Almost One-Seventh of Israel's GDP Comes To Israel As American Foreign Aid And Charity:
Growth Is Easy When Someone Else Pays The Bill!
Alvin Rabushka If Israel is a world leader in economic growth, why does its government relentlessly seek out U.S. aid,
and government loan guarantees? How can any country turning in one of the world's highest growth rates demand
uninterrupted U.S. aid of $7 billion a year and billions in private charity, along with $3 billion in loan guarantees year
after year from the United States? To date, since Israel`s founding, this American aid and loan guarantees has
amounted to over $845 billion dollars in 1998 U.S. dollars.
This leads to the questions:
- Shouldn't aid, charity, and loan guarantees be reserved for the truly needy, such as the impoverished residents of
Africa and Latin America and America itself like residents of inner city ghettos?
- Doesn't the Israeli sense of national pride extend to self-support?
This question remains largely rhetorical, of course, as it has been for decades. Meanwhile, Israel falsely points to how it
has persevered in building an economy all alone when the reality is that the nation has been continually extending its
hand towards the United States with a begging bowl outstretched.
Let's look behind the high-growth numbers for some additional details. In 1994, Israel had the highest trade deficit of all
24 OECD countries, amounting to $7.5 billion. In other words, Israelis bought more goods from abroad, some $7.5
billion more, than foreigners bought from Israel.
How much is $7.5 billion? It amounts to $1,450 for every man, woman, and child in the country. Every family of four
consumes $5,800 in imported goods that it does not have to pay for from its earnings. These imports, in essence, are
free paid for by the hard-working American taxpayer for an Israeli foreigner.
This gift is made possible by the generosity of U.S. taxpayers, who pump $7 billion a year into the Israeli economy in
free gifts, known in economic jargon as unilateral transfers (foreign aid and charity). This huge sum represents a
staggering 10% of Israel's $70 billion gross domestic product. Only impoverished countries like Ethiopia with per capita
incomes below $1,000 receive anything like this fraction of their national income in free money. No middle-income
country other than Israel receives anything approaching even a few percentage points of its national income in aid and
charity. By the way, $7 billion is sufficient to bail out every bankrupt socialist institution and business in Israel itself.
But this is not the end of the statistical story. Israel has an additional deficit in what is known as the current account,
which includes services. Despite $7 billion in unilateral grants that cover the trade deficit, Israel still has a current
account deficit of about $3 billion. Where did that money come from?
$7,300 per Family
Enter the loan guarantees. Israel raised almost $3 billion in 1993 and another $3 billion in 1994. The money became part
of Israel's foreign exchange reserves and was used to cover a sharp rise in the current account.
How much is $3 billion in loan guarantees? It amounts to about $385 per person, or $1,540 for a family of four. When
the aid, charity, and loan guarantee dollars are totalled up, every family of four now has $7,300 a year to spend on
imports that it does not first have to earn thanks to the generosity of hard-working American taxpayers who bear the
pain for the wonderful well-being of Israelis. You might want to keep your calculator handy and tap in the numbers as
you continue to read.
Let's recalculate the growth figures for 1994. The loan guarantees of $3 billion supplied about 3% of each Israeli's
income in 1994. Subtract that 3% from reported per capita growth of 4.3% in 1994, and the increase drops to 1.3%.
This only slightly exceeds the approximately 1% per capita growth rate Israel has averaged for the past 20 years. It is
much easier to report world-leading growth when a large chunk of the national income is pumped into the economy
from abroad free from Americans without having to earn it first.
Growth is good. Indeed, it is the primary objective of economic policy in every country in the world. But it matters how
growth is financed. Does it come from internal saving, direct foreign investment, or borrowed money? If it comes from
borrowed money, will the return on investments financed by borrowed money be sufficient to repay the loans? In
Israel's case, much of the loan guarantees money was allocated to ordinary budget expenditures for consumption, not
for investment.
Consumption v. Investment
Now let's take a look at Israel's overall balance sheet at year's end. The additional consumption of imports, financed by
$3 billion in loan guarantees, shows up as a $3 billion increase in Israel's foreign debt. The country, rather the country's
taxpayers, will have to repay this sum with interest in the future, unless Israelis can find a sugar daddy to pay that bill as
well.
Of course, the United States is that sugar daddy thanks to the American-Israel Political Action Committee which is the
most powerful special interest lobby in the United States. Thanks to the political pressure, it exerts, American politicians
from both the Republican and Democratic parties almost obsequiously grovel in having the first honour in swearing their
fealty and obedience to Israel.
It may be helpful to think about Israel's pace-setting growth in everyday terms. Imagine a family with household income
of $100,000. The family applies for and receives a VISA, Master Charge, or some other charge card with a credit line
of $3,000. It promptly proceeds to charge $3,000 of purchases in one year. Its household consumption, or income, has
risen 3%, but its debt is $3,000 higher. The family parties today, but faces a financial hangover tomorrow, unless it can
find someone else to pay the bill. This is not a good way to raise living standards, especially not in the long run. A better
way is to first earn more income.
But Israelis are a remarkable people. Somehow they will find a way to get U.S. taxpayers to foot their increased
prosperity. This is what Israel has done for the past fifty years with the United States. American taxpayers have given
the Israelis over $845 billion dollars in compounded dollars since Israel's founding. American taxpayers' have indeed
been generous with Israel, and we Israelis should be very grateful for being able to party at their expense as we extend
our begging bowls forward again this year to the United States!
Alvin Rabushka who is a senior economist working for an Israeli think-tank |
