Commentary Magazine


The Hype and History of Stanley Fischer

As Israeli Prime Minister Benjamin Netanyahu maneuvers to put together an expansive governing coalition by handing out ministries and portfolios to a diverse group of political partners, he has a lot of mouths to feed. Not only will there be several party heads looking for placement in the next government, but Netanyahu also has at least one high-profile politician to whom he may owe a commensurate rank in Avigdor Lieberman, and one he probably hoped to have a place for in recently retired Defense Minister Ehud Barak. Yet in Israel, where I spent the last week, there is another name that comes up that commands more respect and curiosity than all the others: Stanley Fischer.

Fischer announced in January that he would be leaving his job as the head of Israel’s central bank earlier than expected. The Israeli press is normally a tough crowd, but Fischer has earned rare and almost universal praise from the Israeli fourth estate for successfully guiding the Israeli economy through the global downturn while many Western and OECD economies continued to struggle. He is often regarded as the adult in the room and was one of the most influential economics professors in U.S. history during his time at MIT. And now, if you listen to the chatter, he can be anything he wants: chairman of the U.S. Federal Reserve or even president of Israel (let alone foreign minister, a post he appears to actually covet but which, for political reasons, would ironically be more difficult to attain than the others).

An engaging profile of Fischer by the Washington Post’s Dylan Matthews, published last week, carries a headline that is actually quite understated compared to some of Fischer’s other mainstream press: “Stan Fischer saved Israel’s economy. Can he save America’s?” As Matthews notes, in addition to governing the Bank of Israel and mentoring a generation of top economic policy professionals at MIT, Fischer was also the International Monetary Fund’s second in command, chief economist at the World Bank, and a vice chairman at Citigroup when it was the world’s largest bank. “Any one of his past jobs would be a crowning achievement in an economist’s career,” Matthews writes–and yet, Fischer has collected a lifetime of such crowning achievements.

The obvious question that stands out is whether Fischer’s work lives up to its reputation: Did he, as Matthews says, save Israel’s economy? Yes and no. There is almost no doubt that he deserves much of the credit for shepherding Israel’s economy through the global recessionary patterns that trapped so many others. Matthews is correct that Fischer’s devaluation of the shekel boosted exports and kept the economy afloat, though he is also correct that Fischer probably could not have used the same trick were he head of the U.S. Federal Reserve and playing with dollars instead of shekels. This also wasn’t terribly revolutionary for Israel: the country has long experimented with both sudden and so-called “crawling peg” devaluations to deal with decades of weak export numbers and economic isolation.

Which brings us to the one caveat in Fischer’s heroics: he didn’t quite do it alone. He took over the Bank of Israel after the second intifada wreaked havoc on Israel’s economy, but that recovery period coincided with Netanyahu’s term as finance minister in the government headed by then-Prime Minister Ariel Sharon. Netanyahu delivered much-needed economic reforms–tax cuts, financial sector liberalization, and privatizations–to an Israeli economy already transformed by its high-tech industry. According to economist Paul Rivlin, between 1995 and 2008 Israel’s high-technology output increased by 183.5 percent, driven heavily by foreign trade.

This doesn’t take much away from Fischer’s achievement. But it’s likely that without Netanyahu’s reforms Fischer would have had much more of a losing cause on his hands when crisis hit. This also wasn’t the first time Fischer helped guide Israel through economic challenges. In 1985, Secretary of State George Shultz asked Fischer and fellow economist Herbert Stein to lead the development of a plan to deliver emergency economic aid to Israel with strings attached in the form of benchmarks in domestic economic liberalization. In a biting column, the late William Safire accused American policymakers of purchasing Israel’s independence and acquiescence on America’s plans for regional peace by promising to indefinitely fund Israel’s welfare state. Safire acknowledged, however, that Fischer “told Congress last week that Israel must first come up with an unambiguous plan to cut government spending that is ruining the country.”

There is a line at the door for the post of foreign minister in Netanyahu’s next government, but Fischer would be welcomed with open arms in Washington. Israel’s presidency is a largely ceremonial and diplomatic role, but it is not apolitical, and Fischer is neither a native Israeli nor tested by experience in this regard. Would he be interested in running the Fed? He has family here in the States, and has retained his American citizenship, though he has been less forthcoming with clues as to how he’d feel about the job–as opposed to the signaling he’s done on other prospective offers like foreign minister (interested) and finance minister (not interested) in the next Israeli governing coalition. It’s clear, however, that with even Haaretz declaring that Israelis are already experiencing acute “Separation Anxiety Disorder” at the thought of Fischer’s absence, his adopted home may not give him up without a fight.

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