S3 E5. Israel’s Wartime Economy: How Bad is it?

This interview with Karnit Flug was on January 2, shortly after the Government of Israel released all manner of economic statistics and announced some rather significant tax tweaks. Based on my anecdotal conversations with people in the professional, VC and tech sectors, there is growing concern that the new tax measures will have the most deleterious—and disproportionate—impact on small independent businesses in Israel. Karnit Flug, as you will hear, thinks otherwise. So, I will keep an eye on how this develops. And in the coming months I intend to publish more podcasts and YouTube videos focusing on the economy. It’s amazing how overlooked this critical topic has been throughout the war. Then again, our Minister of Finance is Bezalel Smotrich. He has a lot to say about annexing various territories, but he seems far less engaged when it comes to financial and economic matters.

We have included in the podcast notes links to two previous podcasts with Karnit Flug, from back in the days when judicial reform was seen to be the key economic threat. Then—and perhaps more so now—Flug is very concerned with the emigration of Israel’s most talented citizens to Europe, North America, anywhere but here. The pressure of serving most of the year in reserve duty, the huge stress this puts on families—and all that compounded by deep concerns with the political direction of the country and how that is impacting our economic power—well, many are voting with their feet. That trend is among the top economic issues and threats facing Israel today, in her view. Always enlightening to speak with Karnit Flug.

I had intended to publish this interview in the second week of January, but then all hell broke loose, as President Trump would say. His repeated warnings that the hostage issue had better be resolved by Inauguration Day made everything else seem less urgent. This entire country was on 24/7 hostage alert. The good news is that my discussion with Karnit was very macro, so the podcast remains as relevant today as it was a few weeks ago. Tune in.

Podcast Notes:

Two previous State of Tel Aviv podcasts with Karnit Flug:

Prof. Karnit Flug completed her five-year term as Governor of the Bank of Israel in November 2018. In March 2019 she joined the Department of Economics at the Hebrew University.

As Governor, Prof. Flug oversaw the design and implementation of Israel's monetary policy and served as the Economic Advisor to the government. She was widely credited for maintaining stability and supporting growth in the Israeli economy.

Prior to her appointment as Governor, Prof. Flug was the Bank of Israel’s Deputy Governor from July 2011. Between July 2013 and November 2013, she served as Acting Governor.

Previously, Prof. Flug became Director of the Research Department and Chief Economist of the Bank of Israel in June 2001 – a position she held for 10 years. She published numerous papers on macroeconomic policies, the labor market, balance of payments and social policies. In 1984, Prof. Flug started as an economist at the International Monetary Fund, before returning to Israel to join the Research Department of the Bank of Israel in 1988. In 1994–96, while on leave from the Bank of Israel, she worked at the Inter-American Development Bank in Washington D.C. as a Senior Research Economist.

Prof. Flug‘s contribution to social and economic policies in Israel has been significant. She served on a number of public and government committees, including the Committee on Increasing Competitiveness in the Economy, the Committee for Social and Economic Change ("the Trajtenberg Committee"), the Defense Budget Prof. Flug received her M.A. (cum laude) in Economics from The Hebrew University of Jerusalem in 1980, and her Ph.D. in Economics from Columbia University in 1985.

In 2018, she was awarded an honorary doctorate from Tel Aviv University in recognition of her “exceptional stewardship of Israel’s monetary policy and economy.” In March 2019, Prof. Flug received the “Governor of the Year" Award for 2018 by the Central Banking Publication.

In each of her five years as Governor of the Bank of Israel, Prof. Flug was ranked among the top 10 central bankers in the world by Global Finance magazine.

Prof. Flug is married with two children.

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