of households are being held hostage to political brinkmanship. The government refuses to restore their peace of mind unless its political rivals cave in during an election campaign. IT IS instructive to listen to industrialist Eli Hurvitz, Teva chairman and Israel Prize laureate. He argues that the "most critical present economic peril is the public panic" regarding massive losses in non-speculative investment frameworks, yet "sadly the Treasury's emergency plan fails to address the issue. The government can easily soothe things by guaranteeing savings. Far more conservative governments like the US had done so… Panic leads to redemptions from funds, which in turn trigger far greater economic troubles… I don't accept the government's current approach." Curiously, Histadrut Chairman Ofer Eini enunciates the identical message, though more bluntly. The labor federation chief seizes the opportunity to threaten yet another general strike in two weeks, charging the government with doing no more than "covering its rear end." Along the political continuum, ideological antagonists are broadcasting on the same wavelength. Both former Labor leader Amir Peretz and current Likud leader Binyamin Netanyahu want Bar-On to spread out a safety-net for conservative investors taking an unfair beating from the corporate bonds scare. If the Treasury's languor is merely the product of Bar-On's failure of nerve - and not Olmert's attempt to hold the public to political ransom over the budget - then a way needs to be found to provide Bar-On with the cover he needs to take necessary decisions. To that end, we urge Bar-On to reach out to the leaders of Israel's main parties, to political friends and foes alike from across the political and economic spectrum in order to build a consensus for the kind of government intervention that industrialists and labor leaders, conservatives and liberals, agree is now warranted.

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