Will #OyVeyDonaldTrump Pop The Bubble, New Economic Dawn Or More of the Same of Barak Obama

Nearly four decades ago, political pundits were shocked as voters turned away President Jimmy Carter and voted in Ronald Reagan, who promised to bring fundamental change to Washington and the indwelling political establishment. At the time, unemployment was rising quickly and inflation raged in double-digits, and Reagan had promised to deal with the economic failures by cutting income tax rates, slashing government spending, and reducing the regulatory burden.

As we know, Reagan succeeded in convincing Congress to do one of those three things — cut income tax rates — but the spending and regulatory monster continued to grow. The Carter administration already had initiated most of the major deregulation initiatives, and Reagan’s role in that area was minor at best. Reagan had to deal with something else in 1982 that threatened to turn his presidency into a one-term failure: a major recession in which the nation’s unemployment rate rose to above 10 percent and the disappearance of whole swaths of the nation’s industrial sector, resulting in what has been called the “Rust Belt” of the northern United States.

Ending 1970s-Style Inflation

We know the rest of the story. The economy recovered (despite interest rates that were above 10 percent) and Reagan won re-election in 1984 in a huge electoral landslide. We also know that while the Reagan administration had many failures, capital investment nonetheless turned toward the “high-technology” sectors and telecommunications.

The one thing that was on no one’s political agenda in 1980 was on Federal Reserve Chairman Paul Volcker’s mind: how to wring inflation out of the system and reestablish some balance in the monetary sector. Reagan claimed that by cutting tax rates, businesses would follow with new investments and increase the supply of goods available to consumers, thus reducing inflation on the “supply side.” This is why the Reaganites referred to their plan as “Supply-side Economics.”

Volcker understood, however, that while supply-side’s boosters might have claimed it to be a painless way to end inflation, it clearly would be doomed to failure, something Austrian economists like Murray Rothbard and others also comprehended. Inflation is first and foremost a monetary phenomenon and reducing inflation would not come about by just cutting taxes and producing more goods. Instead, Volcker and the Fed needed to stop expanding the economy’s money supply and also allow interest rates to rise — and rise they did.

Unfortunately, the pundits (along with most economists — who should have known better) employed the post hoc ergo propter hoc fallacy, claiming that higher interest rates caused the severe recession of 1982. Instead, the higher interest rates exposed the economic malinvestments that needed to be liquidated before the economy could have a real recovery, and while Austrian economists are not necessarily satisfied with what the Fed and US government did during the 1980s, some positive things happened with the economy during the 1980s.

Will Trump Pop the Bubble?

Donald Trump faces a much different situation post-election than did Ronald Reagan, but nonetheless a recession looms, as the Federal Reserve policies of the past two decades have piled up a mountain of malinvestments, and especially since 2008, when the housing bubble finally crashed.

Since then, the economic “game plan” for the Fed and the Barack Obama administration has been to prop up the weak sectors of the economy through a combination of outright subsidies and Fed security purchases. The stunning diagram below explains in part why both interest rates are extraordinarily low and the US economy remains sluggish.

As one can readily see, Fed purchases pre-2008 meltdown consisted mostly of six-month U.S. Treasury Bills, with the dollar amount being about 5 percent of US Gross Domestic Product (GDP). Post-meltdown purchases, however, have skyrocketed, and the Fed, while cutting back on six-month T-bills, has engaged in two very questionable activities, including the purchase of massive numbers of mortgage securities to continue what is left of the housing bubble, and buying long-term US bonds in order to decrease the interest rate spread between short-term and long-term securities. This is something that former Fed Chairman Ben Bernanke called “Operation Twist” (or what Peter Schiff more aptly said should be named “Operation Screw”).

The purchases tended to level off after 2014, but not until the Fed was propping up a quarter of U.S. GDP through its purchases. Yes, the official rate of unemployment in this country is less than 5 percent, but no one — not even Paul Krugman — is claiming that all is well. Certainly, both Bernie Sanders and Donald Trump were able to generate a lot of political enthusiasm for saying the economy is in peril.
The Real Problems Underlying This "Expansion"

Because Keynesians are wedded to the false “theory” of aggregate demand and aggregate supply, they are incapable of understanding the real issues facing the economy, and no one should be surprised. After all, Japan’s political and business leaders have been delusional for a quarter of a century, as the government now is trying to “stimulate” the economy via negative interest rates, something that truly places the government in a war with nature. For that matter, Krugman’s recent claims that future “austerity” measures — presumably imposed by the future Trump administration — will lead to a recession actually demonstrates a terrible ignorance of what actually causes economic downturns.

The US economy clearly is sluggish, yet interest rates are very low, thanks to Fed programs like quantitative easing. Yet, while Keynesians call for increased amounts of government borrowing and spending (called “fiscal policy” in Keynesian jargon), the problem isn’t a lack of government-bred “stimulus.” The problem is that of large-scale malinvestments. When the Fed finds it necessary to use its large checkbook to manipulate huge swaths of the economy through playing with interest rates, there is no doubt that there are large underlying weaknesses throughout the economic system. Combine that with the vast government subsidies of “green” energy and the gargantuan amounts of money being poured into the unproductive US Armed Forces, and one can see that the government is cannibalizing the productive sectors in order to prop up the unproductive ones.



What Must Be Done

What needs to be done, or more specifically, what must the government not do so that a real economic recovery can occur? First, and most important, the Fed must stop purchasing mortgage securities and long-term treasuries. That means that both mortgage rates and long-term interest rates will rise, and this also will pull up short-term rates. The economy cannot have a recovery if the Fed fails to do this.

All of this seems to be counterintuitive, since both Keynesians and Austrians agree that the immediate effect of the Fed’s discontinuation of such purchases would mean a steep, short-term recession. Permitting interest rates to rise means that both housing and related industries will be hit hard (as was the case in 1982 — and the industry demanded a bailout). The current economy — sluggish as it is — is addicted to low rates, and this cannot go on if the USA is going to avoid the fate of Japan and Europe, where the economy also is weak.
Austrians vs. Keynesians

However, Austrians and Keynesians diverge at interpreting what actually is happening after interest rates increase. Keynesians claim that aggregate demand is falling and will continue to fall until the economy reaches bottom unless government intervenes through spending and more money creation. Austrians, on the other hand, realize that in the short term, malinvestments that built up during the credit-caused boom are being liquidated, and if government and monetary authorities permit the liquidation and do not block the redirection of resources, entrepreneurs will lead the economy into a real recovery.

For that matter, Austrians and Keynesians are not even on the same planet when it comes to interpreting the role of interest. Austrians note that interest rates are connected to time preferences of borrowers and savers, and that interest rates send signals regarding the direction of capital goods and consumer goods. Keynesians, on the other hand, see interest rates as the gateway for aggregate demand, and suggest that interest rates generally should be lower than they would be if set by the market.

This difference of thinking is crucial. Keynesians demand an economic version of the alleged Einstein definition of insanity: doing the same thing repeatedly and expecting different results. Japan has engaged both in massive government spending (read that, building tunnels, roads, and bridges to nowhere) and monetary manipulation, even resorting to negative interest rates, and yet Japan suffers from anemic economic growth — and will continue to experience the same until someone is willing to admit that 25 years of “stimulus” does not an economy make.

Donald Trump will face this moment, like it or not. Barack Obama faced it and decided to kick the can down the road and opt for yet more “stimulus.” How Trump deals with it will determine whether or not the US economy recovers from bad policies, or goes the way of Japan and Europe.

The irony (at least for Keynesians and fellow True Believers) is that the very thing that Keynesians believe will create long-term economic downturn — raising interest rates — is what the US economy needs most. More than a decade of artificially-low interest rates has distorted the economy’s structures of production to the point where it will take a sharp recession to bring back productive balance — as counterintuitive as that may seem to many readers. There is no doubt that should Trump agree to allow rates to rise, he will pay a steep political price, as there is no doubt that the Dow Jones Average will tank and short-run liquidation of malinvestments will create some havoc.

What should Trump do when higher interest rates expose many of the dislocations? In a word, nothing. When the 1982 recession was in full force and much of official Washington, along with journalists, was calling for reflation of the economy, bailouts, and other “corrective” measures, President Reagan simply replied, “Stay the course.” Although, as noted earlier, Reagan did a number of things that were both politically and economically harmful throughout his presidency, nonetheless, he was right on that point, and ultimately his stubbornness bore some economic fruit.

#OyVeyDonaldTrump and tanking the economy

Predictions are a treacherous business, especially when they concern Donald J. Trump. Nevertheless, I'm going to stick my neck out: Within four years, President Trump will tank the economy.

First off, a few things that I don't think will matter, since a lot of other commentators obsess over them: Trump's erratic behavior isn't going to panic the stock market, and his changes to global trade arrangements will be modest, perhaps even positive.

Worries to the contrary all make a similar mistake: They assume the wealthy and their willingness to invest is the central driver of economic action. Instead what matters is the activity of ordinary people: their trades, their purchases, their daily work, their small risks, their ongoing efforts to make life for their families a bit better. Without all that, there are no financial assets for investors to park their money in.

This brings us to Trump and the Congressional GOP.

It's unlikely their policies will create a repeat of the 2008 financial crisis. They could if they dismantled Dodd-Frank's financial regulations, but the Republicans' majority in the Senate isn't anywhere near big enough to break a filibuster. To paraphrase Tolstoy, all happy economies are the same; all unhappy ones are unhappy in their own way.

Instead, Trump and the Republicans will gut the U.S. budget, and thus the economy, via reconciliation, a Senate procedural move that allows lawmakers to pass bills with simple majorities if they're solely concerned with budgetary questions. They'll use this tool to suck hundreds of billions of dollars out of ordinary economic activity every year, depriving Americans of spending money, shrinking business revenue, lowering investment, and cutting tens of thousands of government jobs. This will lead to even less macro-economic spending, thus sending the economy into a tailspin.

House Speaker Paul Ryan has his budget ready to go, which would take an axe to Medicaid, food stamps, housing assistance, and the rest of the safety net. Then there's another budget-slashing proposal from the arch-conservative Heritage Foundation, which is apparently serving as a basis for Trump's plans as well. As The Hill just reported, these cuts would extend far beyond the safety net, and decimate most of the government's investments in civil society.


A quick sampling: Programs at the Department of Justice that deal with civil rights and violence against women will be reduced or eliminated; energy programs to promote nuclear physics, green energy, efficiency, and more will be cut; the Corporation for Public Broadcasting would be privatized; the National Endowment for the Arts and the National Endowment for the Humanities would be wiped out entirely. Tens of billions will be cut from energy subsidies, transit, water conservation, and more.


Every safety net program is extra money in people's pockets to spend in their communities, sustaining business and the jobs they create. Every government project invested in, every staff position created, is one more person with a paycheck, who can then go out and spend, producing ripples through the private sector, and leading to more investment and more hiring. Trumps' cuts will bleed hundreds of billions of dollars out of those virtuous cycles every year.

To get a sense of the sheer scale of the change, the total reductions in the Heritage blueprint come to $10.5 trillion over the next decade. That's roughly one quarter of all federal spending. That's truly gargantuan.

Now, some of the cuts in Heritage's budget are to Medicare and Social Security, which Trump is staying away from so far. Ultimately, the GOP may even balk at repealing ObamaCare's subsidies. All of which would bring that $10.5 trillion down to $7.5 trillion or $6.5 trillion. Which is still a gargantuan sum.

On top of that, Trump's appointments to the Federal Reserve will probably slow the economy further. During his campaign, the president was all over the place on monetary policy. But he eventually settled on the standard GOP line: Tight money and higher interest rates. This would be like tying weights to the economy's back after Trump's budgets have already bled it by a thousand cuts.

One could argue that Trump's tax cuts will offset all this. They could add up to $6 trillion themselves to the debt over 10 years, though right now no one really knows what Trump is planning. But the vast bulk of those cuts would not put money back in the pockets of ordinary workers and consumers. They would put money back in the pockets of wealthy investors. Even Trump's much-ballyhooed infrastructure plan is reportedly going to be graft for big business via corporate tax cuts. All in all, spending reductions will probably far outweigh tax cuts, at least in terms of the economic activity that drives most economic growth.

It's possible this outlook is too bleak. Trump could defy his party and resist more than just the cuts to Social Security and Medicare. Or he could switch back to his old love for low interest rates. Or the Republicans themselves could just wimp out in the face of popular backlash. All of that seems unlikely, though.

My analysis might even be too optimistic. Trump is a consummate salesman but an empty vessel when it comes to policy. So he could just wind up caving to the congressional GOP's demands, and give the country the "full Heritage."

So, best-case scenario: The already-lackluster economic recovery slows even further to a bare crawl. Worst-case scenario: The policies of President Trump and the Republicans pitch us into recession sometime in the next four years.

You heard it here first.

Oy Vey God Save America from Donny T - Trumponomics and How would it affect Zion

Oy Vey God Save America from Donny T - Trumponomics and How would it affect Zion


Israel should prepare for a world in which economic borders and walls are restored.

WHOM WILL Americans choose as their president on November 8? Arguably America’s choice for president is as important for the people of Israel as their own prime minister.

He or she will impact Israel’s foreign policy, economy, defense and even internal politics.

Democratic candidate Hillary Clinton’s policies and platform are more or less transparent.

She has been highly visible for some 24 years, serving as US senator, secretary of state and an active first lady, beginning with Bill Clinton’s election in 1992. She first visited Israel 39 years ago and has been back many,  many, many times since.Donald Trump has never visited Israel. Not even once or for that matter any other country in the Middle East.

In contrast, the Republican candidate Donald J. Trump, host of the popular reality show “The Apprentice” for 11 years, is rather opaque. As a BBC commentator noted, when Trump announced he was running for president on June 16, 2015, he was widely mocked by pundits. They are laughing no longer.

Though Trump trails Clinton in the polls, political analyst Nate Silver, who correctly predicted the results of the 2012 presidential election in all 50 states, gives him a 38 percent chance to win. And there are still three months left until the election.

Trump regularly foregoes teleprompters and written speeches, preferring to improvise.

This makes it hard to nail down what he believes and will implement. But it is possible to piece together a fairly coherent picture of Trumponomics – the Trump view of business and economics.

For months I’ve been reading mountains of columns by economists and experts vilifying Trump and scorning his views. A closer look at his speeches and statements reveals that there is a reasonably consistent worldview known as Trumponomics and it is not at all stupid.

Moreover, Trump has growing numbers of counterparts in Europe as well whose beliefs match his. Even if he loses the election, Trump and his ideas will powerfully impact politics in the US, the world and, perhaps, even in Israel.

Who is Donald J. Trump? Trump is largely known for his fierce opposition to immigration and his call for a wall on the Mexican border to be built and paid for by Mexico. Despite this, Trump himself is the son and grandson of immigrants. His mother, Mary, was born in Scotland, immigrating to the US when she was 18. Trump’s father Fred, a real estate developer, was the son of immigrants from Kalistadt, Germany.

Trump’s third wife, Melania, emigrated from Slovenia.

Trump was the fourth of five children.

He had to leave school at 13 because of bad behavior and was sent to the New York Military Academy. He has an undergraduate degree in finance and commerce from the University of Pennsylvania, an Ivy League school. In college, he got four draft deferments, including a medical deferment, which kept him from fighting in Vietnam.

How wealthy is Trump? It’s hard to say. He refuses to reveal his income tax returns, the first presidential candidate to refuse since 1976. Trump says he is worth over $10 billion. Forbes magazine estimates his wealth at $4.5b.; Bloomberg, $2.9b. In any event, he is a billionaire.

One of his main assets is his name. Trump claims his Trump brand is worth about $3b. (Forbes says it is worth only $200 million).

His name appears, or appeared, on such products or services as an airline business, bottled water, trail mix, hats, gum balls, gummy bears, tea, pan pizza, a video game, a university, steaks, vodka, wine and many others. Cynics have suggested that Trump’s presidential candidacy enormously boosts his brand value, win or lose, and that is his major goal.

Why is Trump against globalization? Globalization is the process of eliminating national economic borders and fostering free trade and movement of goods, services, capital, information and people across countries. It accelerated with the fall of the Berlin Wall in November 1989 and the reunification of Germany, leading to the European Single Market, and with the admission of China to the World Trade Organization in 2001.

Globalization has created enormous wealth for some individuals, businesses and countries, especially in Asia. For two decades, world trade grew twice as fast as the world economy. Those able to compete in world markets became wealthy. But it also created enormous loss and suffering for many, and rampant financial speculation led to the 2008 global collapse that the world is still struggling to deal with.

Trump thinks America has lost out in free trade. He opposes NAFTA (the North American Free Trade Agreement that lowered or eliminated tariffs between the US, Canada and Mexico) and opposes the Trans Pacific Partnership (TPP), which would do the same for US-Asia trade.

The global retailer Wal-Mart has some 6,000 suppliers in China. As a result, American consumers can buy inexpensive products made in China. This is a major gain.

But, on the other hand, Pittsburgh steel workers have lost their jobs and so have many other blue-collar American workers ‒ Chinese workers now have the jobs and the pay. And the Americans? They work at far lower pay for Wal-Mart and McDonald’s.

Economists claim, opaquely, that free trade and globalization are “paretooptimal.”

That means the net gains from it exceed the net losses. If, they say, the losers were compensated fully, there would still be wealth and income left over. That is small comfort to the millions of people whose job skills are now obsolete. They have not been compensated at all for their losses and their incomes have stagnated. They are Trump’s constituency.

And these losers are not only Americans.

Many Israelis, too, have lost out through globalization.

Israel as a nation has gained a lot, because it has leveraged its entrepreneurship, innovation and hi-tech skills into powerful growth engines, made possible by free trade and access to world markets. But only 8 percent of the Israeli labor force is hi-tech.

What about the other 92 percent? If Trump were speaking in Hebrew about how globalization has hurt the lower middle class, he would find responsive listeners in Israel.

Globalization of capital markets has enabled the wealthy to double their money effortlessly every decade. Low and even middle-class people who possess little or no wealth cannot.

So, for the first time in decades, globally, the wealthiest 1 percent of the world hold more wealth than the poorest 99 percent.

Though he is among the one-tenth of 1 percent of the wealthiest, Trump plays on this chord and finds it resonates with his supporters.

If elected, Trump has threatened to slap tariffs on Chinese imports. He claims, with good reason, that China’s currency, the renminbi, is kept undervalued (too cheap) by Chinese purchases of dollars.

As I write this, you can get 6.69 Chinese renminbi (“money of the people” in Mandarin) for one dollar. That will buy you a lot of Chinese goods. The true purchasing-power value of the renminbi is about four per dollar.

This means that everything China sells to the world is one-third cheaper (in dollars) than it would be if its exchange rate were set in open free markets. If China stopped buying dollars, its currency would rise to around its true purchasing power level.

Moreover, the renminbi exchange rate has moved (or has been moved) in the wrong direction since 2014, when you got only six renminbi per dollar; instead of getting more expensive it is getting cheaper.

A US tariff on Chinese imports will ignite a trade war, with China inevitably retaliating.

This would hurt Israel because it depends crucially on its exports and free trade, and a reversal of globalization would entail large economic damage for Israeli exporters.

Chinese purchases of US treasury bonds are in part how borrow-and-spend America has paid for excessively high levels of consumption and trade deficits, now exceeding (according to Trump) $800b.

Do Americans understand that they have been living on borrowed money and borrowed time, and that Trumponomics may signal an end to this party? Strangely, Trump’s opposition to globalization is supported by the research of one of history’s greatest economists – the late MIT professor Paul Samuelson, a Nobel laureate. Long ago, Samuelson proved, in a very dense theoretical paper, that in direct contradiction to conventional Economics 101, free trade does not benefit both trading partners. If one partner (US) cedes its manufacturing to another (China) through trade, by importing manufactured goods, China reaps all the gains from productivity increases inherent in manufacturing and America loses them. And this is precisely what has happened.

But a coalition of powerful wealthy interests, largely Republicans, supports free, open trade, Trump notwithstanding, because they have gained immense fortunes from it. Trump speaks for those largely silent until now, who have been big losers.

It is a huge irony that it took a billionaire to speak for the blue-collar underclass and an even greater irony that it is a right-wing Republican who is blasting the destructive impact of globalization and free trade.

Is Trump a business genius? The Washington Post newspaper summed it up thus: “Trump is a mix of braggadocio, business failures and real success.” Trump’s hotel and casino businesses have declared bankruptcy four times in two decades, during 1991-2009. Trump once told Newsweek magazine in 2011, “I do play with the bankruptcy laws ‒ they’re very good for me” as a tool for trimming debt.

Israeli tycoons, too, have been known to trim debt with so-called “haircuts” that have cost pension funds and banks billions of shekels. But they are not running for the highest political office.

Does Trump have a coherent economic plan? No – but show me a politician who does.

Trump wants to cut corporate taxes to 15% from 35%, and cut personal income taxes to between zero and 25%. He also wants to pay off the national debt, slash the budget deficit and boost defense spending.Donald Trump totally ignores the US Deficit of $19 Trillion just as he ignores the estimated 87% debt load of the Trump Group.

The last candidate who promised this was Ronald Reagan, in 1980. In his two terms as president, Reagan both cut taxes sharply (in 1982, and again in 1987) and boosted defense spending, as he promised. The result was a spurt of Keynesian deficit-spending growth that led to an economic boom. Reagan was no Keynesian – but nobody cared, the end result was good, and to this day Republicans revere the Reagan presidency.

Does Trump support Israel? Trump does have a Jewish connection.

His daughter Ivanka is married to Jared Kushner and converted to Judaism before her marriage. Trump told this year’s AIPAC convention and later, CNN, “Not only do I have Jewish grandchildren, I have a Jewish daughter; and I am very honored by that.”

Trump is largely unfamiliar with the Middle East quagmire, but part of his “Make America Great” program appears to involve making countries pay their fair share of defense capabilities, and this bodes ill for the massive annual defense aid paid to Israel, now under negotiation. Even if Israel does agree to the proposed Obama defense assistance agreement, Trump could rescind it if he becomes president.

In his best-selling 1987 book The Art of the Deal, actually written by ghost-writer Tony Schwartz, Trump admits he uses “truthful hyperbole.” Hyperbole – exaggeration – is by definition untruthful.

In gaining the Republican presidential nomination, Trump made outrageous statements and gained attention in this way.

Now, as presidential candidate, every word Trump speaks will be weighed and fact-checked.

But Trump has shown no inclination of mending his ways. It may well be that truthful hyperbole will be his undoing.

But in his closing speech at the Republican National Convention, Trump skipped the hyperbole and gave a reasoned talk, which he uncharacteristically read.

“America has lost nearly one-third of its manufacturing jobs since 1997, following the enactment of disastrous trade deals supported by Bill and Hillary Clinton. Remember, it was Bill Clinton who signed NAFTA, one of the worst economic deals ever made by our country. Or frankly, any other country. Never, ever again.

“I am going to bring our jobs back to Ohio and Pennsylvania and New York and Michigan and all of America, and I am not going to let companies move to other countries, firing their employees along the way, without consequences. Not going to happen anymore… I will make individual deals with individual countries. No longer will we enter into these massive transactions with many countries that are thousands of pages long and which no one from our country even reads or understands.

“We are going to enforce all trade violations against any country that cheats. This includes stopping China’s outrageous theft of intellectual property, along with their illegal product dumping, and their devastating currency manipulation. They are the greatest currency manipulators ever. Our horrible trade agreements with China, and many others, will be totally renegotiated,” he said.

This is the essence of Trumponomics ‒ “individual deals with individual countries” means good-bye globalization, whose essence was the most-favored nation General Agreement on Tariffs and Trade deal. It stated that what is offered to one trading partner must be offered to all.

If Trumponomics happens, it would be bad for Israel’s economy. Trumponomics seeks to limit world free trade. Israel’s main growth engine is trade; limiting trade will do damage.

Trump is a symptom. Even if he loses, his anti-free trade ideas are spreading. Israel should prepare for a world in which economic borders and walls are restored. It sounds fanciful, but perhaps Israel should seek associate membership of the European Union, as a preventive measure. Small trading nations need to join large powerful clubs in a world of deglobalization. 

Blood , Indiscrimate Shootings and Stabbings,Opposition Hystria and Terror : Impact on the Economy of Zion

How much does blood really cost?

Zionist Union Knesset Member Ayelet Nahmias-Verbin has been researching the economic impact caused as a result of the recent wave of terror, and what can be done to counteract it.God only knows why Ms Nahmias -Verbin thinks that her personal research beats that of the Bank of Israel with their 67 Phd and 89 MA  and 72 MBA researches but hey..... she probably thinks .... haven't been in the news for a why .... let me say something catchy and then blame it on Binyamin Netanyahu instead of Rabin's Oslo II

How much has the Israeli economy been affected by the wave of terror which has been crashing over Israel for the past six months? Has the Israeli consumer been buying less in light of the attacks? Which sectors of the economy have been hit hardest?

These questions and more were asked by Ayelet Nahmias-Verbin (Zionist Union) to the Knesset Research and Information Center a month and a half ago. The Knesset Research and Information Center provides Knesset members with access to dozens of researchers in various subjects, and enables lawmakers to create legislation based on the most accurate and up to date data.

What was brought to light that while there has been some affect to some sectors of the economy, there is evidence that recovery has been occurring. This doesn't take into account the recent Sarona Market attacks.

In November and December 2015, when the wave of terror was cresting, the revenue index dropped by a percent and a half. It rose a little in the months of January and February 2016, but not enough to close the gap.



How much has the Israeli economy been hurt by the current wave of terror? (Photo: Israel Police)

The revenue index is reported by the Central Bureau of Statistics every month, and is based on state revenue from Value Added Taxes (VAT) and is used as a marker of revenue.

One of the sectors hit hard by the terror wave is tourism. There were 219,167 tourists who entered Israel in November 2014, and 203,449 in December 2014. That number dropped to 197,230 just a year later. This drop in tourist numbers represents a $30 million loss to the Israeli economy.

Israelis also bought fewer electronics and cars during the wave of terror. Israelis were spending NIS 1,742 per capita on electronics in the last quarter of 2014, a figure which dropped to NIS 1,607 per capita the same quarter a year later.

Nahmias-Verbin isn't surprised by the results.

"The correlation between terror and the economy isn’t new," she said. "It seems that we are living in a reality whereby the meaning of 'economic terror' has become more relevant than ever before."

"There are three principal reasons (for this downward trend); the fact that this is an continuing issue over the course of several months and not just a singular event, the type of terror which turns all of Israel into a target, and the overall lack of certainty amongst Israelis."


"As elected public officials, we have (a responsibility) to constantly monitor how the security situation affects the economy, and to promote growth and development. If this downward trend continues, the relevant bodies must help to facilitate business through (changes to) taxes and levies. As a member of the Economic Council, I will make sure that this issue is brought to the forefront."

Ayelet Nahmias-Verbin (Hebrew: איילת נחמיאס-ורבין‎‎, born 19 June 1970) is an Israeli lawyer and politician.She was born and raised in Tel Aviv. She studied law at the Hebrew University of Jerusalem. In 1991 she joined the Labor Party, and later became assistant legal advisor to Prime Minister Yitzhak Rabin. After Rabin was assassinated in 1995 she became a director for two years of Tavlit, an irrigation company. She has described herself often as a stay at home homemaker . Only nepotism ( and her personal friendship with Tzipi Livni placed her 22nd on the Zionist Union list (an alliance of Labor and Hatnuah) for the 2015 Knesset elections,and was elected to the Knesset as the alliance won 24 seats.
Nahmias-Verbin lives in Jaffa and is married with three children. Her father-in-law is a former mayor of Ramat HaSharon. The probability of Tzipi Livni 's Hatnuah holding elections is slightly less than JC and Mohammed  on the stage of Tel Aviv's Gay Parade with Playgirl Centerfolds on each of their arms.  

 The Bank of Israel has research this subject and recently released the press release on The Impact of  "Terrorism, Israel's Image, and Economic Variables on Different Types of Incoming Tourism"​

The security situation has a significant impact on tourist arrivals in Israel, but to different degrees depending on the purpose of the visit: tourists coming on a pilgrimage, vacation or for touring are affected to a great extent by the level of terrorism, while those coming on business and to visit relatives are minimally affected.

Tourists with an attachment to Israel—whether as Jews or as tourists who have visited the country previously—are less affected by the level of terrorism, in each purpose of the visit.

The impact of economic variables on tourist arrivals is secondary: The economic variables, including the exchange rate, have more of an impact when the security situation is calm.

In 2012 the tourism industry employed about 110,000 people. This is a labor-intensive industry in which a relatively large percentage of employees are drawn from the periphery, and, conspicuously, the proportion of employees with no academic degree is high. These characteristics of the composition of tourism employees indicates that the industry is more important to Israel than its relative share of GDP—by virtue of its ability to provide work for people with a low level of education, whose rate of employment in recent years has been lower than those with higher education. The tourism industry in Israel relies mainly on overseas tourists, whose visits provide higher added value to the economy than Israeli tourists.

The demand from tourists to visit Israel is largely dependent on the security situation. Figure 1 shows that incoming tourism reacts immediately and severely to a deterioration in the security situation in the country and the region. A salient example of this was the period of the second intifada, during which the number of incoming tourists fell drastically.

Tourists, however, are not a single entity, and their visits have different purposes (pilgrimage, vacation, business, etc.). Some of them are Jews and others Christians; some arrive in an organized framework, others independently; for some this is their first visit to Israel, others have visited the country previously. Likewise, the impact of the security situation on tourism demand is heterogeneous. This article therefore analyzes the impact on each type of tourist separately.

An econometric analysis estimating the impact of the security situation on each type of tourist, found that incoming tourism is clearly affected by the security situation. The impact, however, differs according to the purpose of the visit: tourists coming on pilgrimages, vacation or for touring are affected to a large extent by the level of terrorism, while those coming on business and to visit family are minimally affected. Tourists who have an attachment to Israel, whether as Jews or as tourists who have visited Israel previously, are less affected by the level of terrorism, in each purpose of the visit.

The study uses a new database assessing Israel’s image through the number and type of articles about Israel in world media. Data on the number of media articles about Israel dealing with wars and unrest did not make a significant contribution to explaining the changes in the number of tourists, beyond the variable of direct mention of the number of people killed in terrorist attacks. As a rule, the security situation has a dominant effect on the number of tourists coming to Israel, and articles about lifestyle in Israel, a subject unconnected with the security situation, were not found to have an impact on the number of incoming tourists. However, data on the number of articles dealing with economic issues did contribute to explaining the number of tourist entries for business purposes.

The security situation also overshadows tourists’ economic considerations. Due to the marked impact of the security situation on the volume and composition of incoming tourism, the impact of economic variables, and the exchange rate in particular, on tourist arrivals is secondary: Appreciation of the real exchange rate (strengthening of the shekel) reduces on average, but only minimally, the number of incoming tourists, but at times when there are few negative articles about Israel, in other words the security situation is calm, changes in the exchange rate have more of an impact.

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