The panic-mongers' one-note chorus

Naively believing that governments are capable of correcting 'market failures,' pundits ignore the fact that all major crises, including the present one, are generated by governments.

October 22, 2008 21:22
4 minute read.
The panic-mongers' one-note chorus

Stanley Fischer Good 88 248. (photo credit: Ariel Jerozolimski)


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'It is sheer greed!" our pundits keep screaming on TV and in press headlines - greed encouraged by capitalism's cutthroat competition they claim, benefiting the powerful at the expense of the weak. The free market caused this monstrous crisis, and they hope that this crisis will kill brutal capitalism and replace it with a more humane social democracy in which the government will protect us from the market economy's wild jungle. Top economists are agonizing over the question why the crisis has grown to such monstrous dimensions. But our pundits, not exactly qualified economists - unless being socialists makes them so - know it all. They and their ally politicians not only define the problem but also recommend a solution. As "a chorus that can sing only one note," as former education minister Amnon Rubinstein once called them, they recommend, almost to a man that government immediately announce a bailout plan for saving institutions, that it increase its budget deficit to protect the economy from recession; and that Israel should return to be "a social democracy." And so Yaron Dekel of Channel 1 practically twists the arm of a cautious Finance Minister Ronnie Bar-On, demanding that he promise, in a live broadcast, that the government guarantee the safety of pension and mutual funds, not only a costly undertaking that may ignite such inflation that the "guarantee" will come to naught, but also a dangerous step. Rather than assuage the public's fears, it may provoke a panic and a run on the funds and the banks. MEANWHILE, IN Yediot Aharonot the acclaimed economic commentator Sever Plocker continues his no-holds-barred campaign again the Bachar financial market reforms that finance minister Binyamin Netanyahu had the temerity to legislate against his strident objections. Not worried, apparently, that he may ignite a panic, Plocker issues frequent warnings about the stability of the private funds that the Bachar reform spawned, cajoling savers to transfer funds to "the safe banks." Plocker fails to mention that the "failed" Bachar reform saved the banking industry from bankruptcy, that it has generated unprecedented high growth after 20 years of recession caused by the misallocation of credit by the banking cartel. Nor does he mention that as a result of the reform's increased competition in the formerly very low yielding Israeli savings industry, public savings grew from NIS 1.4 trillion in 2004 to NIS 1.85t. (approximately) today, a gain of more than NIS 450 billion. This even after the recent loss of about NIS 80b., not exactly the "unmitigated failure" Plocker claims the reform was. The assault on the free market is not confined to economics. Predictably, it is leveraged into a vigorous attack against the cruel "Thatcherite" free market putatively instituted here and against "total privatization." The above have destroyed, these critics claim, the sense of communal responsibility and are undermining Israel's ability to survive. The country, they conclude, must therefore return to the good old days of "social democracy." EVEN USUALLY responsible commentators like Haaretz's Ari Shavit keep repeating these inventions that have become dogma for most media people. To call the monopoly-ridden, tightly government controlled Israeli economy a "free market economy" is an insult to their readers' intelligence, let alone to the facts. To refer to the plunder of public and former Histadrut assets after they went bankrupt "privatization" is a sad joke. These former government and Histadrut assets, that wastefully dominated the economy in its "social democracy" phase, went bankrupt when Menachem Begin's government refused to continue massively subsidizing them. They were then sold at fire sale prices to the dozen or so politically connected oligarchs with credit they received from the nationalized banks. Rather than diffuse ownership and increase competition - as true privatization does - this "privatization" concentrated ownership and badly reduced competition. Sixteen or so oligarch families now control most assets in the country, and their monopolies inflate the price of most consumer goods by 30 percent to 50% above average international prices. Israelis, who are underpaid because of the low productivity, Histadrut-dominated rigid labor market, have to pay an additional monopoly tax on their meager earnings, so that most can barely make ends meet. And this is supposed to be a free market economy? SOME PUNDITS and politicians also call for a massive government plan to rescue local pensions. Naively believing that governments are capable of correcting "market failures," they ignore the fact that all major crises, including the present one, are generated by governments. All one can expect is that governments clear some of the mess they created. But since politically motivated governments regularly fail in their economic endeavors, it is unlikely that they will even clear the mess successfully. It is foolhardy to expect that they can successfully regulate an economy. And what exactly is this "social democracy" the critics of capitalism prescribe as a panacea? Do they wish a return to the good old Mapai days with its oppressions and corruption? Or are their models the perpetually troubled, high unemployment economies of Germany and France? Or the Scandinavian dream model, that after having consumed the huge reserve of wealth accumulated by its highly capitalist enterprises, squandered it on an anti-productive extreme welfare system and had to back track to restore some vigor to their economies? There is so much sound and fury of vested interests in this raging argument, but oh, so little sense or substance!

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