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This is the reason why the Minister of Finance should not be an economist
It seems that no matter what economists have learned during their careers - once they get close to politics, everything is forgotten.
Avichai Snir and Ronen Bar-El wonder how this happens
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economy
Minister of Finance
Avichai Snir
Friday, 09 April 2021, 00:00
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Economist (Photo: ShutterStock)
I received a phone call this week from my friend Ronen.
As usual, he had to grumble about something.
This time, he grumbled because in a lesson on the Israeli economy he asked the students to imagine that they were in the position of finance minister and should encourage economic growth.
"Listen," he said.
"It's not clear to me what we are teaching them for. You can cite empirical studies and mention models and in the end what they have to say is 'investment should be encouraged', and 'money should be distributed'. "When you ask them who will pay for the money they want to distribute, they answer the government. After two and a half years of economics, they still have not learned that the government has no money of its own, only the money it takes from us."
I asked him what he wanted from the students.
It's all a third year in a bachelor's degree.
"What do you mean?"
He asked back.
I replied that he would take Professor Avi Simhon as an example.
I reminded him that Avi Simhon had three degrees in economics, and even wrote a book on the Israeli economy.
"Right," Ronen replied.
"So what do you want to say?"
Instead of answering, I sent him a link to an article about Professor Simhon's attempt to reduce VAT by three percent for three months. According to the article, Simhon's argument was that lowering VAT before the election would help the economy because falling VAT would lead to falling prices. In consumption, and the increase in consumption will lead to an increase in the collection of taxes.
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"It could be that he did some work on the level of taxes in Israel and he knows what he is talking about," Ronen said.
"Let me remind you," I replied, "that prices are going down much more slowly than they are going up. The VAT is only for three months, the one who will benefit is mainly the stores, because the prices have not really gone down.
Besides, if Professor Simhon thinks that a reduction in VAT will lead to an increase in collection, why does he want to reduce VAT only for three months?
If a VAT reduction is good for both businesses and taxes, they will simply lower the VAT.
Besides, why only three percent?
You can't lower it by 17 percent and that's it? "
Forced to leave very quickly.
Omar Moab (Photo: Official Website, Zoharwz, Wikipedia)
"So what," Ronen asked.
"Are we in the wrong profession? If economics professors look like Simchon and Zelicha, there may be nothing helpful in that profession."
"No," I replied.
"There may be nothing useful in studying economics, but it's not because Simchon and Zelicha sound like politicians. Nobel laureate Milton Friedman has long understood that when an economist is involved in politics, he forgets that he is an economist and acts like a politician."
"Maybe you're right," Ronen replied.
"But do you think that if an economist with a different ideology were put in place, say Professor Omar Moab, things would look better?"
"I really like Omar Moab," I replied.
"But I remember what happened when he was appointed adviser to the finance minister. He was forced to leave very quickly."
"One thing is for sure," Ronen replied.
"I do not want an economist as finance minister. Because when a politician like Kahlon or Lapid say and do nonsense, one can take comfort in the fact that they do not understand. But if an economics professor speaks and does nonsense, what do we say then?"
Dr. Ronen Bar-El, The Open University
Dr. Avichai Snir, Netanya Academy and Bar-Ilan University
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