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Thursday, September 29, 2016

How Shimon Peres brought inflation down in 1985 [feedly]

How Shimon Peres brought inflation down in 1985
http://rodrik.typepad.com/dani_rodriks_weblog/2016/09/how-shimon-peres-brought-inflation-down-in-1985.html

I saw Shimon Peres, who passed away yesterday, only once and it was at a conference on inflation stabilization in Jerusalem in 1990. He had led the national unity government during 1984-86 which had successfully brought down the country's triple-digit inflation. The conference organizer, the great Michael Bruno, had asked him to give an after-dinner speech.

When Peres took office, the budget deficit stood at more than 15% of GDP. Everyone at the conference wanted to know how he had managed to bring it down so quickly.

Peres said it was actually quite easy. He called a cabinet meeting -- Labour and Likud had an equal number of cabinet seats -- and announced that the meeting would not end until the requisite expenditure cuts had been agreed upon.

The meeting went on and on, with each minister zealously guarding his turf. But as Peres explained, eventually people got tired. Some ministers began to nod off. That was Peres' chance. "The minister of education seems to have fallen asleep. Off with his budget. Look, the minister of tourism has also nodded off -- off with his budget too..."

The story probably underestimates Peres' abilities as a negotiator, and the effort he had to spend to get his cabinet to agree to the cuts. But it is a funny one.


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