Economic Wows: Between A Social Contract and Adam Smith

Israel's economic state is in a constant state of change. Israel's economy took a turn for the worst in the last four years. There are two culprits for the change. The first is Netanyahu's government liberal spending both on infrastructure and on social benefits. The second is the global downturn, mostly the downturn in Europe. Contrary to general belief, Israel is not yet in the category of a developed country. While there are many similarities with European and developing countries (i.e. BRIC). As BRIC block countries are making  fast economic progress based on vast natural resources and progressive economic changes, Israel's economic progress is strictly based on high productivity and structural advantages. The difference between Israel's economic progress is clear to see over the last decade. While Israel's economy has grown by 4%,most BRIC growth rate ran an average of 8% with up to 12% in China some years (China 10%, India 9%, Brazil 4%, Russia  7%; average yearly GDP growth 2003 to 2013).

Social and economic trends around the world highly influence Israeli public opinion. Israeli public opinion eventually influence government policy (through protest and elections). Add to that, the great sensitivity of Israelis to world public opinion, and you have the strange mix contributing to Israeli economic swings. The latest downturn comes as "surprise" 40 Billion Shekel budget deficit. It is called a "surprise" because somehow, during the last four years, Israel's economy, and certainly the government's budget, was deemed to be a "miracle" among all the other countries who are essentially bankrupt (think Greece, Spain, and Ireland). Even when Shaul Mofaz, an opposition member of knesset, pointed out the 40 billion shekel deficit, Netanyahu's cronies ridiculed and dismissed Mofaz as alarmist. How can Mofaz look at current Israel budget deficit and see 40 billion shekel "missing"; while Netanyahu put out a message that all things are normal? That's Israeli politics (especially during election times) at it's finest!
Call me cynical or even a "conspiracy alarmist", but with a central bank governor like Stanley Fischer and one of the most well run financial markets in the region, 40 billion shekels should not be going missing from the state budget. Even if you take a few large projects into account like the security fence at the Sinai border. The annual deficit should not have been such a surprise. Now Yair Lapid, , the finance minister is blamed for raising taxes, while the last government ministers keep on saying "I told you so..." - hinting on changes in the economy which the state was not ready to address for political reasons. But Israelis see the changes more as a phase in the state's maturity. Economic down years come for many reasons. Today, we are much more dependent on exports and nearby political changes. While Syria and Iraq burn, Tel Aviv tans. While Egyptians and Turks protest Islamic fundamentalist leaders, Israelis complain (softly) about the price of cheese. Comparatively, Isralis are not only lucky, they are in great position. Thanks for Facebook, Twitter and the nightly news, Israelis also know how good it is here. So when you hear "middle east / Arab spring" bad news, keep Israel out of that category. Israelis certainly do.    

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