Open Skies is good news!

Jpost, April 29th, 2013

Now that Israel’s airline strike is over and the government’s “Open Skies” policy, allowing competition in flights to Europe, is moving forward, Israelis can enjoy a small victory. The fact that El Al and other Israeli companies were able to coerce the government into paying for almost all their security expenses is however a victory for chutzpah.

A good number of people fly El Al not because of the outstanding flight service, the comfort of the planes or Hebrew-speaking attendants, but because of a feeling of tighter security.

Security is a selling point and a marketing asset for El Al, just as leg room is for Qantas or low prices for EasyJet. Without this security edge, El Al might well lose many of its customers.

Is it a fair outcome of an airline strike intended to prevent competition to have taxpayers, some of whom never use El Al, pay for most of its security costs and its marketing niche? Would it be fair for the government to subsidize kosher meals on flights, or more comfortable seats? The fact is that El Al’s employees have no moral case for opposing the implementation of the Open Skies agreement.

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Economic policy isn’t baseball, it’s war

Jpost, April 24th, 2013

Capitalism vs socialism is the modern term for the battle between freedom and control, or responsibility and being cared for, or liberty and totalitarianism.

Sweden performs exceptionally well according to the "Better Life Index" published by the OECD, outranking Israel in almost all categories, including income per capita, housing conditions, life expectancy, environment, life satisfaction and education.

French philosopher Jean-Paul Sartre wrote that man is condemned to freedom.

He does not choose to be born or free; he is condemned to it by fate or God or chance.

The person who is free is needless to say responsible for himself, his choices, and what amounts to his fate. Many people, not having asked for this responsibility, or frightened by it, flee from it. Some want to lose their individuality in larger groups such as an economic “class” or a social sector – any group in which their failures will be forgiven and in which they will not have to bear responsibility for their opinions or the heavy decisions of their lives.

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Education reforms in Israel: Let's look at Sweden

Jpost, March 6th, 2013

Sweden is often portrayed as the epitome of a perfect social-democratic society. Israeli media and politicians love to cite Sweden as an egalitarian and socialist model that works, achieving economic growth along with social equality.

Sweden performs exceptionally well according to the "Better Life Index" published by the OECD, outranking Israel in almost all categories, including income per capita, housing conditions, life expectancy, environment, life satisfaction and education.

In education, Sweden received a score of 8.1 out of 10 while Israel scored 4.9. On average Swedes are more educated than Israelis (18.9 years vs. 15.5 for Israel), perform better on international standardized tests, and the average difference in results between the top 20 percent and lowest 20% income classes is much less marked than in Israel, suggesting that the Swedish model provides a more equal access to highquality education than the Israeli one.

So how is it that the Swedes succeed in educating all their children better and at the same time attaining greater equality of opportunity through education? It is true that Sweden spends more public money than Israel per pupil; however, Israeli households pay much more than the Swedes. Education expenditures not covered by the government were 22% of the total expenditure on education in Israel and less than 3% in Sweden. According to OECD statistics, taking into account public and private expenditures on education (not including R&D expenses), Sweden spends approximately 8% more per student than Israel.

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Government tells Israelis: 'Behave - or else'

Jpost, February 26th, 2013

Now that the elections are over and the new Knesset members sworn in, is it okay to complain? I don't want to complain about the results of the elections or the process of coalition-forming, nor do I want to complain about what some politician's wife wore to the Knesset's opening ceremony.

My complaint is against unnecessary and expensive government advertising campaigns that try to teach us citizens to behave ourselves.

The "complaining police" campaign calling citizens to vote on pain of losing their "right to complain" was certainly amusing. The problems lies not in the talent of the advertisers at the Government Advertising Bureau (GAB), but in the fact that the government grants them NIS 400 million of our money annually, most of which goes to campaigns that try to teach us to behave ourselves.

Only recently the government launched several campaigns targeted at convincing us to behave the way it wants: to vote, to purchase goods made in Israel, to report our income, to use contraceptive methods, and to recycle.

Governments throughout the world have successfully implemented measures to increase voter turnout: allowing university students to vote on campus rather than at stations near their permanent address, allowing citizens who are abroad on Election Day to vote at embassies, and allowing voting by mail, to name a few. Instead of making life easier for voting citizens, our government has chosen to spend millions trying to convince us to vote in spite of the inconveniences.

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Higher taxes are not the solution

Jpost, February 11th, 2013

As everyone knows, the only two certainties in life are death and taxes. But as things as are going now in Israel, death has one advantage: when you are dead, that's the end of the matter. But if the government and pundits have their way, after you are taxed, you can always be taxed some more.

Let's start at the beginning.
Everyone agrees that the government needs to tax people in order to function.

Since the government at least theoretically wants to maximize its income without oppressing the locals, the next step should be to design a tax system that efficiently raises money without driving people crazy, and that does not discourage them from earning more money, so they can pay more taxes. In other words, the best system would be a sales tax with no income tax. Failing that - a one-rate income tax, under or about 20 percent, with few if any exemptions or deductions other than expenses.

It is hard to understand how we and much of the world ended up with so many different kinds of complicated taxes that require the hiring of professional accountants to file them and thousands of state employees to collect and then redistribute them. Of course, the explanation is included in those last few words: The government wants not just to function, but also to redistribute the income of wage earners; from those who earned the wages to those its bureaucrats favor.

Leaving the moral problems of this system aside, a technical problem is that it does not work so well.

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Who is interested in exaggerating Israeli poverty?

Jpost, December 18th, 2012

The government has taken upon itself to combat poverty. How should it approach the task? There are many policies it could adopt and targets it could set. Clearly, accurate and objective information about the state of the poor would help the government make choices that are rational and effective.

If, for example, a large share of the poor population is already working, focusing on the labor market may be useful. If most poor do not work, reforming welfare programs or creating incentives to work may be more effective. If poverty is generally a brief episode in people's lives, some might argue that transfer payments would be an effective tool while others would advocate a "hands-off" policy of less state involvement. If poverty is "hereditary" in certain families or segments of the population, then the debate might turn on investment in education.

Every year the National Insurance Institute (NII) publishes a report to supposedly give the government the information it needs to combat poverty.

Unfortunately, it does not include the accurate and objective data the government needs.

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How the Yacimovich economic program would hurt Israelis

Jpost, December 8th, 2012

Shelly Yacimovich, a candidate who wishes to represent the poor and middle class, has just proposed a devastating economic program that would solely benefit the already privileged public servants and union members.

Displaying the politician's typical predilection for spending other people's money, she calls for an increase in government spending, to be financed by tax increases or budget deficits. I assume that the Greek, Spanish and Italian experiences that brought those countries to the brink of bankruptcy haven't been part of Yacimovich's education in economics.

The problem is exacerbated by the fact that, unlike those floundering economies, Israel would not be rescued from bankruptcy by the European community. We would go bankrupt alone and risk our survival as a nation. Israel needs a strong economy and strict fiscal discipline in order to provide security for its citizens.

If Yacimovich really wants to help the middle class and not just her Histadrut cronies, she will call for increased competition, reduction of import tariffs and decreased government spending.

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Playing with the facts on the campaign trail

Jpost, October 22nd, 2012

The election campaign in Israel has scarcely begun and already Israeli voters have been inundated by facts and arguments that amount to what the vice-presidential candidates in the United States like to call "malarkey" - words intended to mislead.

Israeli voters who do not want to be surprised with what they get after the elections should spend a few minutes analyzing the statements and arguments made by the candidates. Economics is a good place to start, both because it is the ostensible reason for the new elections and because it will be central to all the candidates' platforms.

The campaign began with a short speech by Prime Minister Binyamin Netanyahu that included a brief reference to the alleged success of the outgoing government's economic policies.

"While other countries have economic policies that have led to mass unemployment," said Netanyahu, his government has "created a record number of 330,000 jobs."

The number may be right, but Netanyahu is ignoring the fact that his government has added 150,000 of these new workers to the public sector. These jobs have been financed by tax hikes and deficit spending, meaning current and future taxpayers have been and will be left with less income to spend on goods and services in the growth-creating private sector. These public-sector jobs come at the expense of private-sector ones.

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A new agenda for the Israeli elections

Jpost, October 17th, 2012

Hundreds of thousands of Israelis took to the streets a year ago to protest the economic burdens borne by the middle class. Since then almost all their taxes have gone up, or are about to go up. In 2012, Tax Freedom Day, which measures how many days' worth of an average year's salary goes to the government, reached a sorrowful 192 days, 11 days more than last year.

An even sorrier fact is that the opposition to the current government wants to raise taxes even more. Most of the politicians and parties have agendas that are based on taking as much as they can from taxpayers, borrowing even more, and redistributing the money to individuals and corporations who have not earned it. With higher taxes and more government regulation, economic activity slows, investment drops and those who try to run small businesses or support their families become angrier.

Here is an economic agenda for any politician looking to represent the millions of taxpayers who have no voice in the Knesset, the 400,000 businesses struggling with over-regulation and over-taxation, and the Israeli people - all of whom, poor as well as wealthy - stand to gain if Israel grows economically, attracts foreign investment and makes the lives of its citizens easier.

A sound economic agenda must begin with a willingness to recognize the facts: the government limits the supply of land for housing and levies taxes amounting to over 30 percent of the cost of a new apartment; prevents local competition or imports in many food industries; subsidizes corporate pyramids owned by a few families and businessmen; is responsible for the centralized banking sector; and has run the educational system into the ground.

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Jpost, August 6th, 2012

One in four years with every summer Olympic Games,everyone seems interested in Israeli sports. Prime Minister Binyamin Netanyahu, Minister of Culture and Sports Limor Livnat, Speaker of the Knesset Reuven Rivlin and Chairwoman of the Knesset Education, Culture and Sports Committee Einat Wilf all cleared time in their busy schedules to wish the Israeli delegation success and get in shape for Israeli politicians' favorite sporting competition, Olympic credit-taking. Indeed, politicians ought to consider themselves responsible for the state of Israeli sports, but not in the way they claim.

The state of competitive sports in Israel is poor. In the 2008 Beijing Olympic Games Israel was ranked 81st at the medal table. Israel's small population is no excuse. Even in terms of medals per capita, it ranked 64th. Only 65,000 Israelis participate in competitive sports in Olympic disciplines, less than one percent of the population. This is the lowest percentage of any country in the developed world.

Why does the number of athletes matter?

First, because participation in competitive sports promotes a healthy lifestyle and such values as excellence, hard work, playing by the rules and teamwork, regardless of whether the athletes win Olympic gold medals. Second, in terms of success, the number of athletes matters because a larger number means a larger talent pool.

It takes many years for a talented child to develop into an Olympian, and most athletes do not complete the process. Thus, only 37 Israeli athletes were chosen by the Israeli Olympic Committee to represent Israel in the London Games. According to the committee's best-case scenario, they will win three medals. This means one Olympian for every 1,750 athletes, and one Olympic medal for every 21,500 athletes. Any attempt to improve the state of sports in Israel must have as its goal increasing the number of athletes.

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Jpost, July 3rd, 2012

'Inequalities exist in all areas of life... should society restrain them because these inequalities of character or nature create economic inequalities'?

Israel survived the 2008 global economic crisis intact, becoming a byword for economic success in news stories around the world. While countries from Europe to the United States were spending themselves into bankruptcy, Israel was smart enough to keep government expenditures under control and reduce its budget deficit.

Four years later, the over-spenders are crying for bailouts, their citizens are out of work and their economies are still not growing. In contrast, Israel has a relatively low unemployment rate and an expected rate of growth of 3.2 percent. Israel's success was based on fiscal discipline and a simultaneous liberalization of the economy.

Why, then, would our government suddenly decide to join the European over-spenders on the road to increased deficits? It surely sees that these are the policies that have brought Spain, Greece, Italy and Cyprus - the list is growing - to economic disaster.

The government argues that the budget deficit and higher taxes are necessary to attain "social justice," to finance programs geared toward reducing poverty and economic inequality. Poverty is of course a bad state and there seems to be general agreement in Israel that efforts should be made to lift the poor out of this condition through work participation and income support when necessary.

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Jpost, June 11th, 2012

Increasing the price of books through legislation is probably one of the worst ideas of the year from our politicians.

At a time when Israelis are struggling to pay for their food and housing, the Knesset is about to adopt a new bill that would make reading a much more expensive hobby. The bill aims to prevent bookstores from offering discounts on new books for a certain number of years after their publication.

The false logic behind this bill is to guarantee revenues to authors, so they can create and preserve the national literature. In reality, price fixing will most probably result in less books being sold and even less revenues for authors. After all, the law can prevent books being sold at low prices but cannot force individuals to buy books at any price. Banning discounts on books will also disproportionally hurt the less well off, reinforcing social inequalities through regulation.

Today, many families wait for special discounts (four for NIS 100) to buy books for their children. Tomorrow those same families will have to make do with fewer books. I found the refusal by high-profile Israeli writers such as David Grossman and Amos Oz to have their books discounted during book week to be simply shameful. It is a sad reality when successful authors equate accessibility with humiliation. I guess they would rather be read only by the elites.

The idea of price control on books isn't new. Israel flirted with the idea a couple of years ago and similar laws have governed countries like France and Germany for a very long time.

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Jpost, May 14th, 2012

The idea that Israel's draft is universal and everyone except the ultra-Orthodox serves in the military is a myth.

Israel's new national unity government has committed itself to codifying in law - by August - the question of citizens' responsibility to serve in the IDF. For years the ultra-Orthodox have been criticized for not serving. The arrangement by which they do not serve has meanwhile prevented them from almost ever finding gainful employment. While in recent years the government has succeeded in enlisting growing numbers of ultra-Orthodox, this February the High Court essentially ordered the government to draft thousands of them against their will.

One of the groups protesting the exemption granted to ultra-Orthodox seminary students rallies under the banner "freierim," indicating that anyone who serves is a fool, but this is meant ironically since they purportedly all serve. However, a different banner flies over a second protest movement, one that calls to treat those who serve as professional volunteers.

Official committees and now the public are asking how to make army service a responsibility shared by all the nation's diverse population; or, the other side of this question, whether the draft is still a necessity.

These are questions addressed by one of America's leading economic thinkers, Milton Friedman, who would have celebrated his 100th birthday this year and who held the accomplishments of the Jewish state in great esteem.

Friedman was famous for working in the 1960s to cancel the draft in the US, and ever after to ensure it would not be reinstated. While many differences exist between the US and Israel, some of Friedman's principles are worthy of consideration.

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Jpost, May 7th, 2012

Though Zionism was long identified with socialist kibbutzim, even they have been bailed out by taxpayers, are now building shopping centers.

It's ironic that Israel's professional politicians, media and academia, as well as some of the self-appointed spokesmen for last summer's protestors, are almost all working vigorously to oppose managerial remuneration, the social gap, manpower agencies, Welfare to Work programs and banks and their profits.

It's ironic because all these ideas were brought to Zion by none other than Theodor Herzl. Herzl spoke from the heights of political and economic vision, where the air was too clear for the resentment of Occupy Wall Street or Occupy Rothschild Blvd.; he dreamed of immigrants who would see wealthy homeowners living in mansions and try to build even fancier homes.

He advocated the implementation of mass aliya by a private company, founded a bank and suggested manpower agencies connect unemployed workers with potential employers.

Herzl and later Zionists who supported economic liberty had a tough fight.

Louis Brandeis, a US Supreme Court Justice, helped raised large sums of money for Zionist activity, and he was a firm believer the money should be used efficiently. The Jewish community in Eretz Israel was "not in need of charity, but of capital... to continue that life of self-support and self-respect which had won the admiration of all," he wrote.

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Jpost, April 25th, 2012

Israel has grown so much in the past 64 years that it is difficult to comprehend the extent of the economic miracle that has taken place in the Jewish homeland.

It was undoubtedly a combination of genius, necessity, creativity and entrepreneurship that unleashed such incredible economic growth. However, Israelis should not fall into the trap of becoming complacent.

Israel is facing powerful counter forces that prevent its economy from fully blossoming and reaching its unimaginable potential. Although exponentially better off than 64 years ago, Israelis still maintain a lower standard of living than individuals in most developed countries. One could say that the Israeli economic miracle is accompanied by an Israeli economic paradox.

While we are world leaders in scientific discoveries and hi-tech innovation, we are also stymied by exorbitantly high prices, lack of variety, and frustratingly low disposable income levels.

The Israeli economic paradox can be easily traced back to the origin of the state and its socialist heritage. In 1948, the unions and the government controlled most of the Israeli economy. The focus of economic policy was on absorbing immigrants, encouraging investment by Jewish entrepreneurs from abroad, and protecting local industries. Despite several praiseworthy but fleeting attempts to liberalize the economy (especially in the late 1970s), protectionism, union domination, and massive expenditures by the central government (including necessarily high defense outlays) continued unabated.

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Jpost, March 26th, 2012

The government has just announced that the price of electricity will go up by another 9 percent, bringing the total hike in electricity tariffs to 25% since last August.

Many reasons have been advanced to explain this price increase; some even appear economically sensible. For example, it is reasonable to assume that prices will go up when demand increases, due to say unusually cold weather, and when supply decreases say as a result of sanctions placed on Iran.

However, this well-known market mechanism is hardly relevant in Israel, simply because there is no real market for electricity.

The Israel Electric Corporation operates as a public monopoly and the Public Utilities Authority-Electricity decides what the price of electricity in the country will be.

Indeed, the latest electricity price increase has little connection to the forces of supply and demand. It is more easily explained by the pathetically bad management of our nation's energy supply. This was recently recognized by Standard & Poor, which downgraded the IEC, signaling to all that the current financial situation at the IEC is nowhere near sustainable. But even if the government continued to provide support to the IEC, through wads of taxpayer money, there would be no light at the end of the tunnel.

The IEC simply needs to start balancing its budget so that revenues cover costs. As with any company under financial stress, three options are available; increase revenues, decrease expenses, or do a combination of both.

Perhaps not surprisingly, most of the discussion in the media and in political circles focuses on only one solution - increasing revenues.

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Jpost, March 5th, 2012

Privatizing the bus lines and breaking the Egged-Dan monopoly should be a social imperative of the highest order.

Israel is in the midst of a new conflict - the battle of the buses. The ultra-Orthodox want to commandeer public buses and impose their norm of gender segregation. Secular Israelis are demanding more access to public transportation on Shabbat. Why is this particular debate over the buses receiving so much public attention? One obvious reason is that it reflects deep and long-standing divisions among different segments of Israeli society. But these divisions also exist in many other areas of public life and are accepted by the majority of Israelis without much fuss. For example, many bars, restaurants and entertainment centers are open on Shabbat. Shopping malls are mixed-gender establishments and one can certainly find ultra-Orthodox shoppers among the crowds. So what makes buses so different?

A compelling answer to this puzzling question is that buses are mostly funded by taxpayers. They are a "public good" that has became a symbol of the state and a reflection of its values at the collective level. The ultra-Orthodox organizing gender-separated public bus rides is understood by the masses as "Israel has become Saudi Arabia." The secular riding public buses on Shabbat is interpreted by the ultra-Orthodox as "Israel has lost its Jewish character." Interestingly enough, this type of symbolism does not exist when we consider private goods that are not associated with taxpayer money. Very few would hold that the state should forbid Israelis to drive in their private cars on Shabbat. Ultra- Orthodox women sitting in the back of their private vehicles would hardly raise any public passions.

The bottom line is that if Israelis were not forced to pay taxes for services they abhor, the debate over these controversial bus lines would mostly disappear. In fact, many private goods are indeed controversial, but only very few, such as drugs, are outlawed. For example, many Israelis do not want to financially support or attend a Coldplay concert due to the band's politics, but very few would want to forbid others to attend. However, if taxpayers' money were to finance a Coldplay concert many Israelis would be rightly infuriated.

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Jpost, February 14th, 2012

Although the goal of the reform may be laudable, it is not clear that it will benefit our children, and may in the long have harmful effects.

The government decided to give "free" education from age three to encourage labor participation.

Many claim that today it doesn't pay for both parents to work because of the cost of daycare. The advocates of public preschool also argue that early formal education is an investment that pays off in the future by increasing the chance our children will have to succeed in school and to become productive member of our society.

Although the goal of the reform may be laudable, it is not clear that it will benefit our children, and may in the long have harmful effects. Many scientific studies around the world have failed to show a direct correlation between attending school at an early age and succeeding on high school matriculation exams.

The few studies that found a positive effect also found that early education had no meaningful long-term effects on the cognitive, social and emotional development of children. After less than two years, there was no difference between children who attended preschool and those who didn't. In fact, many psychologists and education specialists warn that preschool education is inappropriate for some children and can hurt their development. It is also very clear that the quality of the preschool education plays a dramatic role in the final outcome.

It is doubtful that the Education Ministry will succeed with regard to preschool education when it has dramatically and repeatedly failed with regard to the education of our children from 1st to 12th grade. It is no secret that Israeli students score lower than many of their OECD counterparts on international standardized tests or that Israelis schools are plagued by violence, lack of discipline, and underachievement.

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