‘If all the economists were laid end to end,” quipped George Bernard Shaw, “they would never reach a conclusion.”
That was in 1933, when the Depression unsettled the entire world. Half a century later, economists were once again admired, as Thatcherism and Reaganism restored prosperity through deregulation, tax cuts, privatizations, and aggressive monetarism.
The renewed faith in economists was inspired by a school of thought – known as monetarism – born at the University of Chicago.
One of its members was a young professor named Stanley Fischer, who last Saturday died at age 81. Back in 1985, he was the American government’s representative on the team that reinvented a collapsing Israeli economy.
It was the beginning of a beautiful relationship.
FACING TRIPLE-digit inflation, zero growth, and dwindling foreign currency reserves, Israel’s socialist economy demanded open heart surgery.
Fischer, together with Hebrew University’s Michael Bruno (1932-1996), led the secret planning of a program that slashed government subsidies, cut the defense budget, reduced tariffs, froze public-sector pay and hiring, banned printing money to cover deficits, froze by decree all prices for a limited period, and mandated the Bank of Israel to set interest rates independently.
The results were astonishing. Inflation plunged and the exchange rate stabilized, so much so that the Bank of Israel could issue the New Shekel, deleting from the Old Shekel three zeros.
It took several more years for all this to renew growth, but the Israeli economy had been steered from its socialist past to its capitalist future, a transition after which the economic laggard of the 1980s became one of the world’s most resilient economies.
The plan’s success led to its imitation in other countries, while Fischer proceeded to senior positions in the World Bank and the International Monetary Fund. However, he remained mostly unknown in Israel, despite the crucial role he played in salvaging the country from bankruptcy. Twenty years on, that would change radically.
NEWS THAT Stanley Fischer was the Sharon government’s nominee for governor of the Bank of Israel was greeted with skepticism and disbelief. Some suspected it was a hoax. Many wondered whether the man even spoke Hebrew, and all expected him to be easy prey for the country’s merciless politics. Little did they know.
The announcement was made in January 2005, and the appointment came into effect in May. In the interim, Fischer gave no interviews and almost vanished, as if to vindicate suspicions he would matter little and disappear quickly. But when the appointment came into effect, and it was time to make a public statement, Fischer delivered it in a clear Hebrew which, it now turned out, he learned in his youth and had perfected with a private tutor over the previous four months.
It was a pleasant surprise, but only the first of many. The second surprise was Fischer’s arrival with a plan of action, crowned by a resolve to pass a new Bank of Israel Law that would etch in stone its independence and list its duties, from maintaining price stability and managing foreign currency reserves, to overseeing the banking industry and serving as the state’s banker.
It was a slow process that would take five years to mature, but Israeli life’s drama was much faster. Fischer had hardly been in office for half a year when he faced his third finance minister, after the first – Benjamin Netanyahu, who hired him – had resigned, and the second – Ehud Olmert – was called to replace the prime minister who had fallen ill. That was besides the disengagement from Gaza, which took place in Fischer’s third month and shook the country’s soul.
Unperturbed, Fischer kept a steady hand on the monetary wheel, as the shekel’s stability throughout this turmoil made plain. After his second year ended, and he faced his fourth finance minister – the third, Avraham Hirschson, having resigned following corruption revelations that later landed him in prison – Fischer had become a fixture of Israel’s public sphere. And then came the big one.
THE FINANCIAL meltdown of 2008 challenged the world economy in a way no previous jolt had since the Great Crash of 1929.
With the collapse of pillars of the global banking industry, from Lehman Brothers to the Bank of America, the question was how the world’s central banks would respond. The answer came from Jerusalem, where Fischer – ostensibly the monetarist who detested the idea of cheap money – now lowered interest rates, bought Israeli bonds, and also announced what might otherwise have sounded like a madman’s gamble: daily purchases of $100 million.
Fischer's originality, confidence helped Israel amid a global crisis
In fact, it proved ingenious. Fischer’s originality and confidence prevented the shekel from becoming excessively strong, and thus helped Israeli exports at a time when overseas demand was ready to tank. The local result was that while the rest of the world entered a deep recession, Israel had hardly two quarters of negative growth. The global result was that Fischer showed the way to most other central bankers, and now emerged as their unofficial dean.
Fischer’s new prestige gave him enormous power here; and while remaining modest, he used it with resolve.
Contrary to the permissive spirit that generated the American housing market’s subprime crisis, Fischer tightened restrictions on the mortgage industry, and thus reduced the likelihood of bad loans. When one banker – Hapoalim CEO Danny Dankner – made a move that Fischer considered reckless, he made the bank’s board remove him. And when Israel found gas, Fischer forced the politicians to create a sovereign fund that would channel its royalties to long-term social spending rather than short-term political gains.
That, in brief, is how Stanley Fischer, the best appointment Benjamin Netanyahu ever made, became a paragon of the ideal civil servant’s skill, vision, and impartiality; the gatekeeping custodian of governance that Netanyahu’s current government habitually derides, defaces, undermines and, with very good reason, dreads.
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The writer, a Hartman Institute fellow, is the author of Ha’Sfar Ha’Yehudi Ha’Aharon (The Last Jewish Frontier, Yediot Sefarim, 2025), a sequel to Theodor Herzl’s The Old New Land.