Commentary Magazine


Topic: finance minister

Barak Pulls a Sharon

As Evelyn has noted, and in a move that surprised nobody except members of his own party, Ehud Barak today took a page from Ariel Sharon’s playbook, splitting from the ideologically founded movement he was leading to create a new centrist political party. Along with four other Labor members, the new party — it still doesn’t have a name — will remain committed to the current government, while in all likelihood the remaining members of Labor will, sooner or later, leave the coalition.

Before we dismiss the new party as yet another soon-forgotten splinter in Israeli politics, it’s worth considering the electoral reality Ehud Barak currently faces. When Sharon broke from Likud in 2005, he founded Kadima as a new centrist faction that would approve the disengagement from Gaza. Although he was joined by a few Labor icons like Shimon Peres and Chaim Ramon, many people saw in Kadima an incoherent collection of mostly moderate right-wingers and a few from the left. After Sharon’s stroke-induced departure from politics in early 2006, most people thought the party wouldn’t survive the next election.

They were wrong. Two leaders later, Kadima’s 28 seats is the largest single faction in the Knesset. This despite having few ranking members with serious governing experience, and despite the disgrace of its second leader, Ehud Olmert, and its finance minister, Avraham Hirschson, on corruption charges.

Why has Kadima survived? The answer should give pause to those who think Ehud Barak is on his last legs as an Israeli politician. For despite being essentially a Likud spin-off, Kadima has survived on the strength of a fairly large base of voters who traditionally saw themselves on the left — not the peace-process left of Yossi Beilin and Yossi Sarid, but rather the enlightened, heavily Ashkenazic, traditionally social-leaning yet nationalist left of David Ben-Gurion and Yitzhak Rabin. These are the voters who turned to Kadima in droves after the intifada made security more pressing, and more plausible, than peace — people who could never vote Likud for cultural reasons, even if they embraced most of its principles.

Nobody stands to lose more votes to Barak’s new party than Kadima. For if disaffected Laborites turned to Kadima as the closest expression of their political will, they may find a far more congenial home in the new party. As former IDF chief of staff and current defense minister, Barak suddenly embodies the pro-security, classic-Labor stance that neither the more dovish, pro-business, still-in-Labor types nor Kadima’s leader, Tzipi Livni, can hope to offer. To emphasize this, he’s taken with him a top former IDF general, Matan Vilnai. And he’s declared that his party “will follow David Ben-Gurion’s legacy.”

Much of how this turns out depends on the kind of people Barak can pull together around himself before the next election. If former-Labor people in Kadima start defecting to his new party, Israeli politics may see a major shift on the center-left. Barak’s personality has historically made it hard to keep the loyalty of those around him. But the field is open for him. Stay tuned.

As Evelyn has noted, and in a move that surprised nobody except members of his own party, Ehud Barak today took a page from Ariel Sharon’s playbook, splitting from the ideologically founded movement he was leading to create a new centrist political party. Along with four other Labor members, the new party — it still doesn’t have a name — will remain committed to the current government, while in all likelihood the remaining members of Labor will, sooner or later, leave the coalition.

Before we dismiss the new party as yet another soon-forgotten splinter in Israeli politics, it’s worth considering the electoral reality Ehud Barak currently faces. When Sharon broke from Likud in 2005, he founded Kadima as a new centrist faction that would approve the disengagement from Gaza. Although he was joined by a few Labor icons like Shimon Peres and Chaim Ramon, many people saw in Kadima an incoherent collection of mostly moderate right-wingers and a few from the left. After Sharon’s stroke-induced departure from politics in early 2006, most people thought the party wouldn’t survive the next election.

They were wrong. Two leaders later, Kadima’s 28 seats is the largest single faction in the Knesset. This despite having few ranking members with serious governing experience, and despite the disgrace of its second leader, Ehud Olmert, and its finance minister, Avraham Hirschson, on corruption charges.

Why has Kadima survived? The answer should give pause to those who think Ehud Barak is on his last legs as an Israeli politician. For despite being essentially a Likud spin-off, Kadima has survived on the strength of a fairly large base of voters who traditionally saw themselves on the left — not the peace-process left of Yossi Beilin and Yossi Sarid, but rather the enlightened, heavily Ashkenazic, traditionally social-leaning yet nationalist left of David Ben-Gurion and Yitzhak Rabin. These are the voters who turned to Kadima in droves after the intifada made security more pressing, and more plausible, than peace — people who could never vote Likud for cultural reasons, even if they embraced most of its principles.

Nobody stands to lose more votes to Barak’s new party than Kadima. For if disaffected Laborites turned to Kadima as the closest expression of their political will, they may find a far more congenial home in the new party. As former IDF chief of staff and current defense minister, Barak suddenly embodies the pro-security, classic-Labor stance that neither the more dovish, pro-business, still-in-Labor types nor Kadima’s leader, Tzipi Livni, can hope to offer. To emphasize this, he’s taken with him a top former IDF general, Matan Vilnai. And he’s declared that his party “will follow David Ben-Gurion’s legacy.”

Much of how this turns out depends on the kind of people Barak can pull together around himself before the next election. If former-Labor people in Kadima start defecting to his new party, Israeli politics may see a major shift on the center-left. Barak’s personality has historically made it hard to keep the loyalty of those around him. But the field is open for him. Stay tuned.

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Israel Brings Senior Gov’t Officials to Justice

If any more evidence were needed of Israel’s moral superiority over the neighboring states, look no further than the news that former President Moshe Katsav has been convicted of rape. At first blush, that may seem like a strange statement: isn’t the fact that a rapist and sexual harasser was president of Israel a blow to the moral standing of the Jewish state? Actually no: abuse of power, especially by powerful men, can happen under any regime. Can anyone doubt that such offenses are frequent among senior Arab officials? Certainly Saddam Hussein and his debased sons were known for preying on women; and that is only the most public example of a pattern that no doubt applies across all dictatorial regimes around the world — including the dictatorial regimes that surround Israel. The difference is that, in Israel, there is an independent judiciary that has the power to root out wrongdoing at the highest level. Such prosecutions are in fact routine. As the AP notes:

The conviction was the latest in a series of high-profile cases against Israeli officials.

Former Israeli Finance Minister Avraham Hirchson is currently in prison after being convicted of embezzling more than $600,000 from a workers union. Former Justice Minister Haim Ramon was convicted in March 2007 of forcibly kissing a female soldier. Former Prime Minister Ehud Olmert is currently standing trial on corruption charges.

It is, in fact, an amazing testament to the strength of Israel’s democracy that a former president — and other senior officials — can be convicted of such grave offenses and it’s not even big news. It would be very big news indeed if the former president of any major Middle Eastern state aside from Israel were to face prosecution and conviction for any crime — unless it was the result of a vendetta carried out by his political enemies.

If any more evidence were needed of Israel’s moral superiority over the neighboring states, look no further than the news that former President Moshe Katsav has been convicted of rape. At first blush, that may seem like a strange statement: isn’t the fact that a rapist and sexual harasser was president of Israel a blow to the moral standing of the Jewish state? Actually no: abuse of power, especially by powerful men, can happen under any regime. Can anyone doubt that such offenses are frequent among senior Arab officials? Certainly Saddam Hussein and his debased sons were known for preying on women; and that is only the most public example of a pattern that no doubt applies across all dictatorial regimes around the world — including the dictatorial regimes that surround Israel. The difference is that, in Israel, there is an independent judiciary that has the power to root out wrongdoing at the highest level. Such prosecutions are in fact routine. As the AP notes:

The conviction was the latest in a series of high-profile cases against Israeli officials.

Former Israeli Finance Minister Avraham Hirchson is currently in prison after being convicted of embezzling more than $600,000 from a workers union. Former Justice Minister Haim Ramon was convicted in March 2007 of forcibly kissing a female soldier. Former Prime Minister Ehud Olmert is currently standing trial on corruption charges.

It is, in fact, an amazing testament to the strength of Israel’s democracy that a former president — and other senior officials — can be convicted of such grave offenses and it’s not even big news. It would be very big news indeed if the former president of any major Middle Eastern state aside from Israel were to face prosecution and conviction for any crime — unless it was the result of a vendetta carried out by his political enemies.

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A More Dangerous World

COMMENTARY contributor Bret Stephens identifies the cumulative danger posed by an administration obsessed by multilateralism and possessing many false and bad ideas about international affairs:

Last week, Mr. Obama was so resoundingly rebuffed by other leaders at the G-20 summit in Seoul that even the New York Times noticed: Mr. Obama, the paper wrote, faced “stiff challenges… from the leaders of China, Britain, Germany and Brazil.” His administration has now been chastised or belittled by everyone from the Supreme Leader of Iran to the finance minister of Germany to the president of France to the dictator of Syria. What does it mean for global order when the world figures out that the U.S. president is someone who’s willing to take no for an answer?

The answer is that the United States becomes Europe. Except on a handful of topics, like trade and foreign aid, the foreign policy of the European Union, and that of most of its constituent states, amounts to a kind of diplomatic air guitar: furious motion, considerable imagination, but neither sound nor effect. When a European leader issues a stern demarche toward, say, Burma or Russia, nobody notices. And nobody cares.

And, as Bret points out, the world becomes more chaotic, and the smaller democracies get the shaft as a result of America’s feckless approach:

The small and distant abuses of power, would grow bolder and more frequent. America’s exhortations for restraint or decency would seem cheaper. Multipolarity is a theory that, inevitably, leads to old-fashioned spheres of influence. It has little regard for small states: Taiwan, Mongolia, Israel, Georgia, Latvia, Costa Rica.

That approach to foreign affairs is also characterized by an inordinate amount of disingenuousness. Obama says he’s in favor of free trade but loses the face-off with South Korea because he is on the side of the auto companies’ efforts to maintain protectionist barriers just a little bit longer. Obama says he’s a grand friend of Israel but continues the lopsided public bullying of Israel. Obama says he’s a great champion of human rights and democracy, but his policy choices are curiously lacking in any meaningful assistance for the oppressed and any real opposition to the oppressors. There is, to be blunt, a collapse of our moral standing and our credibility, which is frittered away in an effort to mask the essential amorality of our policy.

Gradually the bullies and the despots get the idea the U.S. can be played and its allies pushed about. We’ve been down this road before, and the results are never good.

COMMENTARY contributor Bret Stephens identifies the cumulative danger posed by an administration obsessed by multilateralism and possessing many false and bad ideas about international affairs:

Last week, Mr. Obama was so resoundingly rebuffed by other leaders at the G-20 summit in Seoul that even the New York Times noticed: Mr. Obama, the paper wrote, faced “stiff challenges… from the leaders of China, Britain, Germany and Brazil.” His administration has now been chastised or belittled by everyone from the Supreme Leader of Iran to the finance minister of Germany to the president of France to the dictator of Syria. What does it mean for global order when the world figures out that the U.S. president is someone who’s willing to take no for an answer?

The answer is that the United States becomes Europe. Except on a handful of topics, like trade and foreign aid, the foreign policy of the European Union, and that of most of its constituent states, amounts to a kind of diplomatic air guitar: furious motion, considerable imagination, but neither sound nor effect. When a European leader issues a stern demarche toward, say, Burma or Russia, nobody notices. And nobody cares.

And, as Bret points out, the world becomes more chaotic, and the smaller democracies get the shaft as a result of America’s feckless approach:

The small and distant abuses of power, would grow bolder and more frequent. America’s exhortations for restraint or decency would seem cheaper. Multipolarity is a theory that, inevitably, leads to old-fashioned spheres of influence. It has little regard for small states: Taiwan, Mongolia, Israel, Georgia, Latvia, Costa Rica.

That approach to foreign affairs is also characterized by an inordinate amount of disingenuousness. Obama says he’s in favor of free trade but loses the face-off with South Korea because he is on the side of the auto companies’ efforts to maintain protectionist barriers just a little bit longer. Obama says he’s a grand friend of Israel but continues the lopsided public bullying of Israel. Obama says he’s a great champion of human rights and democracy, but his policy choices are curiously lacking in any meaningful assistance for the oppressed and any real opposition to the oppressors. There is, to be blunt, a collapse of our moral standing and our credibility, which is frittered away in an effort to mask the essential amorality of our policy.

Gradually the bullies and the despots get the idea the U.S. can be played and its allies pushed about. We’ve been down this road before, and the results are never good.

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RE: Fed’s Plan to Rev Up Printing Press Gets Thumbs Down

The overwhelmingly negative response to the Fed decision to print up $600B to buy bonds is intensifying as Russia and China joined European nations in slamming the move. This report explains:

Mr. Obama returned fire in the growing confrontation over trade and currencies Monday in a joint news conference with Indian Prime Minister Manmohan Singh, taking the unusual step of publicly backing the Fed’s decision to buy $600 billion in U.S. Treasury bonds—a move that has come under withering international criticism for weakening the U.S. dollar.

Gold topped $1,400 an ounce on fears of inflation as investors voted thumbs down on Ben Bernanke’s plan. And the number of critics is growing, leaving the U.S. isolated:

Germany’s criticism echoes that from other countries, including Brazil and Japan, which have complained about potential spillover from the Fed’s action. Printing more dollars, or cutting U.S. interest rates, tends to weaken the dollar and makes U.S. exports more attractive. The accompanying rise in the value of other countries’ currencies tends to damp their exports and can fuel inflation or asset bubbles, as emerging-market officials note. U.S. officials maintain the Fed’s action is about stimulating domestic demand, and that a weaker dollar is a consequence, not an objective.

On Monday, China’s Vice Finance Minister Zhu Guangyao said the U.S. isn’t living up to its responsibility as an issuer of a global reserve currency. …

The top economic aide to Russian President Dmitry Medvedev said Russia will insist at the G-20 summit that the Fed consult with other countries ahead of major policy decisions.

Luxembourg Prime Minister Jean-Claude Juncker, who is chairman of the euro-zone finance ministers, also weighed in on the Fed move, saying: “I don’t think it’s a good decision. You’re fighting debt with more debt.”

These concerns are entirely justified. Moreover, one can’t help but appreciate the irony: the “cowboy” George W. Bush was lambasted for “going it alone” and making the U.S. a pariah in the world. But worldwide resentment over the U.S. is surging as Obama is forced to lamely defend his moves as “pro-growth” (which speaks volumes about the administration’s economic illiteracy, for not even his defenders would claim that currency devaluation=growth). We hear that the “blunt criticism of U.S. policy is in large part payback for a longstanding stance by Washington policy makers that the American economy should serve as a model for others. The heated rhetoric also stems from fears that the U.S. may be looking for a back-door way to set exchange-rate policy in a way that favors the U.S.”

Combined with the incessant shin-kicking of our allies (e.g., Eastern Europe, Israel, Honduras, Britain), this latest move certainly strengthens Obama’s critics here and abroad. They contend that through a combination of ill-conceived policies and rank incompetence, Obama is rendering the U.S. less influential and less respected, which is increasing instability in the world. All and all, it is a textbook example of the perils of deploying liberal statism at home and shrinking America’s stature overseas. Unfortunately, this is not a graduate course at Harvard or a symposium at the New America Foundation. It is all too real, and unless we arrest the panoply of bad policies, America and its allies will be poorer and less safe. We already are.

The overwhelmingly negative response to the Fed decision to print up $600B to buy bonds is intensifying as Russia and China joined European nations in slamming the move. This report explains:

Mr. Obama returned fire in the growing confrontation over trade and currencies Monday in a joint news conference with Indian Prime Minister Manmohan Singh, taking the unusual step of publicly backing the Fed’s decision to buy $600 billion in U.S. Treasury bonds—a move that has come under withering international criticism for weakening the U.S. dollar.

Gold topped $1,400 an ounce on fears of inflation as investors voted thumbs down on Ben Bernanke’s plan. And the number of critics is growing, leaving the U.S. isolated:

Germany’s criticism echoes that from other countries, including Brazil and Japan, which have complained about potential spillover from the Fed’s action. Printing more dollars, or cutting U.S. interest rates, tends to weaken the dollar and makes U.S. exports more attractive. The accompanying rise in the value of other countries’ currencies tends to damp their exports and can fuel inflation or asset bubbles, as emerging-market officials note. U.S. officials maintain the Fed’s action is about stimulating domestic demand, and that a weaker dollar is a consequence, not an objective.

On Monday, China’s Vice Finance Minister Zhu Guangyao said the U.S. isn’t living up to its responsibility as an issuer of a global reserve currency. …

The top economic aide to Russian President Dmitry Medvedev said Russia will insist at the G-20 summit that the Fed consult with other countries ahead of major policy decisions.

Luxembourg Prime Minister Jean-Claude Juncker, who is chairman of the euro-zone finance ministers, also weighed in on the Fed move, saying: “I don’t think it’s a good decision. You’re fighting debt with more debt.”

These concerns are entirely justified. Moreover, one can’t help but appreciate the irony: the “cowboy” George W. Bush was lambasted for “going it alone” and making the U.S. a pariah in the world. But worldwide resentment over the U.S. is surging as Obama is forced to lamely defend his moves as “pro-growth” (which speaks volumes about the administration’s economic illiteracy, for not even his defenders would claim that currency devaluation=growth). We hear that the “blunt criticism of U.S. policy is in large part payback for a longstanding stance by Washington policy makers that the American economy should serve as a model for others. The heated rhetoric also stems from fears that the U.S. may be looking for a back-door way to set exchange-rate policy in a way that favors the U.S.”

Combined with the incessant shin-kicking of our allies (e.g., Eastern Europe, Israel, Honduras, Britain), this latest move certainly strengthens Obama’s critics here and abroad. They contend that through a combination of ill-conceived policies and rank incompetence, Obama is rendering the U.S. less influential and less respected, which is increasing instability in the world. All and all, it is a textbook example of the perils of deploying liberal statism at home and shrinking America’s stature overseas. Unfortunately, this is not a graduate course at Harvard or a symposium at the New America Foundation. It is all too real, and unless we arrest the panoply of bad policies, America and its allies will be poorer and less safe. We already are.

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Fed’s Plan to Rev Up Printing Press Gets Thumbs Down

As I noted last week, the Fed’s decision to print up $600B in order to purchase bonds is not without its risks — or its critics. One of those, Kevin Warsh, a Fed governor, takes to the pages of the Wall Street Journal to warn that we’ve been pursuing the wrong policies:

Policy makers should be skeptical of the long-term benefits of temporary fixes to do the hard work of resurrecting the world’s great economic power. Since early 2008, the fiscal authorities have sought to fill the hole left by the falloff in demand through large, temporary stimulus—checks in the mail to spur consumption, temporary housing rebates to raise demand, one-time cash-for-clunkers to move inventory, and temporary business tax credits to spur investment.

What we need, he cautions are pro-growth policies that include free trade and tax reform. “The U.S. and world economies urgently need stronger growth, and the adoption of pro-growth economic policies would strengthen incentives to invest in capital and labor over the horizon, paving the way for robust job-creation and higher living standards.” Then he aims at “Helicopter Ben” and his plan to dump more greenbacks into the world economy:

The Fed’s increased presence in the market for long-term Treasury securities poses nontrivial risks that bear watching. The prices assigned to Treasury securities—the risk-free rate—are the foundation from which the price of virtually every asset in the world is calculated. As the Fed’s balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. If market participants come to doubt these prices—or their reliance on these prices proves fleeting—risk premiums across asset classes and geographies could move unexpectedly.

Overseas—as a consequence of more-expansive U.S. monetary policy and other distortions in the international monetary system—we see an increasing tendency by policy makers to intervene in currency markets, administer unilateral measures, institute ad hoc capital controls, and resort to protectionist policies. Extraordinary measures tend to beget extraordinary countermeasures. Heightened tensions in currency and capital markets could result in a more protracted and difficult global recovery.

In plain English: we are going down the wrong road. Read More

As I noted last week, the Fed’s decision to print up $600B in order to purchase bonds is not without its risks — or its critics. One of those, Kevin Warsh, a Fed governor, takes to the pages of the Wall Street Journal to warn that we’ve been pursuing the wrong policies:

Policy makers should be skeptical of the long-term benefits of temporary fixes to do the hard work of resurrecting the world’s great economic power. Since early 2008, the fiscal authorities have sought to fill the hole left by the falloff in demand through large, temporary stimulus—checks in the mail to spur consumption, temporary housing rebates to raise demand, one-time cash-for-clunkers to move inventory, and temporary business tax credits to spur investment.

What we need, he cautions are pro-growth policies that include free trade and tax reform. “The U.S. and world economies urgently need stronger growth, and the adoption of pro-growth economic policies would strengthen incentives to invest in capital and labor over the horizon, paving the way for robust job-creation and higher living standards.” Then he aims at “Helicopter Ben” and his plan to dump more greenbacks into the world economy:

The Fed’s increased presence in the market for long-term Treasury securities poses nontrivial risks that bear watching. The prices assigned to Treasury securities—the risk-free rate—are the foundation from which the price of virtually every asset in the world is calculated. As the Fed’s balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. If market participants come to doubt these prices—or their reliance on these prices proves fleeting—risk premiums across asset classes and geographies could move unexpectedly.

Overseas—as a consequence of more-expansive U.S. monetary policy and other distortions in the international monetary system—we see an increasing tendency by policy makers to intervene in currency markets, administer unilateral measures, institute ad hoc capital controls, and resort to protectionist policies. Extraordinary measures tend to beget extraordinary countermeasures. Heightened tensions in currency and capital markets could result in a more protracted and difficult global recovery.

In plain English: we are going down the wrong road.

He’s in good company. The Germans, who have learned a thing or two about the risks of devaluing currency and resisted the Obama administration’s entreaties to spend with abandon, also are complaining about the Fed:

German officials, concerned that Washington could be pushing the global economy into a downward spiral, have launched an unusually open critique of U.S. economic policy and vowed to make their frustration known at this week’s Group of 20 summit.

Leading the attack is Finance Minister Wolfgang Schäuble, who said the U.S. Federal Reserve’s decision last week to pump an additional $600 billion into government securities won’t help the U.S. economy or its global partners.

The Fed’s decisions are “undermining the credibility of U.S. financial policy,” Mr. Schäuble said in an interview with Der Spiegel magazine published over the weekend, referring to the Fed’s move, known as “quantitative easing” and designed to spur demand and keep interest rates low. “It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”

At an economics conference in Berlin Friday, Mr. Schäuble said the Fed’s action shows U.S. policy makers are “at a loss about what to do.”

The president is weakened at home and under assault overseas for the feckless economic policies that threaten to bring stagflation not only to the U.S. but also to our trading partners. It is ironic that the American political messiah who caused so many to swoon in Europe is now the object of their concern, and indeed disdain. Well, many Americans can relate.

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The F-35 and the Israel-Obama Relationship

Commenting on Israeli Defense Minister Ehud Barak’s decision last week to buy 20 American-made F-35 fighter jets, Elliot Jager of Jewish Ideas Daily said it “illuminates Israel’s continuing, vital, and enduring — albeit dependent — relationship with the United States.” That is undoubtedly true: Washington has been Israel’s principal arms supplier for over four decades, and those arms are crucial for the country’s defense.

Ironically, however, the purchase also illuminates the nadir to which the relationship has fallen under the current administration. Barack Obama’s aides have tried to divert attention from their boss’s efforts to put “daylight” between America and Israel by insisting that on the all-important issue of security, “President Obama has taken what was already a strong U.S.-Israel defense relationship, and broadened and deepened it across the board,” as Dan Shapiro of the National Security Council told the Anti-Defamation League in May.

But in reality, Washington has attached unprecedented restrictions to the F-35 sale — restrictions so severe that Israel’s defense establishment agonized for months over whether to sign the deal, and ultimately opted to buy only 20 planes instead of the 75 the Israel Air Force originally sought.

First, as Haaretz reported last month, the U.S. refused to supply a test aircraft as part of the deal for the first time in 40 years. From the Phantom in 1969 through the F-16I six years ago, every previous American sale of fighters to Israel has included an experimental aircraft that Israel can use to test new systems or weapons it is considering installing in order to upgrade the planes or adapt them to particular missions. Effectively, the paper said, this refusal means “upgrades will not be implemented during the plane’s service in the IAF.”

Second, Washington initially refused to let any Israeli systems be installed in the plane, and finally reluctantly agreed to what various Israeli reports described as “minor changes” or “a few” systems (though holding out the carrot that more might be allowed if Israel ultimately commissions more planes). This, too, is unprecedented. Previous deals have given Israel great latitude to have its own systems installed on American-made aircraft, and have also allowed other countries to install Israeli systems — with the result that “between 10 percent and 15 percent of every new F-16 made in America, for instance, consists of Israeli systems.”

The restrictions so incensed Finance Minister Yuval Steinitz that he has appealed the purchase to the cabinet. His ministry says they would deal “a major blow to Israel’s defense industry” and particularly “hurt development of new Israeli missile systems.” On an issue as militarily important as purchasing new fighters, Steinitz has no chance of prevailing against Barak. But for a senior minister to publicly challenge such a deal is itself unusual.

It’s a testament to the depth of Israel’s support both in Congress and among the American people that even a hostile president only dares impair the security relationship at the margins, where he can hope it won’t be noticed. But precisely because the F-35 restrictions will fly below most Americans’ radars, they’re a telling indication of where Obama’s heart really lies.

Commenting on Israeli Defense Minister Ehud Barak’s decision last week to buy 20 American-made F-35 fighter jets, Elliot Jager of Jewish Ideas Daily said it “illuminates Israel’s continuing, vital, and enduring — albeit dependent — relationship with the United States.” That is undoubtedly true: Washington has been Israel’s principal arms supplier for over four decades, and those arms are crucial for the country’s defense.

Ironically, however, the purchase also illuminates the nadir to which the relationship has fallen under the current administration. Barack Obama’s aides have tried to divert attention from their boss’s efforts to put “daylight” between America and Israel by insisting that on the all-important issue of security, “President Obama has taken what was already a strong U.S.-Israel defense relationship, and broadened and deepened it across the board,” as Dan Shapiro of the National Security Council told the Anti-Defamation League in May.

But in reality, Washington has attached unprecedented restrictions to the F-35 sale — restrictions so severe that Israel’s defense establishment agonized for months over whether to sign the deal, and ultimately opted to buy only 20 planes instead of the 75 the Israel Air Force originally sought.

First, as Haaretz reported last month, the U.S. refused to supply a test aircraft as part of the deal for the first time in 40 years. From the Phantom in 1969 through the F-16I six years ago, every previous American sale of fighters to Israel has included an experimental aircraft that Israel can use to test new systems or weapons it is considering installing in order to upgrade the planes or adapt them to particular missions. Effectively, the paper said, this refusal means “upgrades will not be implemented during the plane’s service in the IAF.”

Second, Washington initially refused to let any Israeli systems be installed in the plane, and finally reluctantly agreed to what various Israeli reports described as “minor changes” or “a few” systems (though holding out the carrot that more might be allowed if Israel ultimately commissions more planes). This, too, is unprecedented. Previous deals have given Israel great latitude to have its own systems installed on American-made aircraft, and have also allowed other countries to install Israeli systems — with the result that “between 10 percent and 15 percent of every new F-16 made in America, for instance, consists of Israeli systems.”

The restrictions so incensed Finance Minister Yuval Steinitz that he has appealed the purchase to the cabinet. His ministry says they would deal “a major blow to Israel’s defense industry” and particularly “hurt development of new Israeli missile systems.” On an issue as militarily important as purchasing new fighters, Steinitz has no chance of prevailing against Barak. But for a senior minister to publicly challenge such a deal is itself unusual.

It’s a testament to the depth of Israel’s support both in Congress and among the American people that even a hostile president only dares impair the security relationship at the margins, where he can hope it won’t be noticed. But precisely because the F-35 restrictions will fly below most Americans’ radars, they’re a telling indication of where Obama’s heart really lies.

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The Dangers of the Peace-Prosperity Fallacy

Israel’s left-wing daily Haaretz isn’t one to cry uncle. “There will be no economic prosperity without peace,” it defiantly titled today’s editorial — published two days after Israel was admitted, by unanimous vote, to the club of the world’s wealthiest nations: the OECD.

“The link between the economic and political is clear,” the editorial asserted, serenely untroubled by the facts. “There can be no sustained economic growth without a substantive compromise with the Palestinians and Syria.”

The facts, of course, are that if sustained economic growth required peace, Israel could never have earned OECD entree: the country has been at war since its establishment in 1948, when it was attacked by five Arab armies. It fought conventional wars again in 1956, 1967, 1973, and 1982. It was bombarded by Iraqi missiles during the 1991 Gulf War. It fought asymmetric wars against terrorist organizations in the West Bank in 2002, Lebanon in 2006, and Gaza in 2009. And in between all the wars, it suffered nonstop terror attacks.

Some of these wars indeed produced temporary recessions. Yet the overall pattern has been one of, yes, sustained growth. Had it not, Israel would not today be the only one, out of dozens of countries established in the post-colonial upheavals that followed World War II, invited to join the OECD. It certainly wasn’t because its fellow OECD members love it so much: many routinely vote against it in other international forums.

But if Haaretz were merely spouting harmless nonsense, nobody would care. The problem is that this particular nonsense is deadly dangerous, because the editorial is right about one thing: “Israel’s economic status is conditional.” Wise choices by Israel’s leaders can facilitate continued growth; bad choices can reduce or even destroy it: look at Greece.

Yet for much of the past two decades, Israel’s leadership has been consumed with either pursuing an unobtainable peace or trying to contain the terrorist onslaughts that every such effort has spawned. The crucial domestic issues on which economic success in fact depends have consequently been neglected. Israel’s schools and universities are in free fall, which bodes ill for a country whose only natural resource is brainpower. And bureaucratic obstacles to doing business remain a fact of life.

Prime Minister Benjamin Netanyahu actually does care about domestic issues. As finance minister in 2003, he implemented economic reforms that produced five straight years of rapid growth, and his campaign for prime minister included detailed proposals for additional domestic reforms. But since taking office, he, too, has been consumed by the “peace process” — or rather, the crisis with Washington it has generated. Domestic reforms have fallen by the wayside.

And that is why the Haaretz fallacy is so dangerous. Roughly every other Israeli prime minister has, like Haaretz, viewed peace as essential to Israel’s survival and therefore devoted himself to fruitlessly pursuing it. Each of their successors has then had to devote himself to containing the fallout. And as long as this pattern continues, vital domestic issues will continue to be neglected.

Peace would certainly benefit Israel’s economy. But continued pursuit of a peace that is unobtainable could destroy it.

Israel’s left-wing daily Haaretz isn’t one to cry uncle. “There will be no economic prosperity without peace,” it defiantly titled today’s editorial — published two days after Israel was admitted, by unanimous vote, to the club of the world’s wealthiest nations: the OECD.

“The link between the economic and political is clear,” the editorial asserted, serenely untroubled by the facts. “There can be no sustained economic growth without a substantive compromise with the Palestinians and Syria.”

The facts, of course, are that if sustained economic growth required peace, Israel could never have earned OECD entree: the country has been at war since its establishment in 1948, when it was attacked by five Arab armies. It fought conventional wars again in 1956, 1967, 1973, and 1982. It was bombarded by Iraqi missiles during the 1991 Gulf War. It fought asymmetric wars against terrorist organizations in the West Bank in 2002, Lebanon in 2006, and Gaza in 2009. And in between all the wars, it suffered nonstop terror attacks.

Some of these wars indeed produced temporary recessions. Yet the overall pattern has been one of, yes, sustained growth. Had it not, Israel would not today be the only one, out of dozens of countries established in the post-colonial upheavals that followed World War II, invited to join the OECD. It certainly wasn’t because its fellow OECD members love it so much: many routinely vote against it in other international forums.

But if Haaretz were merely spouting harmless nonsense, nobody would care. The problem is that this particular nonsense is deadly dangerous, because the editorial is right about one thing: “Israel’s economic status is conditional.” Wise choices by Israel’s leaders can facilitate continued growth; bad choices can reduce or even destroy it: look at Greece.

Yet for much of the past two decades, Israel’s leadership has been consumed with either pursuing an unobtainable peace or trying to contain the terrorist onslaughts that every such effort has spawned. The crucial domestic issues on which economic success in fact depends have consequently been neglected. Israel’s schools and universities are in free fall, which bodes ill for a country whose only natural resource is brainpower. And bureaucratic obstacles to doing business remain a fact of life.

Prime Minister Benjamin Netanyahu actually does care about domestic issues. As finance minister in 2003, he implemented economic reforms that produced five straight years of rapid growth, and his campaign for prime minister included detailed proposals for additional domestic reforms. But since taking office, he, too, has been consumed by the “peace process” — or rather, the crisis with Washington it has generated. Domestic reforms have fallen by the wayside.

And that is why the Haaretz fallacy is so dangerous. Roughly every other Israeli prime minister has, like Haaretz, viewed peace as essential to Israel’s survival and therefore devoted himself to fruitlessly pursuing it. Each of their successors has then had to devote himself to containing the fallout. And as long as this pattern continues, vital domestic issues will continue to be neglected.

Peace would certainly benefit Israel’s economy. But continued pursuit of a peace that is unobtainable could destroy it.

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Another Fundamental Mistake Involving Russia

Yesterday, Russia’s finance minister said that U.S. officials wanted to conclude discussions on the country’s accession to the World Trade Organization as quickly as possible. “I got the feeling that they are ready to push these negotiations forward,” noted Alexei Kudrin. Russia is the largest economy that is not a member of the global trading body.

And it should stay that way because the Russian Federation is not ready to trade fairly within the context of a rules-based system. For instance, last Wednesday, European Union Trade Commissioner Peter Mandelson again went public with complaints of Moscow’s violation of trade agreements with Brussels. Russia’s previous responses to European complaints have been to continue and even expand aggressive trade practices. For example, Moscow has indicated that it may extend its meat-and-plant ban, which it imposed on Poland almost two years ago.

There seems to be a general feeling in Washington and Brussels that Russia will somehow reform its bad practices once it becomes a WTO member. That sentiment mirrors American and European hopes and expectations regarding China at the end of last decade. Yet, as we have seen since Beijing’s accession in 2001, the Chinese have continued non-compliant trade practices. The United States has had to file five WTO cases against China; even with these complaints we have yet to scratch the surface of Chinese trade violations.

If the experience with China is any guide, Russia will change the WTO more than the WTO changes Russia. We will not be able to say that we were not warned. In June, President Vladimir Putin called for “the creation of a new architecture of international economic relations.” The question is why should we help him wreck pillar multilateral institutions, like the World Trade Organization, from the inside?

Yesterday, Russia’s finance minister said that U.S. officials wanted to conclude discussions on the country’s accession to the World Trade Organization as quickly as possible. “I got the feeling that they are ready to push these negotiations forward,” noted Alexei Kudrin. Russia is the largest economy that is not a member of the global trading body.

And it should stay that way because the Russian Federation is not ready to trade fairly within the context of a rules-based system. For instance, last Wednesday, European Union Trade Commissioner Peter Mandelson again went public with complaints of Moscow’s violation of trade agreements with Brussels. Russia’s previous responses to European complaints have been to continue and even expand aggressive trade practices. For example, Moscow has indicated that it may extend its meat-and-plant ban, which it imposed on Poland almost two years ago.

There seems to be a general feeling in Washington and Brussels that Russia will somehow reform its bad practices once it becomes a WTO member. That sentiment mirrors American and European hopes and expectations regarding China at the end of last decade. Yet, as we have seen since Beijing’s accession in 2001, the Chinese have continued non-compliant trade practices. The United States has had to file five WTO cases against China; even with these complaints we have yet to scratch the surface of Chinese trade violations.

If the experience with China is any guide, Russia will change the WTO more than the WTO changes Russia. We will not be able to say that we were not warned. In June, President Vladimir Putin called for “the creation of a new architecture of international economic relations.” The question is why should we help him wreck pillar multilateral institutions, like the World Trade Organization, from the inside?

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Cleaning Up Israel

The sorry spectacle of Israel’s political system going through one financial scandal after another—the latest involves finance minister Abraham Hirchson, accused of embezzling large sums of money when he headed an HMO in the 1990’s—is more than just an embarrassment. Coupled with the growth of organized crime and frightening rumors of its inroads into politics and law enforcement, these scandals are making Israelis feel these days as if they were living in a Jewish Sicily.

Is it that bad? Probably not, although it’s hard to say. Corruption in Israel is something that, even today, you’re far more likely to read about in the newspapers than to experience personally. Israel is still a country whose citizens assume, when dealing with government officials, the police, or business contacts, that they are facing someone honest. It’s not some third-world state or banana republic where you routinely slip money into your car registration papers when you’re asked for them by a traffic cop, leave a gift on the desk of the official you’ve applied to for a building permit, or promise a kickback to the executive you’re negotiating a contract with. But then again, I don’t suppose that routinely happens in Sicily, either.

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The sorry spectacle of Israel’s political system going through one financial scandal after another—the latest involves finance minister Abraham Hirchson, accused of embezzling large sums of money when he headed an HMO in the 1990’s—is more than just an embarrassment. Coupled with the growth of organized crime and frightening rumors of its inroads into politics and law enforcement, these scandals are making Israelis feel these days as if they were living in a Jewish Sicily.

Is it that bad? Probably not, although it’s hard to say. Corruption in Israel is something that, even today, you’re far more likely to read about in the newspapers than to experience personally. Israel is still a country whose citizens assume, when dealing with government officials, the police, or business contacts, that they are facing someone honest. It’s not some third-world state or banana republic where you routinely slip money into your car registration papers when you’re asked for them by a traffic cop, leave a gift on the desk of the official you’ve applied to for a building permit, or promise a kickback to the executive you’re negotiating a contract with. But then again, I don’t suppose that routinely happens in Sicily, either.

In this sense, Israel is in the third and murkiest of the three categories that you can divide the world’s countries into. There are countries in which corruption hardly exists and no one would dream of trying to solve his problems by resorting to it. There are countries in which it is omnipresent and everyone understands that it is the only way to get things done. And there are countries, like Israel, in which the rules are simply not clear, and you never know if a bribe will pay off, be dismissed by whoever it is offered to with an indignant glare or weary smile but no worse, or land you in jail. Most people would never run the risk, but most people have also heard rumors or stories of others who have run it successfully. This makes corruption a phenomenon that everyone is aware of but of whose true dimensions no one has a clear idea.

The fact of the matter is that, even in cleaner times, Israel was always a country in which the rules were never quite clear. I’ve heard it said that there are countries, like Japan, in which “yes” never means “yes.” But in Israel, “no” has never meant “no.” It has always meant, “Let’s argue and negotiate.” And in Israel, you negotiate with everyone: the phone company about its bills, the storekeeper about his prices, the teacher about his marks. You don’t generally do this by offering bribes. You do it by reasoning, wheedling, shouting, crying, pleading, threatening, joking. Only suckers take “no” for an answer.

It took me a while to learn this when I immigrated to Israel in 1970. One of my first lessons came when filling out my first Israeli income-tax return. When it came to house expenses such as electricity and water bills—on which, as a self-employed writer living at home, I had a right to a partial deduction—the accountant scratched his head and said, “You know what? Let’s try deducting 50 percent.”

“What do you mean, let’s try?” I said. “What are the rules?”

“There are no rules,” said the accountant. “And even if there are, they’re too complicated to figure out.”

“Then why don’t you call the tax authorities and ask?” I suggested.

My accountant looked at me with astonishment. Clearly I had been born, not yesterday, but sometime in the previous hour. “If I ask, they’ll tell me it’s 10 percent,” he said. “Let’s put in for 50.”

We put in for 50, and it worked. Since then, I’ve deducted 50 percent of my house expenses from my tax returns every year. Is that what the law permits me to do? Don’t ask me, I just do it.

All this has a certain charm. It can be frustrating and unnerving, of course—there’s something to be said for knowing where you stand, instead of having to find out ad hoc each time—but it has made Israel in many ways a much more flexible place to operate in than other countries. Although people complain about Israeli bureaucracy, Israeli bureaucrats are models of human kindness compared to bureaucrats I’ve encountered in other places. You can actually get them to change their minds or make an exception for you if you’re skillful enough in presenting your case.

Such a modus operandi becomes deadly, however, the minute corruption enters into it. It’s one thing for an official behind a desk to give you the permit he really shouldn’t have given you because you’ve burst into tears or turned out to be his third cousin once-removed. It’s another thing for him to give it to you because a wad of cash has fallen unnoticed from your wallet while you were leaving. And this, once rare, is becoming a more and more accepted practice.

If Israel is not going to end up in corruption category 1, it is going to have to change its ways of doing things and learn to go by the rules—everywhere. In some ways this will be too bad. Just last week my wife phoned the cable TV company and got it to lower the rates it charges us by threatening to move to a rival. An Israel you can no longer do this in will be a less simpatico place. But it will also be a cleaner one.

Indeed, if one wants to be optimistic, this is what is happening in Israel right now. Case after case that might have gone unprosecuted before is now ending up in the courts, the cases of ranking politicians not excepted. It looks bad, and it is bad. But eventually, the lesson may sink in. There may be a golden mean between Denmark and Nigeria, but if you have to choose, it’s a lot better to be Denmark.

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