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Israel is in deep manure (as in caca). No, it's not yet another intifada uprising or massive terrorist attacks nor is it an invasion from their Arab neighbors; it is their own politico–economic stupidity. The newspaper Yediot Aharonot has been reporting on this progress (if you can call it progress) for quite some time now.

In 1923 the Palestine Electric Company was created. Its goal was to supply, distribute and sell electricity to consumers. In 1961 it changed its name to the Israel Electric Corporation Ltd or IEC. Up to 1995 the company was an unmitigated success for 73 years. Stable, profitable and economically viable. It was operating under market rules.

Until… 1996.

That year the government of Israel stepped–in. It created the Electricity Authority (EA). This "autonomous" (sure…) political body was put in charge to control three critical parameters:

The price of electricity that IEC can charge

To prevent IEC from spending money on "unnecessary" expenses

To prevent the government from lowering electricity prices too much for political reasons

Let's see if we can re–phrase this. There you have a public company that survived just about anything you can possibly think of (including wars) and faithfully served its customers for over 73 years. Controlled by bureaucrats, it operated under market rules; a verifiable miracle! (obviously exceptions to the generalized incompetence rule of governments do happen). Then, for no reason, the government decides to take over. In essence, they prevented the free market from operating and substituted this market with bureaucratic wisdom (i.e. nonsense and stupidity). What do you think would happen next? If you said that IEC would get into troubles, take a fiat bill from the printing press; you deserve it!

What did the EA did?

They lowered the prices of electricity below profitability.

They "gave" (as if it would have been their right) free electricity to many people.

They forced IEC to manage their expenses according to regulations and wage agreements but these expenses may not be recognized by the EA hence denying revenue increases.

They regulated prices so that they wouldn't grow beyond population growth (i.e. hence negating any profits).

They didn't recognize many expenses and many times they did so retroactively several years after the fact.

The company offered generous pensions for employees, pensions that are now in jeopardy for lack of revenue, but the EA did not recognize this either.

And plenty other nonsense.

Result? Predictable.

The IEC keep on working based on borrowing. Today it has a debt of about 20 Giga USD (20 Billion USD).

In 2012 S&P decided to downgrade IEC's debt two levels (quite unprecedented for a company of this magnitude) and the government was forced to step–in to guarantee a large portion of the debt. S&P backed–out.

IEC? Thank you very much, nothing has changed.

Currently, Israel faces the unthinkable and very real possibility that the only company providing country–wide electricity will go bankrupt, hence plunging Israel into darkness. Worse. The debt is so massive in comparison with Israel's GDP (about 10% of it) that should IEC default, Israeli economy would tank.

So, what did the government do?

They created a commission to study the problem.

Recommendations?

Sell 15% of the company to private investors

Raise prices

Use less expensive energetics (natural gas)

Stop free electricity

Allow employee wage increases only every two years

And what about returning the company back to market operation conditions? How about cancelling the EA and removing the root cause of the problem? Not a chance.

Right!

But… and this is the overall laughable part… if these recommendations are implemented, Israeli people can look forward to a discount in their electricity bill of 10% by next year!!!!

Yes, it is that crazy.

Here we have a company that is simply too big to fail, in debt beyond anything even fathomable, that could literally collapse industrially and economically an entire country and what do politicians do? They neutralize the very plan designed to salvage the company purely for political reasons!!!

The other option?

Keep dumping money into the IEC from government budgets. This is, tax the people to rob them from their money, give them cheap electricity and then turn around and use this tax money to pay for growing IEC debts and growing interests on debt hence increasing the real amount of money paid for electricity. Right!

What are politicians going to do? We don't know but the suspense is indeed electrifying.

And you thought that political stupidity was an endemic disease located exclusively in western countries.

Not so. Political stupidity is alive and well the world over. It is a veritable pandemic.

It is for this reason that we publish these articles.

It is for this reason that we are Absolute Austro–Libertarians.

There is no way out. There is no other way. We are all on the same boat.

We are heading towards a massive iceberg.

The captain knows this.

The crew knows this.

The passengers suspect this.

Yet, only very few of us believe that continuing the course is suicidal.

Face reality or reality will stop you. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

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