TLR 184- Goldilocks is Packing Her Bags
April 11, 2018
For the first time in a long time, there are grounds for serious concern about the direction of Israeli economic policy and hence for the well-being of the economy. This issue presents a detailed analysis of the country’s fiscal situation and why, despite the excellent record and significant achievements in this sphere over the last fifteen years, fiscal policy has become the weak link in what is still a generally strong macro-economic position.
Beyond the details of this analysis lies a looming breakdown in economic policy-making. The key reason that has enabled Israeli economic policy to deliver such positive results over several decades has been the existence of a political consensus within each coalition and across successive coalitions regarding the main principles underlying policy. A central tenet of this consensus posited that whilst formulating strategy and defining priorities must remain the prerogative of the politicians, the execution of policy should be delegated to the senior civil servants. In the twilight of the Netyanyahu era, this tenet is under enormous pressure and can no longer be taken for granted.
Indeed, my conclusion suggests that while the current focus of vulnerability is fiscal policy, the negative developments in that area could easily spread to monetary policy, which has been becalmed for years – and thence to exchange rate policy.
It is therefore possible to trace out a plausible scenario in which policy moves — errors, in the eyes of economists — will bring the long period of economic expansion to an end. This scenario would relate solely to domestic factors which are currently at work.
If we add to this the threats posed by rapidly-rising regional tensions and their global overlay, it becomes clear that caution, rather than complacency, is warranted with regard to the outlook for the economy. As ever, “past performance is no guarantee…”.
- The Goldilocks Decade
- Israeli fiscal policy in the Goldilocks era: From Reagan/ Thatcher to Clinton/ Blair
- Israeli fiscal policy in the Goldilocks era: The spending spree
- Israeli fiscal policy in the Goldilocks era: Revenues run riot
- Fiscal fixes
- Fiscal feud