The economic crisis underscored Israel’s only problem: the economic one. The shift of public opinion to the right is not a political platform—rather, it is a call on the government to stop bothering people with irrelevant issues. Few Israelis believed that Lieberman could follow through on his promise to refuse citizenship to disloyal Arabs. Nor could Netanyahu be expected to stand against the peaceniks. Consciously or not, Israelis voted to put the political process on hold while the government addresses more urgent issues.

Israel’s lackluster economy is behind the lack of Western aliyah: many people can bring themselves to live in an ostensibly insecure country for ideological reasons, but very few are willing to accept a manifold decrease in their income. The purported insecurity is a myth: an Israeli is much less likely to suffer in a terrorist attack than an average American is likely to be the victim of a violent crime.

The poor economy contributes to popular willingness to abandon the territories: holding them is costly in purely financial terms, and their economic output is irritatingly low. Jews, not exactly selfless people, won’t refuse even the most dangerous territory if it is economically viable. True, the populace let Barak make a gift of Ashkelon natural gas field to Arafat, but that was a secretive affair. No government would be able to relinquish economically efficient areas.

Israel’s economic inefficiency is the real reason behind the state of war with the Arab countries: they have no reason to deal with Jews. When shown a carrot of profits, Arabs have solved problems much more difficult than Israel: they found a religiously acceptable way of collecting bank interest, for example.

Economic troubles also account for the West’s pressure on Israel to capitulate: who cares about losers? The United States supports atrocious Arab fiefdoms exclusively because of their oil, but what good is there in Israel? Naturally, her interests are disregarded: a pauper cannot afford to make political demands. Compare their treatment of Israel with their unflinching support for Taiwan.

Economic limitations push Israel toward military hysteria. IDF purchases five to twenty times fewer weapons than Arab armies, and feels insecure. Russia assists the Iranian nuclear program solely for money; a more affluent Israel could have offered Russians better terms. Israel is stuck with the United States because it is the only country willing to work with her for free; the Russians or French would demand arms purchases and other economic projects much larger than $2 billion a year.

Poverty is the major reason for the break-up of Israeli society. The majority detest the haredim not just because they set themselves up as the only proper Jews, but also, importantly, because they are a constant drain on the country’s funds. For the same reason new immigrants are commonly despised and opposed. In a normal country, the amount of government subsidies to the haredim—just a few hundred million dollars a year—would be deemed negligible.

The lagging economy is also behind the lack of Israeli patriotism. Youngsters are brainwashed with jingoism, but look at how many of them want to emigrate to the United States. No amount of brainwashing can stand up against basic economic self-interest; not for long, anyway. Israelis just cannot feel proud of their country when TV series show them that the real affluent life goes on elsewhere.

Why is it that Jews, who have made scores of countries rich, made their own country poor? The answer is that Jews excel in everything, good and evil alike. When Jewish bureaucrats and socialist politicians set out to create a hard-line communist state, they did it. Instead of an excellent economy, Israel developed excellent anti-free-market mechanisms, including immense and absurd regulation, hostile courts, and mammoth bureaucracy.

The system can be reformed, though not in a single sweep. For the first step, the government must engage religious parties for massive liberalization. The corrupt religious establishment, which rejected Rambam’s warning against mixing religious and state functions, would do just about anything for money, especially now that private donations have decreased drastically. Histadrut, the trade union monster, can also be brought to terms with liberalization of non-unionized industries.

Liberalization, like any freedom, is very corrosive of government regulation. Once significant sectors of the Israeli economy become deregulated, the unionized sectors won’t hold out for long. If they strike, the government can simply fire them all. Most Histadrut functions, from port labor to schools, can be outsourced to private contractors. As long as the government sticks to wholesale abrogation of regulatory acts rather than merely making changes to them, and fires entire departments of bureaucrats rather than seeking to make their bureaucracies efficient, economic liberalization is not hard to do.

A free market economy is dangerous: one swims it at his own risk, and sometimes drowns. Still, the vast majority of the population would be better off.

The government, however, would not go for liberalization for the same reason haredi leaders urge their flock to stay on welfare rather than taking jobs: the payer controls the payee. Regulation and the socialist state offer the government a truly Stalinist degree of control over society. Unless the whole system of government is violently broken, the Israeli economy is doomed, and the state along with it.