Israel-Hamas war: Israel's finance minister can't handle a wartime economy - opinion

Handed successive defeats by Hannibal, Rome resolved to defeat its African invaders whatever the cost.

The vow would be fulfilled. Rome ultimately invaded, razed, and sprinkled Carthage with salt. The cost, however, proved beyond Rome’s means, a problem it solved the way Finance Minister Bezalel Smotrich now treats our own war’s costs.

Compelled to enlist, arm, and pay many more troops, the Romans simply minted more coins from the same amount of silver, thus reducing each coin’s amount of bullion. The result was 50% inflation, a rate that eventually made Rome issue a new currency – the denarius – and thus restore budgetary discipline.

It was one of the first recorded tales about the troubled relationship between war and money, a saga that haunted even superpowers.

The USSR’s Afghan misadventure contributed to the Soviet empire’s bankruptcy. The Vietnam War made Richard Nixon abandon the gold standard, and thus unsettle the global monetary system. Britain emerged from World War II effectively bankrupt, and thus lost its superpower status.

The laws of wartime economics worked the same way in the Jewish state.

The Yom Kippur War’s exorbitant costs – defense spending in 1975 soared to 31% of the economy – debilitated the lira until it was replaced with the old shekel. The following decade’s First Lebanon War helped fan triple-digit inflation while the deficit ballooned to 221% of the national product, all of which resulted in a draconian austerity plan and the issuance of the new shekel.

Fortunately, today’s Israeli economy is an entirely different creature, clearly capable of enduring what the war that has befallen us entails.

Unfortunately, the minister in charge of financing this war seems unaware of its risks and demands, thus vindicating those who argued all along that he is unfit for the position he should never have reached.

At its current pace, the war is expected to quadruple the budget deficit, from a planned 1% of GDP to 4% of GDP. The cost of accommodating the evacuees from the Negev and Galilee is estimated at a monthly NIS 1.7 billion.

These expenses are astronomical, and these figures might still swell, especially if the war expands to additional arenas as it so easily might. It follows that the national coffers must be managed these days with extra care. That is not what the finance minister is doing.

A wartime treasurer’s first imperative is to create resources. In the Israeli system, that means blocking transfers of government funds to coalition deals that are outside the formal budget. Put differently, these are the billions with which the current ruling party bribes its ultra-Orthodox and ultra-nationalist partners.

When the war broke out, there was NIS 1 billion available from this reservoir. Smotrich, however, refused to redirect that money to the new agency tasked with rehabilitating the western Negev, Tkuma (“revival”). Instead, he chose to expand the deficit by selling bonds. That’s like a jobless man taking out loans instead of looking for a new job. After a public outcry, Smotrich claimed to have partly cut the coalition funds, but journalists failed to find an official record verifying this claim.

The same arrogance was on display when Smotrich used the war to create a forum that would effectively undermine the Budget Department, the beating heart of the agency he heads, a team of serious economists and impartial civil servants. When told his move was disqualified by the Treasury’s legal adviser, Smotrich said: “That moves my bellybutton’s corner,” Hebrew for “I couldn’t care less.”

Bezalel Smotrich's sole goal in Israeli politics: Giving government spending to his interests

Smotrich’s stubbornness and audacity made a battery of right-wing figures – including philosopher Ran Baratz, historian Gadi Taub, and Rotem Meir (publisher of Benjamin Netanyahu’s autobiography) – petition him to cancel the coalition funding, but the man didn’t budge. Why?

FOR SMOTRICH, the government’s sectarian spending is not merely a technical commitment. It’s the reason he is in politics. Funneling special funding to his narrow constituency’s communities and institutions comes to his mind before the national interest. That’s what sectarianism is all about.

Smotrich cares this way not only for his nationalist-religious voters but also for the ultra-Orthodox community, the only constituency where he can look for a few more votes, besides the roughly 5% of Israelis to which his core constituency amounts. That is why he joined ultra-Orthodox politicians’ demand to raise the pay of ultra-Orthodox teachers who lack proper professional training – not to mention military service – so that their salaries will equal Middle Israeli teachers’ pay.

Such funding is scandalous any day, but at a time of an expensive war, it is altogether reckless. Never mind the sums. Wartime leadership means making the people see and feel that their government sets aside everything and works for nothing but victory. The sectarian mind thinks otherwise.

Sectarian ministers are a problem any day, in any position, but they should never be finance ministers, even if they are financially trained, which Smotrich is not. Israel’s most effective finance ministers represented the ruling party, and through it the electoral majority and the social mainstream.

Such were Labor’s Levi Eshkol and Pinhas Sapir, who laid the foundations for the Israeli economy; and such was Likud’s Yitzhak Modai when he steered the Israeli economy from its socialist past to its capitalist future.

Such was also finance minister Benjamin Netanyahu when he slashed ultra-Orthodox funding. That was 20 years ago, back when Netanyahu displayed the economic worldliness, vision, and impartiality, which to his current treasurer mean as much as they mean to his bellybutton.

www.MiddleIsrael.net

The writer, a Hartman Institute fellow, is the author of the bestselling Mitzad Ha’ivelet Ha’yehudi (The Jewish March of Folly, Yediot Sefarim, 2019), a revisionist history of the Jewish people’s political leadership.