Why Israel is Slowly Committing Suicide

I am repeatedly asked how Israel could consistently act contrary to its interests. Geoge Gilder, a business guru, put it succinctly to me during an interview: "if Jews are so smart why are they so stupid?" Only leaders from Chelm could figure out a justification for paying a neighbor launching daily rocket attacks against it. The alternative explanation is that Israeli politicians aren't objectively stupid or even objective at all. Here is an article that explains a lot:

18 Families Earn a Third of Israel's Income

Israel is an oligopoly where the top 5 families earn 16% of the profits. They collude to exploit the public by keeping prices high and competition low, suppressing productivity and the average wage of a once economically great people to $1,200 per month. The systemic weakness of Israel is due to the stranglehold by these families, along with the Histadrut and government employees, on the political and economic reins.

Consider the fact that the dreaded security fence, believed to be cutting terrorist infiltrations by 90%, is still only a third complete after a number of years. Israelis are literally dying due to economic weakness.

Even the vaunted high-tech sector is something of a myth. It is true that Israeli startups lead the world because of a minimum of regulation and government interference. (Here is yet another breakthrough reported today: Israeli Company Develops Painless Glucose Monitor.) In the sectors where the government is involved, there is corruption, nepotism, low productivity and expanding ripples of misery. But even the relatively free high tech sector spits out more mature companies to Delaware after the government smothers them. Why Delaware? It is a state with a minimum of regulations and taxes, of course.

The history of Diaspora Jewry has been essentially migrations from higher to lower levels of government oppression, particularly in terms of taxes. Here is everything essential to know about economics in less than a page.

The underlying reason Israel cannot stand up for itself and say "enough is enough, we won't pay Hamas to exterminate us" is this fundamental economic weakness that prevents Israeli politicians from looking beyond short-term survival. Israel's commitments to pay for the social welfare system and government-employed bureaucrats couldn't last a month without American subsidies. When the US says "give away land slowly, because it's in America's interest," Israeli politicians pretend and posture but invariably give in.

Israel is like a drug addict who everyone can see is killing itself slowly but can't act beyond the immediate fix. Europe is the same with its embrace of those seeking its long-term destruction as a short-term support for its insolvent socialist welfare apparatus.

When Kadima says "trust us" and doesn't reveal any policies, it means they are the chosen favorites of the 5 Families who will do their bidding. Israel is heading for long-term disaster by placing these foxes, along with Peretz's Labor, in the henhouse rules' committee. See this must-read post for more.

There is a solution, however. Even baby steps toward economic freedom will not only result in a medium-term explosion of prosperity for all but the current rulers, but capital inflows in anticipation of the boom will provide an immediate additional lift as well. Israel will then start having the means to simply act according to our own interest.

The only who understands this and has achieved successful free-market economic reform is Bibi Netanyahu. And that is why he is vilified by the agents of the 5 Families who run Israel.