No free lunch

Amir Peretz's economic ideas sound fine, until they're scrutinized.

By YOSEF TOMMY LAPID
November 16, 2005 21:27
4 minute read.
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lapid 88. (photo credit: )

 
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Milton Friedman, one of the greatest economists alive, coined the phrase "There's no such thing as a free lunch." If you eat for free, someone else is paying for your meal. (For trivia lovers: The expression first appeared in Robert Heinlein's 1966 novel The Moon is a Harsh Mistress as TANSTAAFL: "There Ain't No Such Thing As A Free Lunch," but it was Friedman who turned it into an economic axiom. When populist politicians of Amir Peretz's ilk promise to do good by the nation, they usually know who to do good by and how much to give. Old-age pensions should be increased along with allocations to single mothers, large families, the handicapped. No one disagrees that all these people need and deserve to receive additional income. What Amir Peretz is not telling us is where the money is supposed to come from - from the Treasury of course. But money doesn't grow on Treasury trees. In order to hand out billions to the needy, the budget deficit would have to be increased. And when the budget deficit is increased, we will see a return of galloping inflation, which once went as high as 400 percent. Nothing could be worse for the economy and the nation. But there is an alternative solution. Why not have the middle class pay more taxes? (Currently, only half the population pays income tax.) Except that raising taxes decreases resources designated for investment, for creating jobs, for construction and production. And the result is that the state's income does not grow, but unemployment does. Peretz wouldn't like that. What is left? There is yet another solution! To cut back the bureaucracy, shrink the government machine and fire thousands of employees. Except that then, Amir Peretz, the leader of the Histadrut Labor Federation, would stand up on his hind legs and put the whole economy on strike. After all, he would never allow the finance minister to terminate employees! NONE OF this is new. Dozens of governments throughout the world have tried to guarantee social justice for all by handing out money that they didn't have and gone bankrupt. That is the scenario that Peretz is writing for us. Because he does not believe, or does not want to know that there's no such thing as a free lunch. Peretz has also promised to introduce a minimum wage of NIS 4,700 per month - $1,000 approximately. What could be better than that? More just? Fairer? More social? An increase of over 40% above the current minimum wage. Why didn't we think of it earlier? The owner of a jewelry shop told me: I employee five saleswomen at minimum wage. If he raises it to $1,000, I will have to fire one of them. And that is what will happen to thousands of shops, firms and factories. Tens of thousands of workers will lose their jobs. Most of the diamond-polishing plants have already been moved to India, and the majority of "Israeli" textile production is manufactured in Jordan and other countries. If the minimum wage is drastically raised, more jobs will be moved to the Third World, unemployment will soar and Amir Peretz will be the first to lead a furious demonstration against the employers. These are just two examples of the enormous damage that Peretz's social-demagoguery could cause the national economy. At first, there will be celebrations because of the implementation of "social justice." Then the bill will arrive: The middle class will be weakened, the stock market will crash, unemployment will soar, we will again be faced with double-digit inflation - but on May Day, we will all march proudly behind the red flag. And when the march is over, all the marchers will be given a free lunch. The writer heads the Shinui Party and is opposition leader in the Knesset.

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