Summary: Cost of living is income, minus taxes, against prices. Firms charge the maximum the market lets them, so prices that rose with a weak currency don’t fall when it strengthens unless competition forces them down; without continuous effort to create competition, cartels and monopolies form naturally. The two popular fixes both have traps: cash subsidies can be captured by sellers (the daycare charging ₪5,000 raises to ₪9,000 when the state pays ₪4,000), and price caps on a limited supply cause shortages and random rationing. Naftali Bennett’s answer in one interview: build competition through incentives, and deliver subsidies through target-price mechanisms rather than checks.
Key ideas
- Israeli price levels (PPP) rose ~35% over 15 years because competition stalled; prices are “the maximum I can take”, so blame the government that allows it, not the firms (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
- Example: Tnuva raised prices three times when the shekel weakened at the start of the war, then didn’t cut them when it strengthened (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
- Price caps with limited supply (e.g. airline seats) make who gets served nearly random; people lose not on price but on access. Price control usually ends in shortage (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
- Subsidy capture: a cash grant per buyer lets sellers raise prices by the grant (daycare, or contractors adding ₪1M to apartments) (micha-stocks—naftali-bennett-economic-interview, micha-stocks).
- Bennett’s counter: work backward from a target price (like Israel’s Mechir LaMishtaken subsidized-housing lottery) instead of writing checks (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
- Housing supply ideas: incentivize developers to build long-term rentals (defer VAT to handover, state guarantees to banks), neighborhood-scale urban renewal, and incentives for mayors, since residents cost a city money while commerce brings it in (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
- Banks keep developers from cutting nominal apartment prices, so prices fall hidden in promotions; Bennett calls it a time bomb that needs a controlled decline (micha-stocks—naftali-bennett-economic-interview, naftali-bennett).
Disagreements & open questions
- Can targeted subsidies avoid inflation? The host fears grants will just raise daycare and apartment prices; Bennett says routing them through target-price mechanisms prevents that. Untested campaign claim (micha-stocks—naftali-bennett-economic-interview).