The collapse of the euro has been staved off for now, but the danger is far from over. National and personal debt in many European countries constitute a ticking time bomb. The debt is hard to recycle even at high interest rates, and countries like Greece may find themselves insolvent. As a result, Greece's creditors will have to take a "haircut" (just as we are doing for our tycoons) and the country's pension funds and citizens will get a very close buzz cut. The problem is, you can't take a bald head to the bank, or to the grocery store. European banks that are heavily invested in (so-called "secure") government bonds will have to downsize -- that is, if they are lucky enough to survive. As a result, there will be a credit crunch, followed by a steep decline in economic activity and high unemployment, resulting in reduced wages and buying power, further exacerbating the public's inability to repay its debts. Tax revenue will decline as well. Governments will be forced to cut excess spending at a time when such cutbacks only accelerate the downward spiral. Given this scenario, one might expect our politicians and the public to express concern over the fact that almost half our gross domestic product originates in exports. If, as expected, Europe and the U.S. both contract -- and the process is well underway -- Israeli exports are likely to take a hit and impact economic growth and employment. Apart from the prime minister, the Bank of Israel governor and the finance minister, all of whom have sounded the alarm, most politicians are going about business as usual. They are not taking immediate, drastic steps to implement recommendations of the Economic Concentration Committee, the Trajtenberg Committee or to otherwise break up economic concentration, which undermines productivity, and allows for the massive price gouging that impoverishes the average Israeli. In addition, the Rothschild branch of the social justice movement and its media cheerleaders believe that the problem can be solved by shouting tired old slogans for "social justice," which no one knows how to define, and continuing to promote agendas that require breaching the government budget. They fail to understand that pouring more and more money into welfare initiatives only entrenches the problem of poverty. Even serious forums, like the Sderot, Herzliya or Caesarea conferences, where participants pride themselves on addressing Israel's economic problems, ignore critical processes that endanger our future. They largely ignore the problem of economic concentration, which chokes competition and efficiency, leads to low productivity and wages, and allows for despicable profiteering, particularly in low-income areas. Instead, participants in such forums rehash old ideas that have been discredited, like the need for a "central brain" to plan the economy (an idea we thought had died out with Stalin's five-year plan) or a public-private sector partnership for economic development -- a partnership with the same odds of success as the mixing of oil and water. Government and business have totally different incentives and constraints, and cooperation between the two merely leads to corporate pork barrel spending, cronyism, waste and corruption. And of course there are those delusional folks who attack privatization, which has never actually been attempted in Israel. All we can hope for is that those Israeli leaders with an understanding of economics -- namely, the prime minister, Bank of Israel governor, finance minister and their aides -- will muster the courage to prepare Israel for the crisis. They can do so by quickly implementing the conclusions of the Economic Concentration and Trajtenberg committees. How? By cutting taxes and red tape that choke entrepreneurship; by making employment arrangements more flexible so that there is greater worker mobility; by eliminating the arbitrary price gouging by monopolies, cartels and import agencies controlled by tycoons; by injecting competition into capital markets, particularly into the banking and financial systems, which are run in a way that borders on criminal negligence. (Note the huge bank loans of dubious merit; the paltry returns on the public's pension savings; and the debtors haircut given to the tycoons.) We also need to reduce the bloated cost of Israeli production. Finally, every single family must drastically cut its spending and begin to save for a rainy day. As much as we can, we need to reduce our spending on expensive imported products as well as shed assets whose real value will depreciate when, as expected, high inflation breaks out after the recession. We need to examine the track record of those institutions that manage our savings and, if their performance is in doubt, look for better money managers. Above all, after decades of inaction that enabled the unchecked exploitation of Israeli consumers, the public must demand a war against concentration, which inflates the cost of production and renders our exports uncompetitive.
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