Unknown Speaker 0:05

Hi everyone, I'm Steve Zipperstein, faculty director of the Eunice and Sarian Azarian Center for Israel Studies at UCLA, where our mission is teaching, research, and scholarship regarding Israel in all its nuance and complexity. Before we begin, I want to just thank the staff, the very dedicated staff at the Nazarian Center, and our wonderful IT team from the UCLA International Institute for all their hard work behind the scenes to make this webinar possible today. Before I introduce our moderator for today's program, I just want to thank our audience. I wanted to note that we have an audience of more than 100 people from the following countries: the United States, Israel, Russia, Argentina, Spain, Sweden, France, Canada, Germany, the United Arab Emirates, the Philippines, and Italy. If I left off any countries, please type your country's name in the Q and A box at the bottom, so that I can acknowledge you at the very end. Thank you all so much for joining us. Those of you who have been with us before know that our practice is to welcome questions from our audience. If you do have a question for our speaker, please type your question in the Q and A box at the bottom of the Zoom screen, please keep your questions as brief as possible, which will give us a chance to look through them and to make sure that we can get as many of them as possible in front of our speaker later during the webinar. It's now my distinct pleasure to introduce our wonderful moderator for today's webinar, my dear friend Stuart Gabriel, who is a distinguished professor of finance and the Arden Realty Chair at the UCLA Anderson School of Management, Professor Gabriel is also the director of the Zynman Center for Real Estate at UCLA. His research focuses on topics of real estate finance and economics.

Unknown Speaker 2:02

He is also an expert on housing and mortgage markets, urban and regional economics, and macro economics. He previously served on the economic staff of the Federal Reserve Board in Washington, DC, and is a visiting scholar at the Federal Federal Reserve Bank of San Francisco, California. Professor Gabriel is the author of more than 80 published articles in economics and finance journals, and he serves on the editorial boards of seven academic journals. Professor Gabriel, it's my honor to turn the webinar over to you. Thank you so much for leading it today,

Unknown Speaker 2:41

Steve. Thank you very much. And certainly delighted to be here. And good day to everyone, wherever you are.

Unknown Speaker 2:49

The topic of today's webinar is assessing Israeli economic performance after more than three years of war, that is more or less, and the discussion today will focus both on resilience as well as on vulnerabilities and costs. If I may, I'd like to provide a short introduction prior to our presentation by Professor Manuel Trachtenberg of Tel Aviv University.

Unknown Speaker 3:20

We're well aware of the

Unknown Speaker 3:23

state of war that Israel has been in more or less since October 7 of 2023

Unknown Speaker 3:29

and on multiple fronts, and in light of that, the Israeli macro economy, as indicated by a myriad of aggregate macroeconomic indicators, has performed quite well. The fundamentals remain strong. If you look at the current account with a surplus of eight and a half billion dollars, if you look at a very strong $40 billion

Unknown Speaker 3:54

in foreign direct investment in Israel, the strengthening Israeli currency, the shekel, and expected real GDP growth rate that may exceed 5% next year, and a country risk premium, as reflected in the yield in a five year sovereign credit default swap that's declined by a full percentage point since october 7 to a current viable level of about 60 to 70 basis points. The benchmark Bank of Israel policy rate is today roughly 4%

Unknown Speaker 4:30

Israel today is the third largest high-tech hub in the world in terms of capital raised, second only to Silicon Valley in New York City. In capital markets, the Tel Aviv Stock Exchange, TA 35 rose 52% in 2025

Unknown Speaker 4:48

Equity market capitalization at the Tel Aviv Exchange rose 46%

Unknown Speaker 4:54

to an excess of $625

Unknown Speaker 4:57

billion

Unknown Speaker 4:59

clearly.

Unknown Speaker 5:00

Today, Israel's putting some serious numbers on the scoreboard,

Unknown Speaker 5:04

and while the macro story is both enviable and encouraging, it's not the entire story.

Unknown Speaker 5:11

Vulnerabilities abound, and those vulnerabilities are evidence below the aggregate headlines and in economic, political, and social dimensions, growth is uneven across populations, and its growth and growth is uneven across geography. In Israel,

Unknown Speaker 5:31

Israel, at best, has only a very tentative ceasefire in the north, and is well appreciated. The war with Iran and others could restart at any time, the asymmetric nature of fighting puts the home front and the economy at risk. The conflict has economic, social, and political implications, both for Israel and certainly for the larger Middle East and beyond.

Unknown Speaker 5:58

In our short hour today, we will ask Professor Manuel Trachtenberg of Tel Aviv University to address these issues.

Unknown Speaker 6:07

We know it's 9:30pm

Unknown Speaker 6:10

in Tel Aviv. Professor Trachtenberg, thank you for staying up late with us. And to, we much look forward to your presentation and to your remarks. Let me just say a few words about Professor Trachtenberg. He is a professor emeritus at the Etan Bergla School of Economics at Tel Aviv University, holds a PhD in economics from Harvard University, is a senior public

Unknown Speaker 6:39

official in Israel who's held many public positions, including the first chair of the National Economic Council in the Prime Minister's Office, the chair of the Budgeting and Planning Committee of the Council on Higher Education, the chair of the Government Committee for Social and Economic Change, following the social protests of 2011

Unknown Speaker 7:01

he's been an elected member of the Knesset, the Israeli parliament, representing the Labor Party, and more recently has served as executive director of the Institute for National Security Studies. Trachtenberg is widely regarded as a highly influential public figure in Israel on economic and social dimensions and on security and geopolitical matters. Manuel, welcome. We're thrilled to have you.

Unknown Speaker 7:29

So, let me start, Manuel, if I may, with a broad item for you, and feel free to just dive in and take it wherever you wish that it goes, but I'd love for you to walk us through the aggregate, that is the macro performance, and at the same time provide some nuance and insight with respect to vulnerabilities, threats, and costs that lurk just beneath the aggregate indicators, so please take it away.

Unknown Speaker 8:03

Thank you very much, Stuart. Good evening

Unknown Speaker 8:06

for some of you, and for others it's good morning, I presume. I'm very impressed by the

Unknown Speaker 8:13

range of countries that people from so many different countries taking

Unknown Speaker 8:19

listening to this webinar. So, thank you very much for being with us. For me, it's an honor

Unknown Speaker 8:25

and a pleasure to be with you,

Unknown Speaker 8:28

Stuart. You have presented really

Unknown Speaker 8:32

a nice background of what we are going to discuss.

Unknown Speaker 8:37

Let me say, start by saying the following:

Unknown Speaker 8:40

when you look at the macro performance of the Israel economy at this time,

Unknown Speaker 8:47

if you didn't know that Israel has has been through the longest war and really the most difficult war in its history, you wouldn't believe it, because the, as you said, Stuart, I mean the main indicators are really good, good to very good. I mean, that's the range of the macro

Unknown Speaker 9:08

indicators, and one wonders, you know, how could it be? I mean, how could it be that a country

Unknown Speaker 9:17

in such a situation

Unknown Speaker 9:19

finds itself displaying this

Unknown Speaker 9:23

really amazing economic performance, so to try to address that, let me go back to the day before october 7, 2023 I mean, how was the economy doing on the eve of the war? Well, back then the economy was really going very well, just to give you an idea. Okay,

Unknown Speaker 9:49

the total GDP of Israel back then that year was about half a trillion dollars,

Unknown Speaker 9:57

more or less, for the placed in.

Unknown Speaker 10:00

Number 45 among 190

Unknown Speaker 10:03

countries, the GDP per capita, which is more interesting in terms of PPP, you know, purchasing power parity, was about $54,000

Unknown Speaker 10:13

per capita

Unknown Speaker 10:15

in the middle of the OECD countries,

Unknown Speaker 10:19

and look at the debt to GDP ratio, which is a very important parameter. We had at that point we had

Unknown Speaker 10:30

a very low debt to GDP ratio of 60%

Unknown Speaker 10:35

which by the time, if you look to other countries in 2023 the average for the OECD countries was about 90%

Unknown Speaker 10:45

We had $200 billion

Unknown Speaker 10:49

of foreign currency reserves, about 40%

Unknown Speaker 10:55

of GDP. We had financial stability, by the way, Isaiah

Unknown Speaker 10:59

had had financial stability throughout the last two decades, and therefore in when the big crisis of 2008

Unknown Speaker 11:11

erupted, we didn't have any bank failure. We had a very low budget deficit and very low unemployment, about 3% of the labor force, so those those parameters

Unknown Speaker 11:29

indicate that as we enter the war, which of course we didn't know we were going to be there, we had a very strong economic foundations and we have been relying on that foundation ever since, I mean, I couldn't imagine what would have happened to the country absent that

Unknown Speaker 11:52

very strong economic base, and by the way, that's something that we attained that strong fundamental position through hard work through decades, starting in 1985

Unknown Speaker 12:09

after the big crisis, the hyper inflation we had back then, the stabilization program, and a bunch of reforms that we perform year after year in order to open up the markets, be more competitive, etc.

Unknown Speaker 12:26

So it's through good macro policies, hard work, the high-tech sector that we have had achieved that

Unknown Speaker 12:36

really excellent economic, macroeconomic performance, and I show that in the memory of Stan Fischer, the late Stan Fischer, that he was the governor of the Bank of Israel during

Unknown Speaker 12:51

almost 10 years, and he is the one that essentially made sure that we had these foreign currency reserves that reached $200 billion

Unknown Speaker 13:04

but behind the curtain of this great macroeconomic performance, there was really hidden out there, not so hidden, what we may call a social failure, high cost of living, housing crisis, deficient social services, etc. etc. So there was this contradiction, this contrast between the excellent macroeconomic success, and on the other hand, it didn't translate into

Unknown Speaker 13:37

a social success, but rather, as I said, we had these problems that we were trying to figure out how to deal with them as the war erupted,

Unknown Speaker 13:51

so going into the war,

Unknown Speaker 13:54

first of all, I want to remark, Isser was never prepared for a long war

Unknown Speaker 14:02

and this war has exceeded any kind of, you know, scenario that we could have imagined. I mean, Isser, the very concept of how Isser fought wars was that they had to be very brief, very intense, and achieve

Unknown Speaker 14:21

some sort of

Unknown Speaker 14:23

a clear conclusion that has not been the case. We have been, we have been on and off on war, in war since October 7, 2023

Unknown Speaker 14:35

Now for 25 years, a bit more than that, and the end is not clear.

Unknown Speaker 14:42

Iran is still there, threatening us

Unknown Speaker 14:46

now. What has been, what have been the economic consequence, the economic fallout from the war?

Unknown Speaker 14:54

Typically, when people, economists that are asked that question, they immediately turn in.

Unknown Speaker 15:00

The budget.

Unknown Speaker 15:01

No, that's not the main economic cost of the war.

Unknown Speaker 15:05

The single most important cost of the war is the loss of human capital,

Unknown Speaker 15:13

and for Israel, Israel is a country that is based on

Unknown Speaker 15:19

high-quality human capital. Capital, we see that all over. We see that in the in academia, in science, in the high-tech sector, and we see that also in military capabilities.

Unknown Speaker 15:33

So, when we look at the numbers, there's really stunning. I mean, the number of fallen soldiers and civilians, the number of wounded,

Unknown Speaker 15:43

the number of people already suffering from, from, for, from post-trauma PTSD, the displaced families, you know, for the first time,

Unknown Speaker 15:54

hundreds of 1000s of people were displaced, both from the northern border with Lebanon, because of the Hezbollah, and of course from the population along the Gaza Strip,

Unknown Speaker 16:09

and it's not only them, but as you know, the Italy army

Unknown Speaker 16:15

is based in a full-scale war on reservists,

Unknown Speaker 16:20

about 300,000 of them have been taken part in these wars, and then they were affected, and also the families, so you're talking about a big chunk

Unknown Speaker 16:33

of the population that have been affected by the war, and one indicator of that is that about 5%

Unknown Speaker 16:44

of the labor force of employment went down because of the war, because of lower participation rate, because of the reservist, and because of net immigration, so that's a big impact, and that's only the tip of the iceberg, because

Unknown Speaker 17:03

what has been also affected badly is education and training and scientific research. Take, for example, the students at universities - 10s of 1000s of them were serving in Mirum in as a precipice. Now they have been given all sorts of,

Unknown Speaker 17:25

you know, ways of going by

Unknown Speaker 17:29

with the grades and so forth and so on, but doesn't make that doesn't make up for the loss of studying, okay, of training and so forth, so that's kind of the single most important effect, impact of the world, cost of the war is the loss of precious human capital, and the effect of that, we're going, it's going to reverberate over many years to come, so it's not something that we see the impact immediately, except for what I said about the reduction in employment due to the war, but beyond that, another big cost of the war is the damage to Israel's international standing, you know, the Israeli brand, the

Unknown Speaker 18:21

startup nation

Unknown Speaker 18:24

has been affected, and that has economic consequences again, not immediate but down the line, and then there is the destruction of physical capital, particularly during the wars with Iran, because of the missiles

Unknown Speaker 18:41

and the damage that was done to the north of the country, next to Lebanon, because of Hezbollah, that's still going on, and down in the south, next to the Gaza Strip, all of that, the loss of human capital, the physical capital, the regional damage, the brand, and so forth, all of that means in economic terms loss of natural national resources. Okay, affecting growth. Just to give you a sense, if you take the period from October 7 up to the beginning of July 2026

Unknown Speaker 19:20

okay,

Unknown Speaker 19:22

the reduction in GDP due to the directly due to the war is about eight and a half percentage of a GDP, so 170 5 billion shekels,

Unknown Speaker 19:35

and if you translate that into loss in per capita income, it's about 35,000

Unknown Speaker 19:42

shekels. shekels, about what, the 11 $12,000

Unknown Speaker 19:47

per capita, so that's kind of the main impact, and then yes, there is the budgetary impact, I mean, the the

Unknown Speaker 19:56

extent to which the war amines are.

Unknown Speaker 20:00

Additional expenditures, unforeseen expenditures that somehow the budget has to accommodate,

Unknown Speaker 20:07

so of course the main one is the increase in the defense budget.

Unknown Speaker 20:14

Just to give you a sense, the

Unknown Speaker 20:17

defense budget in Israel was about

Unknown Speaker 20:21

4.2455%

Unknown Speaker 20:25

of GDP before the war. Okay,

Unknown Speaker 20:29

in 2024

Unknown Speaker 20:31

it reached 8%

Unknown Speaker 20:34

almost double in terms of GDP.

Unknown Speaker 20:39

Just to give you a benchmark, the average for the OECD countries is 1.8

Unknown Speaker 20:46

percentage, so that's a huge increase, but the war entailed also other additional outlays, so

Unknown Speaker 20:58

aid that the

Unknown Speaker 21:00

country, the state gave to affected civilians compensation and so forth, about 90 billion shekels, the

Unknown Speaker 21:09

additional interest on the debt of the country that we undertook in order to finance the expenditures, about 20 billion shekels, so

Unknown Speaker 21:22

the total

Unknown Speaker 21:23

of the additional budgetary outlets due to the war up to the beginning of this year, it's about 350 billion shepherds, so it's about $120

Unknown Speaker 21:35

billion

Unknown Speaker 21:38

All of that means

Unknown Speaker 21:40

increase in taxes, I mean, the taxes have gone up, not much, but they have gone up. A decrease in social services, it means less investment. The

Unknown Speaker 21:53

debt to GDP ratio, which I said was 60%

Unknown Speaker 21:57

just before the war, has already climbed up to 69%

Unknown Speaker 22:04

and it keeps rising, and it will keep rising because of the deficits,

Unknown Speaker 22:09

and there is a real danger of another lost decade, as happened after the Yom Kippur War, and why the danger, because if we keep spending so much on defense, that may trigger,

Unknown Speaker 22:26

you know, very bad macro economic consequences.

Unknown Speaker 22:31

So, despite all of that, okay,

Unknown Speaker 22:35

as Stuart said, we had outstanding macro performance, you know, the, you mentioned that you are the record stock market. The shekel, the shekel is at the strongest level ever,

Unknown Speaker 22:49

about 2.9

Unknown Speaker 22:50

shekels per dollar.

Unknown Speaker 22:53

The petrofore coverage in reserves have gone up from 200 to $230

Unknown Speaker 23:00

billion

Unknown Speaker 23:02

Then employment is at record lows, rising real wages, large exits, record number of billionaires. Okay, so again, how come? Okay, so I mentioned the excellent economic conditions prior to

Unknown Speaker 23:19

October 7, and then there is, we have to mention that the incredible support from the US administration and from Jewish communities in the US and elsewhere, a lot of capital has

Unknown Speaker 23:35

flown, flown into the country,

Unknown Speaker 23:37

and beyond all that, there is the amazing ingenuity and adaptability and creativity of the business sector at large, and in particular of the high-tech sector. I mean, the stories are really stunning. I mean, the these reservist soldiers going to the front in

Unknown Speaker 24:00

northern border on next to Gaza, you know, with the uniforms and

Unknown Speaker 24:05

the armaments, and at the same time, you know, when we have the break, they take a laptop, they keep working on the startup in Tel Aviv, and this is something that

Unknown Speaker 24:15

it has happened, and it keeps happening all the time. Okay, so there are all these elements playing a role, but this is not a conclusive answer. To tell you the truth, nobody yet understands how we have managed to have this economic resilience in spite of the war. I mentioned the most salient factors,

Unknown Speaker 24:43

but

Unknown Speaker 24:45

we have to be very careful. We have not yet fully confronted the true cost of the war. I mean, in a sense, it's an illusion. Okay, that we had.. no, we haven't yet.

Unknown Speaker 25:00

As I said, the country has contracted more debt.

Unknown Speaker 25:05

There are the long-term consequences of human capital losses. I mentioned that before, and then there is another element which I

Unknown Speaker 25:14

call

Unknown Speaker 25:16

human human overdraft, meaning by that

Unknown Speaker 25:21

the Israelis most Israelis, they are overstretched on a personal level, I mean doing everything and beyond, okay, serving for 500 days as reservations in the front and keeping the business running or the startup and the spouses erasing the household and keeping the business, and so forth. People are exhausted, that's the truth. And the uncertainty, the uncertainty hanging over us

Unknown Speaker 25:51

really takes a toll as well. So this is where we stand. I mean,

Unknown Speaker 25:57

it's a, it's a story of the one hand, and on the other hand, clearly, and these two hands are really a very puzzling and a real paradox, but I believe that

Unknown Speaker 26:12

we have the capacity to pull it out and go forward once we achieve some sort of equilibrium. I think I will stop here. I mean, there is much more to talk about. What I will let you, Stuart, to take to

Unknown Speaker 26:28

ask questions, and so forth.

Unknown Speaker 26:32

Well, you captured so much in such a brief description of what's going on in Israel, both at the macro level and beyond, and it provides a great deal of insight for us all. Let me follow up with the following:

Unknown Speaker 26:50

we

Unknown Speaker 26:51

also have a situation here in the United States where

Unknown Speaker 26:55

the vast majority of Americans are questioning our foreign policy. We have national leader who is very controversial on many dimensions,

Unknown Speaker 27:07

not doing well with respect to public opinion polling, and yet the question for the upcoming US elections, as well as the midterms, etc. is How does economics translate into political outcomes, and we have very significant economic concerns on the part of the so-called man or woman on the street in the United States as relates to affordability to housing affordability, as you've referenced two implications of the Gulf War, which is main made for a real spike in gasoline prices in the United States, etc. So households are suffering along those dimensions, and the question is political fallout. So I ask you to translate that question into the Israeli context and tell us with respect to the upcoming national elections in Israel in the fall, if not sooner. How you think everything that you've just described, from the exhaustion, the uncertainty, the displacement, the emigration, the mental health challenges, the loss of human capital, all of the dimensions that you've described, how they might translate into electoral outcomes in Israel. I'm asking you for a different hat here, but

Unknown Speaker 28:33

I'm confident as a past member of the Knesset that you're used to political considerations as well.

Unknown Speaker 28:42

Absolutely.

Unknown Speaker 28:43

So, yes. I mean, we have elections coming up.

Unknown Speaker 28:47

It's okay when they are going to be. The last possible date is october 27

Unknown Speaker 28:54

according to the law.

Unknown Speaker 28:56

So, it may be on that day or before. They are discussing that right now. So, it's really very soon,

Unknown Speaker 29:02

sooner than the elections in the US,

Unknown Speaker 29:05

so

Unknown Speaker 29:07

the when we look at the mood or the issues, okay, that are being played out towards the upcoming elections,

Unknown Speaker 29:16

it's not the economy,

Unknown Speaker 29:18

it's not the economy for two main reasons, one is that, as I said, it was so far the economy is doing fine, all things considered. Okay,

Unknown Speaker 29:31

that's one reason, and the other reason, which I think it's more important, is that people are so concerned about security, about the future, about how we are going to emerge from these wars. Okay,

Unknown Speaker 29:47

that the really the attention is being captured by by those issues, and much less by the purely economic or social issues, but.

Unknown Speaker 30:00

That

Unknown Speaker 30:01

you know, there is a saying in Hebrew that we say at some point you come to

Unknown Speaker 30:07

the.. we say it in Hebrew, a haim at man, the life

Unknown Speaker 30:12

by itself, life in itself, the life issues, the issues that affect your life. Okay, and it's going to get there very soon. I mean, after the security situation, you're the war,

Unknown Speaker 30:28

etc. The huge uncertainty hanging on us recedes. Okay, then

Unknown Speaker 30:35

the same issues that I mentioned that were there before, and I mentioned them in the context of social failure, I said macroeconomic success, social failure, they are going to come back with a vengeance because those issues have been only exacerbated because of the war, okay, because the cost of living, okay, the housing issue, and so forth, the

Unknown Speaker 31:03

deterioration of, say, education. Okay, it's very notable.

Unknown Speaker 31:09

The transportation problems, you know, the traffic jams wherever you look at, so

Unknown Speaker 31:15

the high mats map, you know, the life itself, the issues that go with life itself are going to explode

Unknown Speaker 31:24

after

Unknown Speaker 31:26

the security situation comes down, and so

Unknown Speaker 31:31

it depends whether that will happen before the election, and then they will play a role, these issues in the election, or right after, but they are there. Okay, they are there,

Unknown Speaker 31:43

and people are, in a way,

Unknown Speaker 31:46

you know, tired of having to confront these issues, because essentially you would have thought that there were plenty of opportunities up to October 7 to do something about it, and, no, you know, I mean, things were postponed, no, the satisfaction was taken. Okay, some things improve, but others

Unknown Speaker 32:10

didn't, and so forth. So that's what kind of brewing back then in the people's minds, and, and let me say, I believe

Unknown Speaker 32:22

that

Unknown Speaker 32:23

because of all that there is a lot of resentment. Okay, building up, and that's going to manifest itself very strongly in the coming elections.

Unknown Speaker 32:36

Very well

Unknown Speaker 32:38

said. I guess it's difficult to speculate as to whether

Unknown Speaker 32:42

the manifestation of resentment goes left or goes right, remains with the parties of the ruling coalition, or goes

Unknown Speaker 32:55

to very broad challenge

Unknown Speaker 33:00

to the ruling coalition,

Unknown Speaker 33:03

so if, if you wish to comment on that, yeah, I mean, clearly,

Unknown Speaker 33:10

the, there is a lot of anger, and there is a lot of resentment that is being directed by this, so to the current government, I mean, it's somebody is responsible for all of these,

Unknown Speaker 33:21

and this has been exacerbated greatly by the issue of

Unknown Speaker 33:27

the by the fact that the ultra orthodox, the Haredin, the ultra orthodox don't serve in the army

Unknown Speaker 33:34

at the time when, as I said before, you know, the young generation that are serving in

Unknown Speaker 33:41

as either at

Unknown Speaker 33:43

in the reserve in the reserve corps or in regular service for so long now. Okay, they see these other people there that are in the sidelines that are getting handouts from the government and they're not serving in the army, so that creates enormous resentment, and it's been directed certainly

Unknown Speaker 34:06

against the current coalition, so you know,

Unknown Speaker 34:10

I, I'm pretty sure that

Unknown Speaker 34:13

there will be

Unknown Speaker 34:15

a political turnabout in the coming elections, and I think it's going to be quite dramatic. Okay, okay. Thank you. Thank you for that.

Unknown Speaker 34:25

One of our listeners, Manuel, is

Unknown Speaker 34:28

wondering about

Unknown Speaker 34:31

an issue that we have here in the US, and that, as I mentioned previously, is the issue of energy prices and how energy prices feed into

Unknown Speaker 34:42

the

Unknown Speaker 34:44

matters of life that you so eloquently described in terms of commute costs and regional location choices and all the rest, heating prices, etc. Whether there is a parallel and.

Unknown Speaker 35:00

Israel, and whether you're seeing impact,

Unknown Speaker 35:05

direct impact of the Iran war there, or whether Israel's energy autonomy has to some degree offset that.

Unknown Speaker 35:14

So we have to distinguish here between

Unknown Speaker 35:18

industry

Unknown Speaker 35:20

and the rest industry has switched to great extent to natural gas that we possess, right. So, in that sense, we are shielded from the shock that

Unknown Speaker 35:35

the, because of the war with Iran, but in terms of gasoline prices, they have gone up, okay? Because we import

Unknown Speaker 35:44

the, of course, the oil to make to refine it, and so forth, and produce gasoline. But one of the big differences with the US is

Unknown Speaker 35:54

that Israel is a very small country, so the commutes are very short, so the intensity of use of gasoline is not comparable at all with the US. I mean, people are, of course, affected by the rising in gasoline prices, but it's not at all the

Unknown Speaker 36:11

same issue as with the with the US. I mean, you know, most of the population in Israel resides in the center of the country, right, Tel Aviv, Gibatra, you know, all the, all the surrounding areas of Tel Aviv,

Unknown Speaker 36:26

and you know the distances are short, so

Unknown Speaker 36:30

we don't really have that the same reaction to gasoline prices as in the, as in the US, and we are lucky, of course, to have the gas, because the natural gas, because otherwise,

Unknown Speaker 36:45

then everything will be badly affected, but we are, as I said, sort of shielded from, from the main impact, because of the

Unknown Speaker 36:54

these two factors.

Unknown Speaker 36:56

Very well, thank you. Another listener is interested in further articulation of the story related to the ultra-orthodox, and in particular any economic dimensions of that story. I know that there are dimensions that relate to their reliance on public subsidy, and there are issues that relate to service in the IDF, but if you wish to speak to

Unknown Speaker 37:24

any of the, again, real-life economic implications, macro or below macro, as relate to the

Unknown Speaker 37:34

conflict and controversy that relates to the ultra-orthodox. Yeah, so this has become

Unknown Speaker 37:43

Richard boiling point, I mean, with the ultra orthodox, and it was bound to happen one way or the other. Why? Because, as you probably know, I mean, the ultra orthodox has may have many more children, okay,

Unknown Speaker 37:58

an average of six

Unknown Speaker 38:00

per family, whereas the rest of the country have a slightly less than three. Okay, so they are

Unknown Speaker 38:08

growing in terms of percentage of the total population right now. The ultra-orthodox are about 12, yeah, about 12 percentage points of the of Israel population. Okay, it grew,

Unknown Speaker 38:24

and they essentially, most of them, okay,

Unknown Speaker 38:30

the men, okay, don't work for the most part. I mean, the participation rate of them is about 50% That's very low. I mean, for all other Israelis, the participation rate in the labor force is 85%

Unknown Speaker 38:45

Okay, so it's a huge disparity. By the way, the women work much more of the ultra orthodox, but they work mostly inside their communities in education and so forth. They earn very little. Okay, so they're dependent on the public parts, right? I mean, on public budgets for welfare, for housing, for education, etc. etc. Furthermore,

Unknown Speaker 39:14

they don't teach the basics of math and English and sciences, and computers, and so forth, and so on. So,

Unknown Speaker 39:25

when they do come out into the labor force, okay, they don't have the skills in order to be productive in the economy. This is an impossible situation. Okay, so you know it was bound to happen. I mean, it had to explode, and it has exploded because of the war. Okay, and the fact that they don't serve in the army. Okay, believe me, that before october 7, the issue was the same, but people were much less concerned about the fact that they didn't serve in the army. They were more concerned about the fact that they were getting all.

Unknown Speaker 40:00

These goodies from the state. Okay, so we were paying the taxes, and they were getting the goodies. Okay, that's a situation that no society can afford to maintain, and the only reason

Unknown Speaker 40:12

that they managed to do that is because they had disproportionate political power due to the coalition nature of the government, so a small party, relatively small. Okay, cannot exert a lot of power, because otherwise they will leave the coalition, the government will fall. Okay, so the

Unknown Speaker 40:34

combination of all these factors has brought the situation, as I said, to a boiling point, and I'm absolutely certain that after the elections, there's, I mean, this is an issue, it's a big issue towards the election. Okay, there is going to be a huge change in that respect. Okay, that

Unknown Speaker 40:57

this, the support will go down dramatically. Okay, there will be forced to go out to work. They will be forced to, in order for to do that, they will be forced to introduce into the education system

Unknown Speaker 41:12

the basics, okay, the basic skills in math, and so forth, and so on. And they will be also,

Unknown Speaker 41:19

they will have to go to serve not all of them in the army, but in other sort of public service. Very

Unknown Speaker 41:29

well, I want to add Stuart, if I may, because this is important. You know, one way to look at it is that this is a huge problem that is going to explode.

Unknown Speaker 41:40

Another way to look at it. Okay, the half empty, half full glass is

Unknown Speaker 41:46

that we have

Unknown Speaker 41:49

essentially

Unknown Speaker 41:51

a reserve of 10% or whatever, of the population that, if you draw them in, okay, that can increase GDP,

Unknown Speaker 42:03

you know, it's similar to what happened

Unknown Speaker 42:06

when the rate of participation of women went up again in Western countries, so women were there, right, but the rate of participation was low, and so the GDP increases not because you get an external inflow of inputs, but because you managed to take

Unknown Speaker 42:28

advantage of the inputs you had, but they weren't underused. So, the way I look at it is, I say, great, you know, we have a reserve there that we can start integrating into the economy, and that will result in higher growth, which is better for everybody, of course.

Unknown Speaker 42:50

Thank you for that.

Unknown Speaker 42:52

Another

Unknown Speaker 42:53

listener, Manuel, asks about the tech sector,

Unknown Speaker 42:57

and the tech sector,

Unknown Speaker 43:00

there are many dimensions to the question. One dimension has to do with the impact of the war on the tech sector, either with respect to, you know, increased interest in some of the

Unknown Speaker 43:13

innovation that's emanating from that sector, or alternatively, as you so aptly put it, the damage to the Israeli brand and implications for venture capital flows and the like, so is there anything anecdotal or systematic that you can say about how the tech sector is currently faring in light of the turbulence of of the war and the like.

Unknown Speaker 43:42

Yeah, so I must add to what you mentioned. There is another

Unknown Speaker 43:48

factor that is causing huge disruption, and that's AI, of course, artificial intelligence. Artificial intelligence is really having a profound effect. I mean, look what happened with Meta by Facebook, just two days ago, right, they laid off a

Unknown Speaker 44:06

what was 10% of the labor force, I don't remember exactly the number, also in Israel. Okay, so

Unknown Speaker 44:14

this turbulence with respect to AI, and it's felt throughout the high-tech sector in Israel, but that's something that is universal. Okay, and it's when, when a new major technology arrives, and so quickly, as with AI, that's going to happen. Now, there are all sorts of contradictory indicators regarding the high-tech sector. On the one hand, they have been this amazing exits, right?

Unknown Speaker 44:44

Merges and acquisitions. I mean, the largest ever was Wiz, right, with $35 billion

Unknown Speaker 44:50

acquired by Google. I mean, it just mind-boggling. I mean, a company that didn't exist 10 years ago, $35 billion

Unknown Speaker 45:00

Okay, and a bunch of them record numbers. Okay, so you say, okay, you know something is

Unknown Speaker 45:09

happening here in a good sense of the world, and there are lots of new startups. I mean, actually, so far this year, if we take the first four months of this year, and you compared to

Unknown Speaker 45:24

previous years, including before the war, we had more startups being set up now than then, and not all of them are related to defense. Okay. Yes, there are quite a few, but no, I mean the main

Unknown Speaker 45:41

defense

Unknown Speaker 45:44

industries concentrated in three or four huge

Unknown Speaker 45:48

companies. Okay, not in the high tech sector, so something is happening there, which is good, related some of it to AI, some of it to other things going on at the same time. You see, there is the danger of immigration of young people, say, 'Hey, you know, this is too much for me. I mean, I've been fighting these wars, and, as I said before, you know, they are there in the front, and they take the laptop and keep working on,

Unknown Speaker 46:18

and you know, I can generate it during my family. I mean, it's all over the place, that it's pretty amazing, but that takes a toll. Okay, and we have seen people leaving or sitting, saying, well, you know, we are going to relocate in New York, keep working for the Israeli company, we'll see what happens. So, there are contradictory forces here operating, is the jury's out, it's too early to call, but what I will add one more point.

Unknown Speaker 46:48

If you remember, before the war started,

Unknown Speaker 46:51

from January 2023 up to October,

Unknown Speaker 46:55

there was this

Unknown Speaker 46:58

judicial reform that the government was trying to push that that ignited huge mass protests

Unknown Speaker 47:06

in Israel. Okay, particularly in Tel Aviv,

Unknown Speaker 47:10

and the one thing that is important to notice is that many young people from the high-tech sector were out in the streets, so that means that these youngsters were taking responsibility for the country,

Unknown Speaker 47:28

and the kind of the the

Unknown Speaker 47:30

image that they projected prior to that was not like that was that they were hedonist, they don't care, you know, they just care to to make it big with the exit, and that's it. Okay, and they couldn't care less for the country. No, they have shown that they took care. They identify they're willing to stick their necks out, and so forth. So that for me

Unknown Speaker 47:54

is a very good indication for the future.

Unknown Speaker 47:58

Very well, very well,

Unknown Speaker 48:01

Manuel. I wish to ask you a slightly out of the box question as near the end of our program here today, but it has to do with Lebanon,

Unknown Speaker 48:12

and the question has many dimensions, but it stems from a meeting that I had a couple of weeks ago with some senior people from Lebanon, and the conversation turned to the prospects of peace with Israel,

Unknown Speaker 48:28

and from there to the prospects of full open borders,

Unknown Speaker 48:33

trade, tourism,

Unknown Speaker 48:36

the flooding of Beirut with Israeli tourists, the opening of new transportation lines or preexisting ones that have been cut that run up and down the Mediterranean coast between Beirut and northern Israel and Tel Aviv and the like, the train line, so

Unknown Speaker 48:57

there was

Unknown Speaker 49:01

this little cherry that was dangled

Unknown Speaker 49:05

of

Unknown Speaker 49:07

a world where

Unknown Speaker 49:09

Israel and Lebanon could reach peace that was sufficiently substantive

Unknown Speaker 49:16

that it there could be many benefits to both populations,

Unknown Speaker 49:22

the flip side, of course, is the current reality, a truce which is barely holding, a very

Unknown Speaker 49:30

hot truce,

Unknown Speaker 49:32

and

Unknown Speaker 49:33

a situation in which northern Israel

Unknown Speaker 49:36

is again suffering

Unknown Speaker 49:40

in a very serious way, many, many people left the North

Unknown Speaker 49:45

in past years, and in the wake of the war with Hezbollah,

Unknown Speaker 49:49

some had returned, and now there's a whole question of,

Unknown Speaker 49:53

of, you know, full what I call economic

Unknown Speaker 49:58

and social sovereignty.

Unknown Speaker 50:00

Us over northern Israel, as opposed to just technical border sovereignty,

Unknown Speaker 50:07

and so we have these competing realities of what northern Israel

Unknown Speaker 50:14

and Israeli relations with Lebanon might look like. I'm wondering,

Unknown Speaker 50:20

in the words of John Lennon, imagine, can we imagine a different future with Lebanon? Is that something that remotely comes into

Unknown Speaker 50:31

play

Unknown Speaker 50:32

here, and,

Unknown Speaker 50:34

or, or is that just too remote?

Unknown Speaker 50:39

So, when we look at the North, okay, the North, there is Lebanon and there is Syria, okay. Let's start with Syria.

Unknown Speaker 50:48

I think that one of the

Unknown Speaker 50:50

best outcomes of the terrible

Unknown Speaker 50:54

wars that we have had is what happened in Syria, because

Unknown Speaker 50:59

the Assad regime fell,

Unknown Speaker 51:02

okay,

Unknown Speaker 51:03

following

Unknown Speaker 51:05

the fact that we

Unknown Speaker 51:07

essentially

Unknown Speaker 51:09

hit Hezbollah very badly, right. And then almost immediately after that, there was the insurgency in Syria, and

Unknown Speaker 51:20

the fall of the Assad regime, and that was critical both for Syria and for Lebanon, because essentially Assad was the corridor through which Iran was feeding Hezbollah with weapons and resources, and whatnot, and in fact, the Hezbollah have fought for to maintain the Assad regime during the civil war. Okay, so that was cut off, a

Unknown Speaker 51:49

completely different regime. Okay, emerging Syria, and the reason I, you ask about Lebanon by answering about Syria, is because without that,

Unknown Speaker 52:00

we wouldn't be talking about Lebanon, that was the essentially sine qua non, okay? For a change to occur in Lebanon that has happened, okay? And the West, the US, France, etc. are strongly involved with the new regime in Syria. It's not perfect, you know, there are many problems there, but it's

Unknown Speaker 52:24

completely different from the Assad regime. Okay, so we have one block there of the of the puzzle, okay, that is in place,

Unknown Speaker 52:34

and as I said, without that, we couldn't consider a better future with Lebanon,

Unknown Speaker 52:40

and we have to look at again at the fundamentals, Lebanon is the country with which we have essentially no issue, no outstanding issue. There are 13 points along the border that are not, you know, it's not clear whether this mile belongs to Israel, that can be solved in a week. Okay, everybody knows that. So, there is no standing issue with Lebanon per se. Okay,

Unknown Speaker 53:09

there is no issue, no, there is no territorial issue, there is no religious issue. I mean, nothing.

Unknown Speaker 53:16

And there has been a regime change in Lebanon. We cannot, you know, they were

Unknown Speaker 53:22

rescinded, you know, a new president has been elected, that is the guy that we were dreaming that he will be elected to be president of Lebanon, and the prime minister as well. So,

Unknown Speaker 53:34

in terms of the government, and they have said that they want peace with Israel, explicitly, you know, no means in words, I mean, which is really unthinkable, but then there is Hezbollah,

Unknown Speaker 53:48

and Hezbollah, you know, most of us of Israelis are clearly disappointed, because we thought that we have really hit them badly, and they were not going to raise their heads again, and no, I mean they have this capacity

Unknown Speaker 54:04

to come back and you know again be

Unknown Speaker 54:10

a very disruptive force there,

Unknown Speaker 54:13

and in order for the government of Lebanon to

Unknown Speaker 54:17

be able to disarm Hezbollah, or at least control them, and and you know, put them back in the box.

Unknown Speaker 54:25

It will require massive aid from the US, from France, from Israel. Okay, and, but that can happen, and because we don't have really any

Unknown Speaker 54:37

outside issue with them, that can happen. It's the same, in a way. What happened with Jordan, you know, with Jordan was very easy to sign the peace treaty, because we have no issue with them. Okay, so I actually foresee that

Unknown Speaker 54:56

once the situation with Iran, one way or the other, resolves itself.

Unknown Speaker 55:00

Okay, the tensions go down. Okay,

Unknown Speaker 55:03

then the attention of the US, France, Israel will be able to focus, and after the elections here, okay, we're able to focus on Lebanon, on Syria. Okay, and I, what I foresee is that they will be by stages, they will be joining if essentially the Abraham Accords.

Unknown Speaker 55:30

I'm really pleased, Manuel, that we could end on a hopeful note. I will say personally that I look forward to

Unknown Speaker 55:39

dining on the Mediterranean in Beirut,

Unknown Speaker 55:43

and then

Unknown Speaker 55:45

taking the train back to Tel Aviv. So let us be very, very hopeful of better days to come. We know that

Unknown Speaker 55:55

one more thing before concluding, you know, when I look back

Unknown Speaker 56:01

a A

Unknown Speaker 56:03

look back at the last few years, there is a one point in time where trouble started, and that's you will perhaps not believe it, but it's April 2019

Unknown Speaker 56:17

seven years ago. What happened back then? It was the first round of elections.

Unknown Speaker 56:23

Okay, that we had five elections in four years, a huge political instability. And then, you know, we had the judicial reform and the COVID, and then we had the, of course, the war, and so forth, and so on.

Unknown Speaker 56:39

I call that the seven bad years, like in the Bible. Okay, and I'm saying enough. We can now build the seven good years, and it's up to us, and we can do it. Let us hope a wonderful, hopeful,

Unknown Speaker 56:58

inspiring statement that comes at the end of a very, very important learning session for us all. So, Manuel Todaraba Laila Tov. Thank you very much. Good night. And at 10:30pm in Tel Aviv, please enjoy the rest of your evening. And Steve, I turn it back to you. Thank you, and I'll just echo what you just said regarding that note of optimism. I'll add Bizrat Hashem, Inshallah,

Unknown Speaker 57:27

and that we can have Lebanese tourist dining

Unknown Speaker 57:31

in Tel Aviv as well.

Unknown Speaker 57:33

Professor Trochtenberg, Professor Gabriel, thank you both so much. I think it's fair to say that in the 16 year history of the Nazarian Center for Israel Studies at UCLA. This was one of the very best, most informative, most interesting, most important programs we have ever offered to our audience. Thank you so much. Thank you to our audience for your superb questions that Professor Gabriel was able to ask of Professor Troxenberg. Just want to remind you all that our ongoing series that we are putting on jointly with Tel Aviv University Law School, featuring various professors from the law faculty at Tel Aviv, focusing on very key, important legal issues in Israel. That series, we've had two programs already. We'll continue with two more programs on june 4 and june 9. For those of you in the audience in the Los Angeles area, you are welcome to attend our lecture, live lecture in person, Monday, june 8, 5pm reception, 6pm lecture at the Luskin Conference Center at UCLA, featuring a legendary figure in Israel, I know a friend of Professor Trachtenberg, Dr. Efraim Sne, will be here on our campus at UCLA to deliver the lecture in memory of our benefactor, Eunice Nazarian. Details, registration information, everything else for these programs can be found on our website. Until then, we'll see you soon for our next program. Thank you all very, very much. The best to all of you. Thank you. Bye bye. Thank you. And good night. Good night. Bye.

Transcribed by https://otter.ai