The Lessons of Israel's Great Inflation
by Haim Barkai
Westport, Conn.: Greenword Publsihing Group, 1995. 264 pp. $69.50.
Reviewed by Howard Pack
University of Pennsylvania
Middle East Quarterly
As a region, the Middle East has done worse in economic growth since the mid-1980s than any other in the world, including Sub-Saharan Africa (which did worst in the period 1973-85). Israel is one of the few exceptions; and Barkai, a professor of economics at the Hebrew University in Jerusalem, explains how it was able to escape the region's fate. In particular, he concentrates on the extraordinary inflationary cycle during the first half of the 1980s; his volume provides a painstaking analysis of the economic and political process that led to the acceleration of inflation to rates of 500 percent per year, threatening long term growth, and the policies taken to control this inflation.
Barkai carefully and persuasively argues that this inflation had gestated since the early 1970s and, contrary to popular wisdom, did not result from increases in the price of imported commodities (such as oil) or from excessive wage increases. Rather, he attributes it to an expansion of public expenditures (defense, immigrant absorption, and services for the poor) not matched by comparable decreases in demand in other sectors.
Refreshingly, Barkai looks at events on a yearly basis and does not solely rely on statistical estimates. His excellent study supports the now widely accepted view that a country's economic policies, and not uncontrollable external forces, determine economic performance. It also provides policymakers in other parts of the Middle East with plenty of information to understand the give-and-take required to change economic policy.
Related Topics: September 1996 MEQ
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