economy growing at a decent pace and with high budget revenues, we hear calls – populist calls – for increasing government expenditure for one need or another. and there are always needs. and they are mostly justified. but these calls ignore the macroeconomic situation which is so important for sustainable growth and for dealing with problems of society, not just today but tomorrow too, not just in the short term but in the long term too. and what exactly is the budgetary policy that will support sustainable and strong growth? the answer is simple : it is a policy that continues the government's strategy of the past three years. only this week, the prime minister made a decision in this field ; that the budget deficit target for 2007 will be 2 percent of gdp. and this is in line with the government's basic policy guidelines, which, inter alia, set the deficit target for 2009 at 1 percent. and it is important to note that this target is actually a ceiling. but there's another target, no less important ; that government expenditure will not grow by more than 1. 7 percent, in real terms, each year up to 2010. why are these decisions so important? firstly, regarding the expenditure ceiling ; this allows an increase in government spending, which should contribute to the various needs of the economy, particularly the problem of poverty. we heard during yesterday's morning session many recommendations to deal with poverty. it is important that poverty in israel is addressed. it is important that we help the weaker members of society by giving those that can work the incentive to do so, especially through negative income tax, and that we help the needy who cannot work ( the old, the disabled ) directly through welfare payments. it is also important that we help the development of human capital, in the long term, through education. but this should still be within the macroeconomic framework of achieving sustainable growth. this combination – a policy for sustainable growth and a policy of correct treatment of society's problems – contributes to creating the necessary balance between economy and society. it is important that we understand, and that we declare, that the best way to deal with poverty in the long run is through economic growth. this is because in this way we create more places of work and more opportunities to earn a higher wage and, in addition, it will provide the government with the necessary resources for its role in combating poverty. secondly, the new budget deficit ceiling – which is lower than before – helps to cope

head for the storm cellars. ” 3 the financial crisis conditions of the past two years have substantially abated. those that headed to the storm cellars have returned to see what lies in its wake. and washington has placed itself centrally in the clean - up efforts, seeking to repair the regulatory system. this is kevin warsh ( 2009 ), “ the panic of 2008, ” speech delivered at the council of institutional investors 2009 spring meeting, washington, april 6. kevin warsh ( 2009 ), “ longer days, fewer weekends, ” speech delivered at the 12th annual international banking conference, chicago, ill., september 25. irving kristol ( 1980 ), “ two economic questions, ” wall street journal, june 26. a wholly worthwhile task. improvements in regulatory policy – if part of a broader review of the financial architecture – could herald greater prosperity for future generations. but, efficacy, not convenience, should be the foremost goal of policymakers. and we will have done ourselves no favors if what is billed as “ comprehensive regulatory reform ” overpromises and under - delivers. we need a broader understanding of what occurred, more basic changes in our financial architecture, and more useful tools in our arsenal for reform efforts to be worthy of the name and equal to the challenge. prevailing theory of the case : empowering regulators the prevailing theory has it that financial firms, particularly the largest and most systemically significant, engaged in practices that begat the financial crisis. to redress these wrongs, regulatory powers should be substantially expanded, the theory goes. the incumbent regulators lacked sufficient authorities, or were not up to the task. but the structure in which their successors operate will purportedly make them masters of the craft. apparently, a new grant of broad and sweeping regulatory powers will treat the infirmities that ail us. in my view, this theory has some understandable appeal – and begins to shed light on some important truths – but the narrative and recommended reforms are still deficient. let me explain. first, the panic of 2008 that exacerbated the recession is the result of a multitude of flawed private and public practices, with regulatory error being only one part. some meaningful blame should be placed at the doorstep of regulators, here and abroad. but the investigation should not cease at the first signs of fault. the mortgage finance system is owed far stricter scrutiny to gather a fuller appreciation of the causes of the crisis. the government - sponsored enterprises ( gses