Israel's secret fears

The nation that sees itself as the most misunderstood in the world celebrates its 60th birthday with

Israel marks its 60th birthday in a climate of increasing racism, intolerance, corruption and militarism. A nation that has long seen itself as one of the most misunderstood is now almost unable to understand the world beyond its borders. Fear and anxiety provide the mood music of the celebrations.

The past decade has brought a sharp increase in anti-Arab sentiment, which finds many forms of expression, from sordid chants at sporting events ("Death to the Arabs") to blatant racism and attacks on Arab colleagues by right-wing pol iticians in the Knesset. In such an atmosphere, it is almost impossible for Arab citizens (or 1948 Palestinians) to identify with the state of Israel, despite the terms of their legal status. Indeed, it is increasingly difficult for them even to protect their civil rights and express themselves freely in public.

Anyone who doubts the depth of anti-Arab feeling has only to scan the internet. On 8 May, I was commissioned by the popular news site Walla! (associated with the newspaper Haaretz) to write a short column about the Israeli national anthem, "Hatikva" (or Hope). Haaretz had asked another writer to support the anthem. I was commissioned to write against it and to suggest a more suitable one.

My main point of opposition was that the opening words - "As long as deep in the heart/A Jewish soul yearns . . . towards Zion" - excluded the more than one million Arab citizens of Israel. Walla! debates are allocated some two hours' airtime and previous ones, for example on economic issues or the evacuation of the Jewish settlements in Gaza, have generated talkback that was overwhelmingly right-wing. However, the anthem debate exceeded even my pessimistic ex pectations.

Within an hour 481 comments had appeared, 472 of which were vehemently anti-Arab and abusive of "bleeding-heart leftists". Some of the comments were simply racist, but the majority were nationalistic, betraying deep hatred of Israel's Arab citizens.

Such expressions are now commonplace. If an Arab member of the Knesset (MK) expresses solidarity with Palestinians in the besieged Gaza area, the comment will be scrutinised minutely by Jewish politicians and journalists. Accusations of high treason are commonplace. Proposed parliamentary bills single out Arab MKs for clearly discriminatory treatment. One right-wing former minister, Avigdor Liberman, regularly threatens his fellow MK Ahmad Tibi in tones that are becoming increasingly brutal. Liberman himself faces serious accusations of corruption and bribery and, as his indictment becomes virtually inevitable, he has resorted to lurid and vociferous language said to go down well in his largely Russian-speaking constituency.

Amid intensifying hostility and even derision, the Jewish left and a handful of liberals from the political centre try to voice their protest. Centrist Zionists dissociate themselves from anti-Arab sentiment and claim there is no contradiction between Israel's claim to be a liberal democracy and the view that the Zionist nature of Israel is paramount and transcends norms of equality and democracy. Others claim anti-Arab feeling stems from misguided nationalism rather than racism. A reputable economist in Tel Aviv compared "the fervent patriotism in Israel, accompanied by lurid hostility against Arabs" with anti-German sentiment in Britain before the Great War.

"It is not 'racist' in the sense of generalising the entire Arab population or regarding them as inferior to us," he told me. "If the Israelis and the Palestinians were to reach a peace agreement, the hatred would evaporate." Depressing as it may seem, that was one of the most optimistic statements I heard during the anniversary celebrations.

To celebrate Independence Day this year, Israeli television screened a documentary about the 1948 war veterans. The normally alienated and cosmopolitan television producers and directors had flooded our screens with sickening, even embarrassing, bits of nostalgia. This documentary, however, was a gem. The veterans in the film, some approaching their nineties and therefore somewhat frail, were taken to the southernmost Israeli city of Eilat, on the shores of the Red Sea.

All had taken part in the bloodless capture of Eilat and had become famous 60 years earlier for raising, in the beautiful bay, a handmade Israeli flag painted in ink, thus securing Israel's access to the Red Sea.

At one important moment in the film, they were requested to state their views on Israel today. Had it met the expectations they had had back in 1948? Were they pleased with the way Israel had evolved? All expressed bitter disappointment, pointing to rampant corruption, the accusations of bribery laid against Prime Minister Ehud Olmert, and the nation's collective failure to secure a peace agreement with its Arab neighbours, including the Palestinians.

The most articulate of the veterans was Major General Avraham Adan, chief commander during the occupation of Eilat and the only senior officer, apart from Ariel Sharon, to emerge from the disastrous 1973 Yom Kippur War with flying colours. Adan masterminded the crossing of the Suez Canal in that traumatic war and has felt ever since that Sharon stole the glory which rightly belonged to him. Clear and lucid at 89, Adan was blatant in his criticism.

"Israel has changed for the worse," said the general. "Corruption gnaws at our fabric and threatens our very existence. We dreamed about a different, more egalitarian and more moral society."

Undoubtedly, Adan was expressing the feelings of most Israelis. Successive polls in Yedioth Ahronoth, Israel's most popular daily newspaper, show that the vast majority of Israelis do not trust the Establishment and are deeply wary of Olmert. Accusations of bribery are rife and it is almost certain that the prime minister will be indicted.

Uneasy conformists

Israel's Jews are conformist in their attitudes to institutions such as the anthem or the army, but they have become more aware of the impotence of their government and, at times, of its malevolence. The failure of the Israel Defence Forces in the Second Lebanon War of 2006 undermined the confidence of ordinary Israelis: the beneficiary of the crisis has been the right-wing Likud Party.

On 2 May, Haaretz carried an interview with Yaakov Weinroth, a respected barrister and self-professed Marxist. The paper's intelligent readership was treated to a breathtaking tour de force from this anti-corruption orator (who is, nevertheless, the legal adviser of most of Israel's corrupt politicians and of the settlers). Weinroth spoke at length in favour of social justice, yet expressed his support for the neoliberal Likud leader, Binyamin Netanyahu. Such contradictions confuse public opinion, and enhance Netanyahu's status not only in intellectual circles, but even among the direct victims of his social policies. False consciousness is not unique to Israel, but the geopolitical isolation of the country exacerbates the situation.

Perhaps the most telling sign of the nation's fear and distrust of the world outside came in the recent reaction to criticism levelled at the Chelsea Football Club coach Avram Grant in England. Grant has become an unlikely cult hero in his native Israel. Aviad Pohoryles, a sports commentator for Maariv, a popular Hebrew-language newspaper, found in Chelsea's unexpected win over Liverpool an opportunity to berate the British for their supposed anti-Israel attitude. England, he claimed, had always conducted a blatantly anti-Israel foreign policy: "Some of Grant's lack of legitimacy derives from this negative attitude towards Israel. Grant's presence at Stamford Bridge constitutes a certain answer to these heartless people."

Pohoryles is a reputed writer from the very mainstream, neither a settler nor a vehement right-winger. His deep suspicion of the British media, and his castigation of a journalist who happened to be critical of Grant's coaching style, hinting that the journalist's criticism was founded in anti-Semitism, are typical of an antipathy towards the British. There is a widely held belief that when the west criticises Israel, or when human rights organisations worldwide protest against the occupation, they are revealing deeply held, "traditional, Christian anti-Semitism".

Many Israelis, even liberals and left-wingers, hold Europeans morally responsible for the Holocaust either by participating in, or being indifferent to, the annihilation of the Jews during the Second World War. It would be a mistake to underestimate the profound influence such attitudes continue to wield on Israeli politics.

Haim Baram is a writer based in Jerusalem

This article first appeared in the 19 May 2008 issue of the New Statesman, Secret Israel

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt