November 16, 2002

US Aid to Israel
Feeding the Cuckoo

by PAUL de ROOIJ

Since Sept. 11, Americans have thought of themselves as the target of terrorists, emanating mainly from the Middle East. It may thus surprise them to learn that their own actions are in large part responsible for their problems and resentment in the Middle East. In particular, we argue that the massive aid flows and armaments transfers to Israel are largely responsible for the problems between Israelis and Palestinians today. The repercussions of this conflict reverberate everywhere in the region to the great detriment of the rights of the people in the area, but remarkably, also to the detriment of the US's long-term interests.

Americans by nature tend to look closely at their government's expenditures, to trim the fat wherever they can find it--welfare, social security, health care, education 85 all except when it comes to Israel. A valuable exercise for any American would be to examine the huge handouts given to Israel, which may reveal shocking facts and motivate them to a take closer look at what is done in their name. Here is a quick overview of US aid flows to Israel.

There are open and upfront economic and military handouts, and the table below lists the official numbers. Economists say that in the presence of inflation, a dollar yesterday is worth more than a dollar today, and an adjustment must be made to obtain meaningful comparable figures over time. It is highly desirable to express the aid flows in constant 2001 dollars, so that these figures mean something to us today. Inexplicably, this simple and standard transformation is never done pertaining aid flows to Israel--an omission that understates the aid flows. Now, adjusting the data and expressing it in 2001 constant dollars shows that the visible aid flows to Israel were $35.7bn over the past decade, and $143bn since 1967 [note 1]--the date after which US aid to Israel really took off. The latter stands in stark contrast with the unadjusted $83bn US aid since 1967 that is usually quoted.

Now, one must put that into perspective. Take the Jewish population of Israel (5.24m)--the primary beneficiaries of the aid, and one obtains a $540 per capita benefit just for 2001--four times as much as the touted Tax Cut of 2001 to Americans! [Note 3] Now, if the hard-working American families ever find this out, what can one suppose they would think of it? NB: The calculable aid flows to Israel constitute about 40% of the US's foreign aid budget (depending on how loans are accounted).

Up to now we have only dealt with the aid flows that are visible to all Americans--the government's audit agency, the GAO, will have no problem computing such numbers. But in addition, one must now account for the long list of hidden subsidies.

The biggest unofficial additional subsidy comes in the form of US loans to Israel subsequently forgiven by an act of Congress. That is, every year Congressmen engage in an ingratiation-frenzy to show that they are "friends of Israel," and this often entails forgiving loans. It is difficult to determine the sums involved, but this practice explains why Israel is overjoyed to obtain loans--these will eventually be forgiven in any case. As Stephen Zunes stated, " 85all past U.S. loans to Israel have eventually been forgiven by Congress, which has undoubtedly helped Israel's often-touted claim that they have never defaulted on a U.S. government loan." [note 2]

A few years ago Israelis bombed Lebanon with American-made F16 fighters. What was remarkable about this is that the bombs used were "on loan from the US." It is rather odd to lend anyone a bomb. There are deeply disturbing implications that an American owned bomb is thrown on Lebanese people by a third party, but we'll avoid this discussion. The explanation for this odd arrangement is that the Pentagon budget is being used to subsidize Israel. Thus, the Pentagon procures the bombs, and then they are shipped on loan to Israel. This amounts to a clear additional subsidy, especially if those bombs are never seen again. The extent of this underhand subsidy can't be calculated. There are also questions about the "pre-positioned" armaments to be used by the US military; Israelis can use these at any time.

The Pentagon budget often includes programs developed by Israeli defense contractors. Once again, this is a direct subsidy of Israeli industry. While one may ask whether the Pentagon obtains any benefit from, an even more pertinent question is whether US defense technology is compromised by this practice.

In fact, Israel receives all the latest military gadgets. Usually these weapons don't carry a price tag, and it is difficult to determine how much was spent on the military transfers. It is easy for the US government to manipulate these figures to "under invoice" military transfers to Israel--again, hiding the true cost from the US taxpayer. Certainly, Israelis won't accept the $10,000 military toilet seat, but maybe will take it for $0.50.

Egypt, the second largest US foreign aid beneficiary, receives the disbursements on a quarterly basis, and hundreds of American bureaucrats oversee the use of the funds. In contrast, the disbursement of aid to Israel is done in a lump sum once a year, and the funds disappear into the general kitty with no American auditor in sight. The additional cost to American taxpayers of disbursing the aid once a year equates to $250m per year.

Every so often, an American president will state that aid to Israel will be made conditional on it not being spent in the Occupied Territories. However, once the aid is handed over to Israel, then there is absolutely no control over it. Israelis can always disingenuously claim that the funds for the settlements come from other accounts--American's gullibility is always taken for granted.

Countries in Northern Africa have on occasion requested USAID technicians for various projects. Sometimes the technician showing up for the project is an Israeli contractor, or the aid recipient is asked to contact the Israeli company directly. This is an odd practice, and no other nationals are used in a similar fashion. Once again, what is at play is an indirect subsidy to Israel using the foreign aid budget.

Israel has on several occasions obtained "US loan guarantees" on huge loans that Israel placed in various markets. If Israel doesn't default on those loans, then the cost to the taxpayer will be zero. However, the general accounting practice is to allot for the possibility of default, and thus costing a portion of those loan guarantees. In the case of Israel, such a standard practice isn't implemented.

The implications of the loan guarantees are also enormous. In the early 1990s, Israel received guarantees on loans of $10bn, and it is currently lobbying for another batch of $10bn loans guaranteed by the US taxpayer. If in the future the US decides to become more assertive and perhaps reduce its economic aid to Israel, then Israel could default on its loans--a likely possibility. The US would be left with massive bills to cover the loan guarantees. The loan guarantees further tie in US policy to Israeli whims, and therefore they should be rejected.

For the same reasons one has to be wary of the loan guarantees one also has to be wary of the huge issuance of "Israel bonds" in American markets. Often such bonds enter the pension funds of ordinary Americans, and thus future of Israeli and US policy impinge on the welfare of ordinary Americans. Scrutiny of the policy pertaining to the inclusion of such bonds in pension funds is something ordinary Americans should be concerned about.

One often hears that Irving Moskowitz, the "bingo parlor" magnate, transfers funds from his California operations to pay for the development of illegal settlements. In the process, he obtains various US tax advantages because the funds putatively go to humanitarian projects. Why should such funds disappear in Israel without paying the requisite US taxes? At a time when the US gov't is clamping down on numerous humanitarian organizations operating in the region, it would seem that projects in the illegally occupied territories should also be off limits. Once again, it isn't possible to verify the extent of this abuse.

Jordan recently obtained a preferential trade agreement with the US. However, the agreement is often conditional on products being produced in partnership with Israeli companies. This equates to a low value added assembly in Jordan, and Israeli companies reaping the bulk of the benefits. Nowhere else has such a conditionality been applied to US aid or trade agreements. It costs the US because even more cheap products pour into the US with lower tariffs. Although the agreement is meant to aid Jordan, it also benefits Israel. The cost in terms of Jordanian resentment is always ignored.

On several occasions, the disbursement of funds to Israel has been delayed. As soon as this happens, Israelis will clamor to receive the interest due for the days that the funds weren't in their possession, a preposterous situation. Assume that you promise someone a handout on a certain date, and if you delayed, would you pay interest on the handout?

Cuckoos make nice cooing sounds in the forests. They also deposit their eggs amidst the nests of the brown-hooded cowbirds. The cuckoo chick is about three times larger than the cowbird chicks, and will often drive them from the nest or starve them out. The mother cowbird will nearly exhaust herself attempting to feed the demands of the cuckoo in its nest--a parasite that it doesn't recognize as an alien in its midst, even when it is bigger than the mother cowbird herself! The parasite gains control not only of the nest, but also of the mother cowbird that frantically seeks to feed the parasite.

Israel is America's cuckoo. Massive aid flows go in ever increasing quantities to the cuckoo, and the negative aspects of this are evident for all to see. It is increasingly dangerous for Americans to set foot in the Middle East, the hostility directed at them originates primarily from Israeli actions in the area. Few people forget that the bomb dropped on them was US-made (maybe even US-owned), dropped by a US-made F16, piloted by an Israeli pilot, and the whole thing made possible by US funds. We all know that some Middle Eastern hostility has hit America's home soil. Why Americans should subject themselves to the whims and demands of the cuckoo remains as one of today's greatest mysteries. All the justifications proffered for the aid flows ring increasingly hollow, and raise significant questions on why this detrimental relationship continues.

It is only when Americans start adding up all the handouts and adjusting them to inflation that perhaps they will realize that its relationship with Israel is truly harmful. Americans may also start costing the resentment and hatred that Israel has engendered to themselves. A simple step to change the situation is to determine who is boss, who really controls the US budget and its foreign policy. The nature of democracy in America--and elsewhere--depends on this. The peace of the region, and alas, peace in the rest of the world, depend on it too.

Paul de Rooij is an economist living in London. He can be reached at proox@hotmail.com

All items referred to in this article can be found in various issues of the Washington Report on Middle East Affairs. Summary: www.wrmea.com/html/us_aid_to_israel.htm

Note 1: There are many issues arising when computing such numbers, and on valid grounds, several can be justified. The primary one will be how to account for loans--given that most of them are subsequently forgiven, it may be valid to equate them as actual transfers. A more accurate measure would entail obtaining figures on loans that actually have to be repaid--figures we don't have. However, the numbers quoted as US aid to Israel don't include the loans. The figure produced here from 1967 onwards equates the loans as economic aid--assuming most of those loans will never be repaid. NB: No adjustment was made for interest due on loans.

Note 2: www.wrmea.com/html/us_aid_to_israel.htm

Note 3: The Tax Cut of 2001 amounted to about $500 / family on average. Assuming a family of four on average, the Israeli above board handout of 2001 was about four times this amount 85 and that happens every year!