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Welcome to Netanyahu’s Potemkin economy

  • February 23, 2021

We all know the story about how the Czarina Catherine the Great was literally and figuratively taken for a ride by her minister and lover Grigori Potemkin. He escorted her on a long, leisurely cruise down the Dnieper where she observed happy and prosperous peasants on the riverbanks, and thought all was well in Russia.

As the story is told, the villages were fakes that were erected for Catherine to see, and then taken down at night and moved downriver to another site for her to see again the next day.

As of this week, Israelis can consider themselves little czars and czarinas as they shop the malls and plan weddings. Their Prince Potemkin is Prime Minister Netanyahu and the facade of prosperity in the Israeli economy. Declaring (as it turned out a premature) end to last spring’s lockdown, Netanyahu had urged Israelis to”go out and have fun.” This week, he was saying much the same: “Vaccinated? Get the Green Pass and get back to life.”

Of course, the malls aren’t stage sets and your daughter’s marriage isn’t going to be rescinded overnight by the rabbinate, but the return to happy normalcy and the prosperity that is supposed to accompany it aren’t real.

The vaccination election

True, this time around half of the country is vaccinated, which is a stronger foundation for reopening the economy than the drop in new cases that prompted the government to reopen it last spring. But, it’s hard not to shake off the suspicion that Netanyahu is motivated by electoral concerns.

There’s less than a month until Election Day, and the polls aren’t looking very favorable. Reopening the economy isn’t going to suddenly change that, but it could shift just enough votes to gain the Likud some critical Knesset seats. It certainly can’t hurt.

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Early in the pandemic, the consensus view was that the policies needed to counter it would cause a severe economic contraction, but that when a vaccine was developed or COVID simply faded away, growth would roar back.

In Israel’s case, at least, the first half the prediction proved wrong: Thanks to massive government spending and the country’s big high-tech sector, the drop in output last year was much milder than expected. Conversely, the recovery is likely to be much milder, too, and is likely to only really get underway later in the year.

Bibi’s misfortune is that “later in the year” means after March 23. But what may be more crucial to him is the psychological revival more than the economic revival.

A transient bounce

The fact is that the lion’s share of the economy was operating even during the most severe phases of Israel’s three lockdowns, but people were working at home or in factories and logistics centers out of the public eye. This week’s reopening is concentrated in sectors such as retail, personal services, and sports and entertainment that people see and experience. Even the fact that most children are going back to school will have a positive impact on consumer and possibly even business sentiment.

There are two big catches. One is that the psychological impact won’t last very long – indeed, there’s a risk it may not emerge at all. After so many months of lockdowns, social distancing, resurgent pandemics, new and more virulent viruses, and government mismanagement of it all, there’s a strong risk that the psychological bounce will be overcome by pessimism and distrust. Flocking back to stores and fitness clubs may be more a visceral act of release than a celebration marking the start of better times.

The other big catch is that yet again Israeli may be opening up the economy too early, too rapidly and with insufficient forethought.

The R-value, the number of new cases stemming from each coronavirus infection, had dropped to 0.79 on Sunday when the new rules went into effect, under the 0.8 level officials say is a prerequisite to loosening restrictions. All the other numbers, such as new and serious cases, percent of positive tests, are going in the right direction.

But they are still very high. Furthermore, no one knows for certain how effective the vaccines will be against COVID variants. A lot of Israelis remain unvaccinated, including children and West Bank Palestinians. The government has virtually sealed off the country from air travel, but Israel is far from being an island.

The state has proven it’s incapable of enforcing the rules that there are, whether it is cracking down rioting Haredim or enforcing quarantines on Israelis coming back from trips abroad. The public’s impatience with the rules and distrust in government has grown over the course of the pandemic. If, for the third time in a year, officials end a lockdown only to revive it soon afterward, they will only increase the level of distrust and rule-breaking.

No one can say for certain that the story of the Potemkin Villages is true and certainly no one can say that if it was that Catherine was taken in by it. But there was no reason why she should have looked on the villages with such a critical eye, since anyhow she was going back to the comforts of the Winter Palace back in St. Petersberg. Israelis don’t have the luxury: we have to live with whatever our government provides, real or fake. When you vote March 23, bear in mind that the sense of relief you’re feeling may well be fleeting.

Article source: https://www.haaretz.com/israel-news/welcome-to-netanyahu-s-potemkin-economy-1.9562290

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