April 16, 2014

The U.S. Election’s Impact on the American and Israeli Economies


With President Barack Obama reelected there is every reason to believe that he will continue the tax, regulatory, and economic policies of his first term. That means the U.S. economy is unlikely to improve quickly, steadily, or even at all during the next four years. The problem is not just Obama’s own strategy on these issues but also the lack of business confidence in his plans. 

Those doubts, along with even higher taxes, a complex and costly new health care system, and uncertainty about what new costs Obama is going to impose will keep investors, large corporations, and small businesses from investing money. Thus, unemployment will remain high and recovery slow or even non-existent.

And that will have a big effect on Israeli thinking. If Israeli policymakers–and businesspeople–view certain policies as failing in the United States they are unlikely to adapt those ideas to Israel, even if some of seem ideologically attractive to the moderate left here. 

The strategy of higher taxes, high regulation, increasing government intervention, and bigger government are already unattractive in Israel and will be even more so. The Labor Party wants more effort on improving social welfare and lowering the country’s high prices yet knows the Obama-European approach has been disastrous. .

Poor performance by the U.S. economy will also have a negative effect on Israel’s own growth and trade, reducing the prospects for exports to America and by having a depressing effect on the global economy. 

In contrast, a victory for Romney would have encouraged businesspeople in the United States to believe they woulf face policies more favorable to their needs. With the possible repeal of Obama’s controversial health care plan, quite costly to employers, and the likelihood of lower taxes and reduced—or at least stable—regulation, there would have been an incentive for them to invest and expand their businesses.

A booming U.S. economy would benefit Israel’s economy both directly and indirectly through its impact on the international economic situation as well. Romney’s expertise on turning around failing businesses would have provided the proper management. But that’s not going to happen. 

While the similarities should not be exaggerated one could suggest that a Romney presidency would have more closely paralleled Israel’s economic strategy. After all, Israel has succeeded in recent years with an approach favoring privatization, keeping unemployment low, and avoiding large-scale governmental borrowing or debt. This policy, of course, also has costs, as the social protests of last year showed.

Generally, though no one in the United States thinks in these terms, the battle in America is between the ideas governing Israel in two eras of its history. Obama’s statism reflects the early policies of Israel. The difference, of course, is that those positions were necessary for a newly born country that had no alternatives but not for the United States in the year 2013. Romney’s approach represented more of the strategy of Israeli governments of all three ruling parties during the last two decades.

At any rate, Israel is going to have to deal with a weak American economy, as well as a weak American foreign policy, for the next four years.


The Hebrew version of this article was published in Kalkalist.
About Barry Rubin

Prof. Barry Rubin is director of the Global Research in International Affairs (GLORIA) Center, editor of the Middle East Review of International Affairs (MERIA) Journal, and a featured columnist for PajamasMedia at http://pajamasmedia.com/barryrubin/. His latest books are The Israel-Arab Reader (seventh edition), The Long War for Freedom: The Arab Struggle for Democracy in the Middle East (Wiley), and The Truth About Syria (Palgrave-Macmillan)