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Last update - 01:40 22/07/2003

Hearing voices, obeying markets

By Ariel Rubinstein

"The stars decided we are going to do it, they have already decided, and the stars are waiting. They tell us, you'll make it there, you'll get out of it, you'll take off and reach the heights .. the greatest genius on earth always knows less than the stars - that is the main lesson of the 20th century. The starts know best what to do - Alan Greenspan and the stars said we would get out of [the crisis]"

The words could have come out of the astrology pages. Change the word "stars" for the expression "coffee grounds" and it's as if they come out of a telenovella where the reader of coffee grounds sends the hero to his loved one. Trade in the word "stars" for "markets" and you have a collection of quotes from the luncheon speech delivered at the last Caesarea Economic Conference by Finance Minister Benjamin Netanyahu.

Of course, one can be forgiving of the style and say the finance minister knows how to deliver a great speech, knows how to make metaphors, and weaves his economic and social thinking with imagery. But there are some assumptions in what he says that cannot be passed over lightly.

The finance minister is trying to create the impression that the reforms he is leading are derived from supreme forces, modern laws of nature, and that anyone who doubts that determinism is an anachronistic enemy of progress. The view by which somewhere there are known, clear economic laws that determine the order of things, is in the best of cases controversial and as far as quite a few thinkers are concerned, a superstition.

Economics and the social sciences in general are characterized by the enormous difficulty inherent in identifying such laws. Talk of economic laws, sometimes regrettably from economists, is wrong and deceptive. Even if it were possible to predict economic and social outcomes, the prediction would depend on the rules of the game in which we create, consume, save and invest.

The rules of this economic game are not set by an invisible hand but by a flesh and blood government. Tax laws, employer-employee relations, commercial rules, foreign trade policies, immigration laws, the state's commitment to education and health - all these are matters of choice and the choice is made by all the individuals in society. In that choice, all of us, economists and non-economists, Netanyahu and just average worried citizens, share an equal stature.

By "reading the markets" Netanyahu strips those critical decisions away from the public and hands them over to the authority of those who control capital. And indeed the finance minister often quotes the analysts of Wall Street - who, by the way, are infallible. Pay attention to how it is that among the voices in the market that speak to Netanyahu like a divine Delphic oracle, there are the voices of people, mostly young and restless, who loyally represent the bidding of very specific interests.

Their views are relevant to a certain extent for the Israeli economy, and should be taken into consideration, but only as part of a broad spectrum of considerations led by the welfare of the Israeli citizen. Netanyahu says the market is not only more efficient - it is more just. In that single sentence, the finance minister shunts aside generations of thinkers who never regarded the connection between the market and justice as so blatantly self-evident.

It seems that all that can be learned from the centuries-old discourse on the issue is that the concept that says the market's allocations are a just result, can only be proved by the tautology that "the market is just because what's just is the market."

What is just about the market "determining" that someone who works from dawn to dusk cleaning offices gets paid less than the minimum wage, while those who work 7 hours a day inside that clean office earn 20 times that amount?

What is just about an investor in a speculative stock becoming rich overnight and someone who puts their entire life into building a productive enterprise goes broke?

What is just in a privatized health system that enables someone who received all their wealth from their parents to live a long life because of market forces, while someone who came into the world penniless and ill not being able to be cured?

What is just in a privatized educational system in which the market determines a child's level of schooling according to the parent's income level? Even if Netanyahu hears the voices of "the market" the market does not listen to the prophets of justice.

Market results can be just and they can be unjust. And when the market's results are very unjust - for example, when wages for unskilled labor are so low or working single mothers cannot earn a living for their children - the government must intervene and correct what the market has wrought.

And by the way, there are plenty of very good reasons not related to economics explaining why the settlements should be evacuated. But if the finance minister listens with such obedience to the markets, then he should take note of the voices issuing forth from the markets on the issue of the occupation and the settlements.

It used to be Yeshayahu Leibowitz who tried to persuade us that occupation and settlements would destroy us. Now all the violins, from Wall Street to Tel Aviv, are playing the same requiem for the occupation.

The writer is a professor of economics at Tel Aviv University.