How did things spin so viciously out of Labor's control? It's one thing for Israel's GDP to grow an astonishing 5.2 percent, but for this news to emerge 15 weeks before the election that that party had already declared a historic turning point seems almost Satanic. Labor must now explain a lot more than just this figure, which has come coupled with a 6.6% growth in the business product, 3.3% growth in per-capita domestic product and a 47% drop in the current-account deficit last year, as well as an aggregate 25% growth in exports and a 2% decline in unemployment during Binyamin Netanyahu's term as treasurer. Labor must also explain how - if "only the rich have benefited from Netanyahu's reforms," as Peretz-groupies Shelly Yacimovich and Yuli Tamir never tire of arguing - sales of durable goods rose handsomely last year. Who bought those thousands of new refrigerators, DVDs, TVs and washing machines: Arkadi Gaydamak and Lev Levayev? It takes a real idiot to not realize it was the rapidly expanding and prospering Israeli middle class. Having sought a domestically dominated campaign, Labor must now explain just how all these accomplishments, and the general emergence from our worst-ever recession to such exuberant expansion, sit with Peretz's hysterical hollers just two years ago that Bibi's reforms would raise unemployment to 13% and exacerbate the recession. Labor must also explain just where it thinks we would all have been today had Netanyahu heeded Peretz's demand at the time that the Treasury not cut taxes but actually raise them, and not mildly, but by a hefty NIS 5.5 billion. Labor leaders like Isaac Herzog, Avishay Braverman and Shalom Simhon, who know basic economics, must ask themselves whether they agree with their leader's vows to force businesses to nearly double the minimum wage, to salary contractors after nine months' engagement, to lower the pension age or make mortgage payments tax deductible? Has he calculated the cost of these gifts, or even just consulted his colleagues before confusing sound budgeting with hollow sloganeering? If not alarmed, aren't they at least embarrassed when Peretz says his fiscal binge will be financed by increased tax returns stemming from growth in retail spending, which in turn will be caused by the salary hikes his minimum-wage reform will ignite? Didn't they live here during the years when artificial wage increases generated three-digit inflation, ballooning deficits and zero growth? As they watch Labor tailspin in the polls under Amir Peretz's much-celebrated leadership, Middle Israelis feel a duty to tell his colleagues what they must do come March 29 - besides, of course, replace him. CURIOUSLY enough, Labor's economic predicament is reminiscent of its territorial hump. As this column has explained repeatedly, if ineffectively, Labor has a fundamental problem with mainstream Israelis, who reflexively associate that party with the Oslo misadventure. Incredibly, Labor is now squandering a golden opportunity to break loose from that stigma by demanding the copyright on the idea of national disengagement, and disowning the idea of regional engagement, whose masterminds, Peres and Beilin, are no longer with that party. A de-Peresized Labor could say it is returning to the Rabin mind-set, which was suspicious of the New Middle East vision and merely sought an end to Israel's rule over millions of hostile Palestinians. Moreover, it could justly claim that the wall and disengagement projects that have become the pillars of the new Israeli consensus are essentially reincarnations of the old Allon Plan that was Labor's real design for the territories until Peres and Beilin took it (and the rest of us) to Oslo. However, Labor's current leaders seem to lack either the intellectual capacity or moral honesty that such heresy demands. Instead, they are willingly held hostage by Peretz, who seems intent to out-Peres Peres - a strategy that may help him win over one or two Meretz mandates, but not one of the dozens headed Kadima's way. Ironically, the same conditional reflex that keeps Labor from restoring its original territorial platform - the refusal to admit mistakes - also plagues its economic platform. Yet that is just where Labor can outflank Netanyahu and Olmert. IN ITS current mind-set, Labor's mantra is compassion and its tool is tax and spend. Where does this fixation originate? Does concern for the needy really have to entail bloated public spending? Do the jobless, not to mention the foodless, gain anything from the fact that thousands of social parasites earn redundant salaries in our sprawling public sector, which stretches from the Electric Corporation's 13,000 employees and their nationally highest NIS 13,000 average monthly wage, all the way down to the rebbetzin who runs the most godforsaken hamlet's mikve? The origins of Labor's economic non-starters are twofold: first, its local roots lie in the years before and after 1948, when it built a centrally planned, state-owned and heavily unionized economy. Then, more deeply, it originates in the thought of economist John Maynard Keynes, who advocated government interference, even through subsidies, devaluations and public works, in order to create maximum employment. However, Keynes's ideas originally addressed the Great Depression, and indeed inspired the New Deal which helped end that crisis. Yet ours is an entirely different situation, and it is anachronistic, not to say mad, to treat it with 75-year-old tools. Israel's economic predicament is in the size of its public sector. Had it been visionary, Labor would say "Bibi did a fine job, but we'll do a better job, because just like only Sharon could evict settlers, only Labor can shrink the public sector." It can, in good faith, promise to reduce defense spending, which somehow grew last year by 5.5%. It can, in turn for a deep tax cut, have the government hand over to the community responsibility for religious services. It can abolish redundant ministries like agriculture, science and tourism. It can expunge all deputy-ministerships. It can merge redundant local governments and it can say "yes, we are compassionate, but we think the ones who will best care for the needy are the people, not the bureaucrats," and offer tax breaks to businesses that engage in informal education, to restaurants that feed the hungry, or to theaters that entertain poor kids. Labor certainly can concede that social compassion has nothing to do with defending monopolistic behemoths like the Oil Refineries, Egged, or the Electric Corporation. Several days after Labor's primaries I happened to meet Australian Labor MP Julia Gillard, who inquired about Peretz's prospects, which I explained were low. Intrigued, the shadow health minister asked why, and I asked her what Australia's budget-to-GDP ratio was. It turned out to be $200 billion to $800b., or 1:4. Israel's, I said, is 1:2. "I understand," she said. When will our Laborites understand?