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Our Israeli State of Mind
A free-market Israel has every right to defend itself.


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Larry Kudlow

Military historian Victor Davis Hanson argues that war is part of the Mideast peace process. It’s a form of diplomacy that is essential to solving a 50-year conflict. Until Israel inflicts a crushing military defeat and cleans out Arafat’s terrorists and suicide bombers, Hanson believes real peace between the Palestinians and Israelis will remain a utopian goal.

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This is the right position. We must remember that Israel is the only true democracy in the Middle East. And included among its numerous freedoms, Israel is also the only free-market economy in the region. Not only would Yasser Arafat destroy a democracy and drive Israel into the sea, but his strategy of war by suicide bombing is a deliberate effort to wreck Israel’s modern and prosperous economy.

Prime minister Ariel Sharon tells columnist Bill Safire that his nation is not suffering from a wave of pessimism or demoralization. While this may be true, unfortunately the Arafat attacks have already inflicted considerable damage on the Israeli economy. Its currency, the shekel, has been dropping like a stone of late, and the same is true for its stock market. Meanwhile, interest rates have risen significantly.

These negative market developments signal a loss of foreign-investor confidence. In recent years, Israel has benefitted from about $1 billion worth of foreign capital inflows per year, especially from the U.S. Should these investments reverse course and head out of the country, the damage to the Israeli economic outlook will be profound.

Unlike any other economy in the Middle East, Israel’s has exhibited impressive growth over the years. By way of comparison, Israeli per capita gross domestic product is fourteen times larger than Egypt’s, ten times bigger than Jordan’s, and two and a half times greater than Saudi Arabia’s — even with its huge oil resources.

Economic success in Israel has come from its free-market move toward modernization, which includes the strong growth of its technology sector. Israel ranks a respectable 49th out of 155 worldwide nations according to the Index of Economic Freedom, compiled by the Wall Street Journal and the Heritage Foundation. The index lists Israel as “mostly free.”

Prior to this latest war against Arafat & Co., Israeli GDP had been growing in the 3% to 4% range with only 1.5% inflation. In recent quarters, however, a difficult recession has set in and the inflation rate has jumped to 4%. In terms of fiscal policies, such as taxing, spending, and regulating, Israel behaves more like a member of the European Union than the U.S. But it has no barriers to foreign ownership, its property and contract laws are sound, and its court system is independent.

So lets add economic progress to the list of must-defend freedoms.

Preserving economic freedom is yet another reason why Ariel Sharon is right to go to full-scale war against terrorism. Arafat and Palestine — which basically has no economy, no democracy, no free elections, no form of free speech and press, and no real government — must not be permitted to succeed. Nor should their brands of terrorism ever be rewarded through diplomacy or peace-process developments. Of course, some pundits keep telling us that U.S. interests do not coincide with Israel’s. But when you weigh Israel against Palestine on the scale of freedom, it’s obvious they’re dead wrong.

And most of us know it. Recent opinion polls show that a vast majority of Americans share Israel’s values of freedom and support Israeli military actions to defend these timeless values. In short, we are all Israelis now.

In terms of protecting freedom and democracy and free-market prosperity, self defense against terrorism — through either war or diplomacy — is identically suited to both the U.S. and Israel.



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