An OECD report for 2022 showed that Israel is the most expensive country among OECD countries in dollar terms. The report does not show the full picture – we are followed by Switzerland, Iceland and the United States, and the list is closed by Indonesia, Colombia, India and Turkey.
There is a connection between how rich a country is and how expensive it is, it makes sense because in rich countries wages are high and real estate is expensive. People want, by and large, to live in rich and expensive countries, not in poor and cheap countries. But Israel is not at the top of the expensive countries because it is the richest, it is there because there is a mismatch between our wealth, which is expressed in our labor productivity (i.e., wages) and the cost of our products. In order to change this anomaly, we need policies aimed at reducing the cost of living.
The problem is that the cost of living cannot be reduced by artificial means, and it is impossible to reduce the cost of living without paying a political price.
Two main reasons cause paralysis in this area: first, our misconceptions about the cost of living are always consistent with the party we love. Our perceptions of who are to blame for the cost of living will always be tied to the behavior of our political opponents. No one will change parties because they care about the supermarket, because you vote according to the legal reform or the security situation or who yelled at who's on the bus or the political thing that's happening now.
Netanyahu was the best finance minister in the history of the country, he saved us from the Histadrut pension funds, led foreign exchange liberalization, carried out reforms in allowances and put Israel on the tracks required to join the OECD, the same organization whose opponents today often quote.
But Netanyahu was not rewarded at the ballot box and learned his lesson. When no citizen is willing to pay a political price, then no politician will give political compensation.
The second main reason is institutional – behind every shekel of gap in the price of a product, there is a political-economic institution that earns this shekel. These institutions are familiar with the game, and have been in it since the establishment of the state. Any criticism of them will provoke a strong backlash.
One of the reasons for the high cost of living is the low level of teachers in Israel, which affects the quality of studies and students' future work skills, but anyone who dares to talk about any reform is attacked and silenced by the powerful teachers' unions. Anyone who talks about exemptions and tax benefits for powerful industrialists is attacked and silenced on the grounds of protecting workers (workers who in practice serve as human shields for failing factories).
Anyone who talks about the Histadrut's contribution to the forced transfer of enormous wealth from weak workers to powerful unions and bloated bureaucratic apparatuses is attacked and silenced as if he were against organized labor. Whoever is in favor of the free import of milk, eggs or just food is attacked and silenced as if he is the one destroying Israeli agriculture.
Anyone who tries to explain that free early childhood education is a huge subsidy for the ultra-Orthodox is attacked and silenced as if he were against education.
No matter what solution is offered to the cost of living, there will be a bureaucratic, clerical, Histadrut, or political institution that will explain why this solution is not suitable. And if a politician is found who tries to understand the solutions at all, it will be explained to him by those institutions that it is not worth paying the political price, because he will not succeed in his reforms and will not be rewarded at the ballot box.
Israel is the last place in the Western world that has milk and egg quotas, that has an organized labor cartel, that has a standards institute so centralized, that education and transportation are controlled by bureaucrats and committees, where welfare is sectoral, where housing barriers are so many, and it is probably also the only place in the world where citizens do not see the direct connection between the reasons for the cost of living and the cost of living itself.
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