Fighting against cost of living: Dozens demonstrated in front of Chamber of Commerce president home

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by Ifi Reporter Category:Financial Sep 9, 2022

As part of the Histadrut's ongoing struggle against the cost of living in Israel, representatives of the Histadrut, social activists, and citizens came Friday afternoon to protest the cost of living in front of the house of the president of the Union of Chambers of Commerce Uriel Lin in north Tel Aviv.
The activists waved signs that read, among other things, "The workers are the solution - not the problem", "The tycoons are the engine of the cost of living" and "The state belongs to the workers and not to the tycoons".

The struggle - which was successful and led to an announcement by the importers about freezing price increases and also affected the food chains, will continue in the coming weeks.
Inflation continues to rise as expected, prices are getting more expensive and the Bank of Israel is raising interest rates, the small citizen is hurting in the pocket and the government is explaining that this is a global crisis. Well, she's right but dead wrong.
Many explanations have been written for the current wave of inflation. First they planted it in the Corona crisis and the delay in the global commodity chain. However, it seems that enough time has passed since the end of the Corona crisis, and currently the supply chain is back to normal, but prices are still rising. After that, it was explained that the Russia-Ukraine war is affecting the supply of energy and wheat in the entire world, which is causing a heavy price increase. However, price increases are indeed greatly affected by energy and wheat, but it does not end there.
Inflation, so economists teach, is first and foremost a "monetary" event, that is, one that is mainly affected by fluctuations in the amount of cash in the hands of citizens. During the Corona period, governments distributed money to citizens and increased the amount of money in their hands. The value of money is determined mainly by how many products it can buy. Therefore, when the quantity of money is increased but not the quantity of goods, prices may rise and erode the value of money. This is probably the main reason for the current wave of price increases. In Israel, by the way, it strikes to a relatively moderate extent compared to Europe or the USA.
The solution to a monetary problem is usually monetary, that is to try to reduce the amount of cash in the hands of the citizens. This is one of the reasons why the Bank of Israel is now raising interest rates. When the interest rate rises people tend to take less loans and thus the amount of cash in the market is reduced. In addition, when the interest rate rises, the bank savings plans become more attractive so that people prefer to save more money in these funds and thus the amount of money in the markets decreases again.
So if it is a global wave that is hitting Israel with less force, and a monetary problem that the Bank of Israel, which is completely independent, trusts, then what is the claim against the government? The big problem facing the government is not necessarily the current price increase, but the fact that even before it we were expensive compared to the West. According to OECD data, consumption in Israel will be 35% more expensive than the average of OECD countries even before the current wave of inflation. In fact with the exception of Switzerland and Iceland, dear Israel among the countries of the organization.
The cost of living in Israel is not a new phenomenon, it is the product of pressure groups that look after their interests at the expense of the public. Sometimes it will be the Histadrut that prevents competition in the ports, sometimes the agricultural lobby that prevents the import of fruits, vegetables, milk and eggs, on another occasion parties with a commercial interest that block imports, prevent competition and benefit from centralized market power and more.
The government can address all of these if it decides to do so, either by expanding the import reform and the agricultural reform, or by opening additional markets and industries for competition and imports. For example, the industry that was excluded more than any other from the import reform and is still relatively blocked from competition is the construction inputs industry, precisely the one where the price level climbs to the extremes.
However, the cost of living also has another side. The price level in Israel itself is not that high, but compared to countries with a level of GDP per capita similar to ours, it is high. In other words, another option for dealing with the cost of living is to increase the product by increasing labor productivity - the value of the product we produce during working hours, and the higher it is, the higher the wage level.
In order to increase labor productivity, it is of course necessary to open up to competition, but also to raise the level of skills of the workers in Israel through the education system (peace be upon you Ben David), investment in infrastructure and the flexibility of the labor market. These are the main challenges facing the government in order to deal with the cost of living. Their solution starts with a political decision and not more excuses about what is happening in the world.

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