Wartime Finance: We can help the economy
As originally appeared in The Jerusalem Post on October 20, 2023.
“I am a huge believer in giving back and helping out in the community and the world. Think globally, act locally I suppose. I believe that the measure of a person’s life is the affect they have on others.” -Steve Nash
While it may be less important than Israel’s actual existence, the economic ramifications of the war with Hamas are nonetheless very important.
An escalation which would include a second front in the North and potentially with Iran, would clearly change anyone’s predictions of the economic activity, but let’s put that aside for now. Adrian Filut of Calcalist writes, “The Bank of Israel and the Ministry of Finance are unhappy by the amount of extreme predictions – some of which are unfounded – that have been thrown into the air, and therefore quickly began to formulate their own scenarios. The Bank of Israel’s baseline scenario takes into account a war that lasts between a month and six months, only in the south and with high intensity.”
Filut continues, “Given this scenario, according to the Bank of Israel, the damage to the economy is expected to be similar to what we saw in the Second Lebanon War, with one significant difference – and that is the magnitude of the reservists recruited. Between 300,000 and 340,000 reservists have been called up. This recruitment greatly affects the scenario and forecasts as it affects the opening of schools and many businesses. The scenario also includes an assumption that the government will provide the security system with all the funding that will be required to complete the military mission. Therefore, most of the funding will be directed to security, despite heavy budgetary needs also in regards to the reconstruction in Israeli towns near the Gaza border.”
Learning from history we see that these types of military operations tend to cause short-term economic softening, but longer term it’s not a negative for the economy, in fact, it actually leads to stronger growth. The rebuilding of the south, pent-up tourist demand, and 200-300,000 reserve soldiers going back home and both working and spending will be a boom for the economy. Add to the mix that in my humble opinion, the Bank of Israel will step up and cut interest rates in order to spur economic growth. Inflation tends to moderate during times of war, so the central bank can be at ease to go ahead and cut. Another reason for optimism is also regarding something we have seen in the past. I am quite sure that we will see a whole new surge in startups in the months after the war, as many of the new technologies developed by IDF to help fight, will in turn be tweaked to be used for civilian applications.
There is something else that can be done now to help those whose businesses are suffering. Buy local. Forget about saving a few shekels by buying on Amazon, or buying imported produce, buy from your local, community fruit and vegetable store, your local small business. Maybe this can also be used as a wake-up call that we can also be bus drivers, construction, agriculture and supermarket workers and hospital cleaners. There are plenty of jobs available that don’t need to be outsourced. Nandi Robinson of the Michigan State University Center for Community and Economic Development, in a paper titled “Why Buy Local”, writes, “When dollars are spent locally, they can, in turn, be re-spent locally, raising the overall level of economic activity, paying more salaries, and building the local tax base. This re-circulating of money leads to an increase of economic activity, with the degree of expanse entirely dependent on the percentage of money spent locally.”
Robinson then brings an example of a study done in Grand Rapids. “According to the Local Works analysis of the West Michigan economy, locally owned businesses generate a premium in enhanced economic impact. For every $100 in consumer spending with a locally owned business, $73 remains in the Grand Rapids Economy. The remaining $73 is then dispersed locally in the form of wages, charitable donations, taxes which fund city services, and purchases of goods and services from other local businesses.” As opposed to only $43 dollars left in local economy in spending at non-locally owned businesses. Now more than ever is the time to support your local business.
There is a whole bunch of negativity in the local media regarding our economic future. As with much of what’s been reported, I suggest tuning out the noise. Even with the last 9 months of our fractured society, Israel’s economic underpinnings are solid. Things will be just fine economically, and we will get back to our strong growth trajectory, that we’ve seen over the last decade.
May all the families of the fallen be comforted. May the injured have a speedy recovery. May our dear soldiers be safe and protected.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
