The debate over the cost of living is dominated by ideology, not necessarily by facts

The author is a Doctor of Economics and formerly Chief Economist of the Competition Authority and Acting Commissioner.

The issue of the cost of living has been a star in public discourse for a long time. The usual pattern of expressing opinion on this issue is usually as follows: “According to OECD data, it will cost Israel X percent of the average for developed countries. The reason for this is mainly [כזאת וכזאת]then what to do is [כך וכך]“The reasons suggested vary from speaker to speaker, and of course people tend to find the culprits and solutions that suit them ideologically and politically. The solutions offered are usually very general and do not go too deep into questions of economic and political application.

As a rule, from the economic left side there is basic hostility towards big business and tolerance towards government regulation, so blame monopolies, money lords or big corporations only for the cost of living and send regulators to “fight them”. And from the economic right side, there is more sympathy for the private sector and less sympathy for government regulation, so blame taxation and overregulation and sending the government to reduce the regulatory burden. But how do you fight monopolies and reduce regulation? These details are usually incomplete or lacking in generality and even naivety.

The contradiction between the curriculum

Sometimes there are obvious contradictions between the above two approaches. For example, those who think big companies are to blame will oppose attempts to lower regulations and import barriers, because in their opinion the big companies will be the only ones to benefit: they just increase profits and pass nothing on to customers. For example, why open the farm to agricultural imports if all the profits anyway are with the retail chains, who will only buy at lower prices and not cut back to the consumer? If they make it difficult for large companies, it will pass on to consumers the additional regulatory costs, and small companies will have no incentive or ability to grow and become more efficient.

And there is a tendency for everyone to focus on the least of what they understand, because it is the easiest. For example: “The competition authority will reduce the concentration of foodstuffs and then lower prices.” It looks perfect. But what is central in this context? How much related centrality is there already? Through which mechanism raise prices? How much do you raise prices? What are the legal tools for decentralization? How do you do this without compromising the efficiency of companies? Someone else will take care of all these details.

All this leaves us with deaf rhetoric and almost complete stagnation. And this is not surprising: there is no comprehensive data on the components of the cost of living, and in which space was created due to the lack of reliable information, an ideology is drawn. As mentioned, in the face of every ideology there is a counter-doctrine, a test recipe for paralysis or short-term measures whose sole purpose is to reassure the electorate until the next round of elections.

Look at the data

So what is needed first and foremost is data: an understanding of the components of additional costs in Israel compared to other countries. Or in simple words: Where does our money really go? Surprisingly enough, it turns out that aside from anecdotal information, no one really knows what the costs of most of the products and services we consume. Only after there are clear data on the topic, it will be possible to focus on how to approach the problem in a more scientific and less ideological way. Deregulation or decentralization are very difficult tasks, so we at least know where to invest efforts and have a solid basis to respond to anyone for whom a particular reform is not ideologically or politically appropriate.

To be clear, examining cost-of-living factors would itself be complex and resource-intensive. There may be no body in government at the moment that can take it upon itself. Therefore, it is necessary to create a commission with legal powers (mainly the ability to request data from any company operating in Israel) and with sufficient resources, which will be assisted by specialists from inside and outside the public service. It’s true that there have already been several government committees on cost-of-living issues, but these committees tend to focus less on measurement and more on policy recommendations – it’s much easier and more interesting. Therefore, the commission that I propose should deal only with measurement – a sample of a number of products and a detailed accounting economic analysis of the cost structure. It might be a little boring, but it’s a necessary first step.

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