Decline and fall of the almighty Dollar

A long time ago, on another planet, there was an almost hypothetical country called Israel. Israel was a Jewish country. Naturarlly, people there made their living from the air business, or as the Yiddish writer Shalom Aleichem called it, Luftgescheft. 

 

Each year, the economic wizards of the world predicted that this state would inevitably be bankrupt in a year. The finance ministers of this country juggled numbers and books and currency. There was one dollar for buying imported goods, and another one for selling them, and a third, black market one, for spending abroad and buying things you were not supposed to buy. Israeli Milo Minderbinders made money by buying detergent in Germany for 4 cents, shipping it to Israel, and then selling it back to Germany for 2 cents, making a 2 cent profit with the government export subsidy. The exchange rate of the black market dollar, along with the going rate for sex services, was published in the newspapers.

 

The main financial instrument of this state was the printing press, and the major economic policy was devaluation. My great uncle, who lived in this hypothetical state, went to sleep a millionaire and woke up a pauper. He was not alone. It happened more than once.

 

Every few months, the finance minister would make some nonsensical pronouncement, approximately like this, "We have been anxiously watching the unrest in South America and Africa,  the decline of the Japanese Yen and the fluctuations of the price of hay in China, which require realignment of national economic policy. Therefore, and in accordance with the above, the government has decided to devalue Israeli currency by 10%." The announcement was always made just before the Sabbath, when the banks had closed.

 

Eventually, the slide in the value of Israeli currency was so precipitious that announcements like the above became superfluous. Who can keep track of all the changes? The Lira became the Shekel. The Shekel became the New Israeli Shekel, and then it became the Newer Israeli Shekel. Each time, zeros were lopped off the exchange rate to ensure that calculators, computers and supermarket stickers would not be overloaded. At one point, salaries were devalued by twenty percent from the time they were paid until the time you could collect them. Confronted with a price in Shkalim, or Lira or New Israeli Shekels, tourists and new immigrants inevitably asked, "How much is that in real money?"

 

Inflation was a fact of life. The second summer I lived in Jerusalem, I waited in vain for the price of bananas to go down to 75 agorot again, as they had the year before when bananas were in season. That's how much I knew. Bananas were IL 1.50 in the second summer, and that was as cheap as they would ever get. This 100% rise in prices of just about everything was somehow translated into a 5 percent annual rise in the cost of living index.

 

To maintain some semblance of economic sanity, every price was tied to the dollar. Salaries, rents, prices of automobiles, prices of apartments and land, all were expressed in dollars. The idea of adopting the dollar as currency was considered seriously. It was called "Dollarizatsia."

 

Times changed. Today everyone thinks that "Luftgescheft" has to do either with the Luftgescheft Royal Bank software program (there is such a thing) or with the Israel Aircraft Industry, which acquired the name unofficially long ago. Every day we watch the little red arrows on the television screen next to the exchange rates of the US Dollar and the Euro with increasing amazement. The director of the Bank of Israel finally announced a massive program to buy dollars continuously and save the falling dollar from obilivion. 

 

Tenants must be apologetically told that the rent is now tied to the Shekel, and customers must be told the rate in Shkalim.

 

It will take some time to get used to this psychic and economic shock. 

 

Ami Isseroff    

Continued (Permanent Link)

Israel is the gift of the compiler

"Egypt," wrote Herodotus, "is the gift of the Nile." The flood waters of the Nile renewed the top soil of the Nile valley and created an agricultural power house that was to feed the Roman Empire, as well as making Egypt one of the richest countries in antiquity.

In the early days of the state, Israel was the gift of the United Jewish Appeal and the printing press of the treasury.

For the first 35 or so years of Israel's existence, our main resources were sand, barchash flies and new immigrants. Add to this the Arab boycott, which was obeyed by numerous western firms. Add to this the demands of an outsized defense budget. Add to this our distance from European and American markets, and the expense of shipping heavy manufactured goods. Add to this a certain Israeli nonchalantness about "finish" in products, which ensured that a product with three holes for screws would usually have only two screws and one empty hole. Add to this periodic wars that scared off tourists.

Our main trading partners were countries that took pity on us. Our income came from subsidized agriculture, subsidized factories and subsidized subsidies. Our industrial products were things like automobiles that didn't quite work right, inedible candies, wine, oranges and diamonds. The candies could be exported abroad to be sold to Jews with strong digestive systems, who would give them as gifts to Jews with stronger digestive systems, who would smile and say "Thank You." If they were not yet acquainted with Israeli candy, they might try to eat them. Otherwise they would pass the gift on the next time they needed to bring a modest house gift to someone they didn't like too well.

This custom was observed in Israel as well, and is recorded in more than one story by the humorist Efraim Kishon. In Israel it was less widespread. While foreigners were sometimes unacquainted with the culinary properties of Israeli candies, Israelis were all too familiar with them. Israelis with weak digestive systems and poor judgement were eliminated by the benign and providential workings of the laws of natural selection. The rest adapted quickly. In consequence, all such gifts were passed on in Israel. As we are a small country, people would occasionally get back the same candy they had given as a gift to someone, many months or years before -- an embarrassing occasion for both parties.

Later it was discovered that we could also make brandy. Brandy is a much better gift than candies, because most people who consume alcohol seem to be able to get used to just about anything. I am not an expert on bad brandy, but ours was pretty bad. Your humble servant has a not immodest capacity for liquour. I have been properly inebriated on more than one occasion, thanks to sour mash whiskey, bourbon, beer, and scotch, and I can remember all of those times except one. Once I got drunk on a relatively modest quantity of Israeli brandy at an Independence day camp fire. I cannot remember anything much, but several friends would not speak to me for a long time. Israeli brandy is not meant to be drunk to excess. We are a sober people.

It could never pay to manufacture anything in quantity in Israel, because there was no market by international standards. Typically, a man who bought a machine that made lipstick tubes imagined that he would become a great industrialist. Instead, he found that if he ran this machine for one day a year, he could produce a year's supply of lipstick tubes for the entire consumption requirements of Israel. These could not be exported, as they could never compete with the tubes produced more cheaply by even bigger machines elsewhere, where raw materials were also available locally.

A socialist government oversaw a more or less equal division of the national debt. The shortages were divided among the peasants and clerks in an equitable fashion. Everyone was employed doing something, and had job security, even if what they produced had no value. Automobiles, refrigerators and similar items were luxuries for the very rich. A modern refrigerator was not just an appliance, but a decorative status symbol, to be polished and shown to admiring visitors. The opposition political parties blamed the poverty on socialist government policies, but in truth, the poverty was mostly due to lack of income, which is the source of most poverty.

An example of an Israeli industry was the detergent factory at a certain kibbutz. This detergent factory did not make any detergent. It imported detergent for say, $500 from Germany, paying the shipping of $50 or so. For another $400 it packaged the detergent, and for another $50 it shipped it back to Germany. It sold products costing $1,000 in total for $900, making a profit of $100. This was possible because the import dollar was exchanged at a different rate than the export dollar, and the difference was made up by a subsidy, which in turn was subsidized by printing money, which was subsidized by insufficient borrowing at relatively high interest and more printing of money. Our ministers of the treasury were depised by most of the citizens as agents of impoverishment and sources of draconian decrees. The truth is that they were financial wizards who made possible an economic perpetuum mobile. The Israeli economy of the early years ran on will power. It was the transposition, on a national scale, of what the Yiddish writer Shalom Aleichem had long ago characterized as the main occupation of Jews - Luftgescheft - air business. In the 1960s, experts calculated that Israel would certainly be bankrupt in ten years, as it would be unable to service its national debt. Nobody was worried though. Experts are always announcing things like that about Israel. In the 1930s, British experts proved that it would never be economical to irrigate the land using water pumped from the sea of Galilee, and therefore the land could only support perhaps a million more people in total. But Israel built the national water carrier anyhow, and it pumps more water in a day than was consumed in all of Palestine in the year 1948, and the population is many times greater than was dreamt of in the philosophy of those experts.

Nonetheless, it is hard to walk on water without getting your feet wet. The laws of economics cannot be suspended as Joshua suspended the Sun in Geba and the Moon in the valley of Ayalon. Printing money leads to devaluation of currency. Devaluations were announced without warning, after the banks were closed. Often they were announced in the late evening hours. A man could go to sleep a millionaire and wake up a pauper. It happened. In consequence, every private transaction, savings account, labor contract and rent contract became tied to the dollar. The artificial exchange rates produced a "black" market that was a national institution. The Jerusalem Post published the price of the black market dollar regularly, as well as the going rates for commercial ladies, for the benefit of tourists.

The socialist government was replaced by a free enterprise one in 1977. Soon after, the different dollar rates and economic controls were abolished and taxes on luxury items were lowered. The Likud was going to show the people the benefits of free enterprise. The result was 500% annual inflation, which was licked eventually by firing the minister of finance, a hapless fellow named Aridor, and instituting draconian controls. That didn't solve the basic economic problems of Israel.

Israel's economic problems were solved in large part by the hi-tech and software industries. Software does not have to be produced in quantity. The shipping costs are minimal. The value is in the idea. In 2006 Israel had a favorable balance of trade for the first time in history. Israeli currency, once the butt of jokes, appreciated by about 15% in relation to the dollar.

In large part, twenty first century Israel is the gift of the software compiler. But that is only part of the story.

Ami Isseroff

Continued (Permanent Link)