Economists Against Israel

by Howard Fienberg
December 13, 2002

Israel has cost the U.S. around $1.6 trillion since 1973, or more than $5,700 per person (twice the cost of the Vietnam war), according to economist and consultant Thomas Stauffer. Israel is currently pursuing $4 billion in new aid and more than $8 billion in loan guarantees. Stauffer's conclusions on the "hidden costs" of the U.S. relationship with Israel (detailed in the December 9 Christian Science Monitor) could swing opinion against Israel in the corridors of power.

However, Stauffer's data only present half of the story, because Stauffer has only done half of the necessary analysis. While inflating the costs of American support for Israel, he ignores or discounts the many benefits. Israel is scheduled for $2.04 billion in military assistance and $720 million in economic aid in fiscal 2003 and has average $3 billion overall a year for some time. Stauffer contends that, adjusting the official aid to 2001 dollars, the U.S. has given Israel $240 billion since 1973.

The controversy lies in the "hidden costs" which Stauffer claims to have discovered. For instance, he counts any loans or loan guarantees as a cost. The U.S. has made $10 billion in commercial loans, and $600 million in housing loans, to Israel. Because Israel's economy is currently in poor shape, Stauffer has decided that the loans will not be repaid. As the Monitor explains, Stauffer predicts "the U.S. would end up paying both principal and interest, perhaps 10 years out." But where does Stauffer get his information? Since Israel has never defaulted on any loans, even a talented economist would need a crystal ball to confidently predict a default ten years down the line.

As well, he includes "economic damage" to the U.S.  Stauffer blames Israel for the Arab oil embargo, because America came to Israel's aid when Arab states tried to destroy it in 1973. He claims the embargo caused a recession, which cost the U.S. $420 billion of output as a result. However, it is not clear that the oil embargo triggered the recession. There were many factors, including a decline in American productivity. Further on the economy, Stauffer tallies the cost to the U.S. of rising oil prices at $450 billion. Of course, it is not clear the Stauffer takes account of the benefit of rising oil prices to domestic oil producers. Another result of the Arab oil embargo was the creation of the U.S. Strategic Petroleum Reserve, which Stauffer figures has "conservatively" cost $134 billion. But he does not seem to understand what the money buys. The SPR does not discard oil, it saves it, like a bank, for emergency use. Withdrawals have even been made recently to help with rising home heating oil costs in the Northeastern U.S.

According to Stauffer, trade restrictions and economic sanctions reduce U.S. exports to the Middle East by about $5 billion a year, costing approximately 70,000 American jobs. How exactly trade restrictions on the America-hating regimes of Libya, Iraq, and Iran are Israel's fault remains unexplained. Mind you, the boost in oil prices, part of the "cost" of Israeli support listed above, presumably filled the coffers of Arab nations. Without that money, how could they otherwise afford to buy all the toys and services Stauffer complains we have not sold to them?

On the military side, Stauffer complains that the U.S. has supported the development of Israeli military technologies, spending $2.5 billion on the Lavi fighter jet and the Arrow missile. He conveniently ignores that these technologies, like many other Israeli innovations in medicine and agriculture, are shared with the U.S., making them more of a benefit than a cost.

The most outrageous accounting twist concerns charity. Stauffer complains that American Jewish charities and philanthropists have made grants or bought Israel bonds worth $50-60 billion, providing "a net drain" on the American economy - despite those funds coming from hard-working private citizens who chose to spend it that way.

Beyond all the dubious costs Stauffer manages to compile, there are the many benefits of which he takes no account. He does not pause to consider what dividends the U.S. receives from Israel, because they are not so easily reduced to numbers. American money supports a reliable U.S. ally in a hostile region. Israel is the only country in the Middle East with truly free elections, a free press, religious freedom, an independent judiciary, equal rights for women, protection of minorities and other individual rights. In the war on terror, Israel is on the front line against Islamist terrorist groups who hate America as much, if not more than, Israel itself. And as the U.S. considers invading Iraq, perhaps we should be thankful that, thanks to Israel's pre-emptive action in 1981, Stauffer does not have to consider one more frightening cost--that of an Iraqi nuclear bomb.

Thomas Stauffer laid out his analysis in a lecture commissioned by the U.S. Army War College and delivered at a recent conference at the University of Maine. But who is Stauffer? A favorite commentator for the Christian Science Monitor, he first tackled the costs of supporting Israel in a March 20, 1990 op-ed for the paper, where he estimated the cost at about $6.5 billion a year. He is periodically cited in the media as an energy and water resources consultant. Stauffer used to be an adjunct professor at Georgetown, a visiting professor at the Diplomatic Academy of Vienna, and a research associate at the Harvard Center of Middle East Studies.

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