More than ONE TRILLION shekels! Over THIRTY TRILLION dollars!! Sounds like a lot of money, no? Unfortunately, these are not sums in the bank, but rather the overall national debt of Israel and the U.S., respectively. What do these financial holes augur for the future?
There are two ways of looking at the question. First, from a contemporary perspective, the commonly accepted criterion is the national debt as a percentage of the Gross Domestic Product (despite the latter not being the most exact statistic as I noted here a week ago regarding its close cousin GNP: https://blogs.timesofisrael.com/gnp-gross-national-statistical-perversions/). Although there is no hard and fast rule as to what constitutes a dangerous percentage (Japan is an extreme outlier with 250%!!), most economists consider anything under 80-90% to be on the safe side. If that sounds unrealistically high, the debt is not being paid back that year but over many years (some treasury bills have a redemption of 30 years).
Israel’s proportion today is around 70%. Not bad, even if it is 10% higher than what it was the previous decade – but extra expenses to keep the economy afloat during the Corona pandemic is certainly a good reason to increase the national debt. In any case, Israel’s historical trend is clearly downwards (a positive movement) from close to 100% in 1995 (the first year that such Israeli data is available). The U.S. is in far worse shape, with a 2021 ratio of 127%! Indeed, taking 1995 as a benchmark, the ratio has doubled from 64% back then to its current high level.
A second way to judge the issue is to look at it longitudinally going forward. Of course, no one can actually predict the future, but other socio-demographic trends can provide important clues. First is the average age of each country’s population, because the higher the age the closer are more workers to retirement (or already retired), meaning that there are – and will be – fewer tax revenues to support the debt load. Of course, unexpected “White Swan” discoveries can also change the picture, but these are far and few between e.g., Norway’s discovering massive oil and gas deposits off its coast several decades ago, enabling it to put huge amounts of money into its Sovereign Fund, “national savings account”. America’s economy is so huge, however, that it would take several such “miracles” to make a dent. Second is the country’s birth rate – the main source for future taxpayers. Third is immigration, a secondary contributor to population gain, especially because the vast majority of immigrants tend to be young people.
Here too the outlook for Israel is far superior to that of the United States. The average age of Israelis today is 30.5 years; for the U.S. it is 38.3 years. Regarding birthrate, the gap is even wider: 3 children per woman in Israel versus a mere 1.7 per woman in the U.S. Only when we look at net migration rates (the number of immigrants minus emigrants), does the picture brighten somewhat for the U.S. Currently in 2022 its rate is 2.784 per 1000 population, more than double Israel’s 1.131 per 1000. However, this hardly makes up for the huge fertility rate gap between these two allies.
Add to this immigration policy overall. One need not be a demographer to know what the Republican Party’s position is on immigration, even after Trump leaves the political arena: limited immigration to the greatest extent possible. The reasons, at base (pun intended), are only secondarily economic; they are primarily “national-cultural” (some would say “race”-oriented). The Democratic Party is more open to immigration but given its newfound mission to bring blue-collar workers back into the Democratic fold, the party can hardly “reopen Ellis Island,” metaphorically speaking. Ultimately, however, the country might have no other choice (barring a sudden large increase in birthrate – hardly on the horizon with the economy opening more than ever to women). Paying off the national debt – not to mention keeping Social Security solvent – America has to produce more “working bodies” from somewhere.
As things stand now, Israel has no such demographic problem. The one economic issue that could dent its demographic advantage is a serious lack of affordable housing, causing many young couples to consider moving overseas. On the other hand, a countertrend has emerged recently: Israel’s high-tech companies are expanding so fast that they can’t find enough highly educated workers to fill the available jobs – leading to increasing salaries, that in turn will prevent many high-techies from leaving for “greener” pastures overseas. In short, even without an increase in Aliyah immigration, Israel’s net migration numbers should improve in the future. For its part, America will most probably continue to be a magnet for the world’s wannabe immigrants, but the question is whether internal American politics will allow for this to come to fruition in numbers large enough to stave off national debt-related disaster.
So if you were puzzled by the collapse of the dollar vis-à-vis the shekel in the past few years, here’s a good part of the answer. America is living too high off the hog; Israel’s national finances, on the other hand, are not pigging out.