As the dust settles, it is clear that Israel has unambiguously and decisively won the war in Gaza, as well as the related conflicts with Hezbollah and Iran. Despite this, most Israelis, and indeed most Jews living in the Diaspora, are feeling deeply pessimistic about the future of Israel and the Jewish people.
It is the widespread sense that Israel is besieged that engendered so much angst and anxiety when Benjamin Netanyahu’s delivered his “Sparta Speech” on September 15th.
While the prime minister’s policy recommendations – expand domestic arms manufacture and do more to deregulate the economy – made perfect sense, the allusion to Sparta – an isolated country that lived by the sword and later died by the sword – inadvertently exacerbated people’s worst fears about the future.
The thing is, from an objective perspective, Israel has a much brighter future than almost every other country on our planet.
The first and most important advantage Israel enjoys over other countries is its enviably high fertility rate. The average woman in Israel has three children. That is more than double the fertility rate of other developed countries.
Furthermore, Israel’s high fertility is not confined to its Haredi and Bedouin communities. The average secular college educated female professional – be she a doctor, lawyer, journalist, or professor – has two children. The equivalent rate in other developed countries is fewer than one.
While Israel struggles with deep social, economic, and political divisions, all Israelis seem to agree enthusiastically that babies are the best thing ever. That goes for Haredim, observant Jews, secular Jews, Christians, Muslims – and even Israel’s LGBT community.
A growing population gives Israel a number of advantages. First, over the long term, a growing population assures a low “dependency ratio.” The dependency ratio compares the number of people below or above working age with the number of people of working age – the people who will have to feed them all and take care of them. A low dependency ratio means that a greater proportion of societal resources can be devoted to investment in new equipment and new ideas.
Second, it has become increasingly clear that investment in new ideas is of the utmost importance. And the reality is that it is young people who come up with new ideas. In many fields – particularly math – it is not uncommon for a scholar’s most important work to have been done in graduate school. As for startups, that truly is a young person’s game. And frankly, so is combat. Israel’s ability to defend itself does not depend on its population, but its population of 18-year-olds.
Finally, a growing society tends to become more efficient over time. For example, Israel will not require more than 120 Knesset members or one prime minister when its population has doubled. And having a larger number of taxpayers sharing in the funding of Israel’s “legacy debts” – such as the expenses incurred in fighting the war in Gaza – will reduce the financial burden on everyone.
Next, consider Israel’s finances. There are two simple metrics that allow us to evaluate the stability of Israel’s economy. The first is how much Israelis owe foreigners. The second is how much Israel’s government owes both foreigners and Israeli citizens.
The answer to the first question is that Israelis currently hold $244 billion more in foreign assets than foreigners hold in Israeli assets, and the surplus continues to rise. For a small open trading economy like Israel’s, this provides an extreme degree of financial security and reflects the extreme competitiveness of Israel’s economy.
As for government debt, it is currently about 70 percent of Israel’s GDP. This is markedly lower than average for a developed country. Of course, there are also unfunded government liabilities that are not measured by formal debt, such as pension obligations, but my best estimate of their scale is that they are about 100% of GDP. For other developed countries, estimates of the size of these unfunded government liabilities range between 200% and 800% of GDP.
Overall, Israel is unlikely to require higher taxes in order to cover projected future spending, while most developed countries are on a clearly unsustainable fiscal path and will eventually require substantial tax increases or significant cuts in spending and social benefits.
In short, Israel has extremely strong finances – superior to essentially all developed countries with the exceptions of Singapore (which is similar to Israel) and Norway, a tiny country with huge oil deposits. Neither of those countries, however, enjoys Israel’s enviable demographics. And on the subject of hydrocarbons, Israel’s vast natural gas reserves – sufficient to power the country for at least the next 100 years or so – are quite an asset as well.
Finally, consider Israel’s healthcare system. With populations aging globally, healthcare expenses will inevitably become an increasing burden on economies worldwide. Furthermore, it is wickedly difficult to reform healthcare systems – once mistakes are made, it’s almost impossible to disentangle them. Israel, however, already happens to have one of the world’s best healthcare delivery systems – combining universal coverage, managed care, and competition – and it does not require any complicated reforms. Given the way public policy is made in Israel, this is literally a miracle.
The simplest way to illustrate the superiority of Israel’s health delivery systems is that the country spends 7.5% of GDP on healthcare, while the average for OECD countries is 9.3%, and life expectancy is 83 years in Israel while the OECD average is 80 years. There are far more sophisticated metrics, but the results would not change — Israel has one of the most effective and efficient healthcare delivery systems in the world and “does more with less.” This is an advantage that will only grow in importance as populations age worldwide.
So will Israel become an ostracized autarkic country like North Korea? Anything is possible, but frankly, that isn’t the way the smart money would bet. Far more likely – considering the objective facts – that Israel will emerge from the horror of October 7 and the victory in the war that followed stronger and more vibrant than ever.
As for the widespread hatred of Israel and the Jewish people that was revealed by October 7, it was always there – and has never impeded Israel’s progress. No reason to think that the future will be any different.
