On new riches, tents and trickle-down behaviorism

The government’s quick-fix solutions won’t solve the economy’s deeply rooted problems.

The government will probably find some quick fix to get the young protesters out of their tents on Tel Aviv’s Rothschild Boulevard.
It will promise a reform in the Israel Lands Authority. It will promise to circumvent the government’s own regulatory bodies to speed up construction.
It will change the finance minister. It will subsidize businesses to move out of apartments to office towers.
But the problem lies much deeper. What we are seeing is not the result of this or that housing decision, but a major macro-social and macroeconomic process: the growing concentration of riches in the hands of a shrinking minority.
In 1990, the upper one percent of Israeli earners held 8.5% of the country’s income; in 2009 it held 12.8%.
The newly concentrated money, formerly distributed among a larger number of families, now begins to attract many who would like a piece for themselves: high-end building contractors, importers of luxury items, investment consultants, exclusive tourist resorts, fashion designers and private schools. The newly accumulated money begins to create new social and cultural “needs”: One now “absolutely cannot” go on living in a condominium; one “absolutely must have” foreign-made furniture; one “needs” to invest with exclusive investment houses; one thinks it “inconceivable” to go on vacationing with the populus; one “needs” to place his or her children in a school with children of the same social class.
The new “needs” in turn affect the economic market. Building contractors who in the past were willing to build anywhere and for anyone will now look to build first for those who can provide them with the highest profit margin: the new rich who want to live where the other rich people live – central Tel Aviv. But the new upper-upper class also attracts Jews from abroad who like the idea of a refuge – or even a highly recommended investment – in the Holy Land.
This is what one sees during a 15-minute walk down Rothschild Boulevard: at one end, near Habimah, dozens of protesters’ tents; at the other end, at least three high-end high-rises are going up. The three could lavishly accommodate all the tent dwellers, except for the fact that their prices are beyond the reach of almost every Israeli.
ONCE SUCH new “needs” are born, they tend to spread, at least to some extent, in what Nobel laureate Joseph Stiglitz aptly termed “trickledown behaviorism.” Families with high but not the highest incomes will look to upgrade their housing, their furniture, their vacation spots, their children’s schools. And the suppliers, of course, will do their best to oblige. So long, of course, as the demand is backed by cash. The problem, though, is that behavior can indeed trickle down, but if riches keep on trickling up, the behavioral trend will have to snap at some point.
We appear to have reached that point. Housing – traditionally a low-class and lower-middle-class concern in Israel, has now become an issue for “our children,” as one upper-middle-class parent told a TV reporter. Middle and upper-middle-class kids – the ones who turned Tel Aviv into the center of action in the first place – are now being displaced by the rich, who think it is “cool” to be near the action.
The writer is the academic director of the Adva Center.

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