[This is the first in a five-part article series on “Israel’s Zombie Economy,” based on the breakthrough series of broadcasts on Israel’s political economy with Shir Hever. Click here to watch the interviews for this series and see below for links to the remaining parts of the article series]
Both Israel's military and economy have been geared toward short wars (Shay, 2024). Israeli leaders have understood from the beginning of the Zionist movement that the Indigenous Palestinian population will resist the colonization of Palestine and that Israel will always remain a colonial bastion—as is evident in Ze’ev Jabotinsky's famous 1923 essay, “The Iron Wall.” Israel's first prime minister, David Ben-Gurion (r. 1955–63), insisted that Israel's military must be quick. Palestinian uprisings or Arab state’s military mobilizations must be quickly and decisively crushed in the interest of keeping the State of Israel sustainable. As in any case of settler colonialism, the existence of the colony is predicated on the illusion of normalcy. Yet when the delineation between settlers and soldiers collapses, the illusion of normalcy is shattered. Civilian life, separate from militarism, is critical for Israel to maintain the pretense of democracy, attract foreign investments, maintain trade relationships with the West, and much more.
The Israeli genocide in Gaza has been Israel's longest war ever, and has required the conscription of unprecedented numbers of reservist soldiers for unprecedented periods of time. The economic cost of the war has been an unbearable burden on Israel's neoliberal economy (Essahli, 2024). Unlike the social-democratic welfare state which Israel established (for its Jewish citizens) in the 1948–85 period, the years between 1985 and 2023 were marked by rapid privatization, welfare cuts, growing social inequality, and liberalization of relations with the rest of the world. This transformation has eroded the willingness of Israelis to suffer prolonged recessions and a decline in the standard of living. Many Israelis consider emigration a viable alternative. As a settler colony which lacks the socially homogeneous character of a fascist society, the Israeli government is limited in its ability to coerce the public into cooperation (Swirski, 2017).
Since October 2023, almost two thousand Israeli soldiers were killed and thousands were injured. An unknown number of soldiers deserted, committed suicide, collapsed from fatigue, mental stress, and trauma, or left Israel with their families. In one interview, an anonymous Israeli reservist claimed that out of his 100-soldier battalion, only 6 remained (Haaretz, 2024). Defense Minister Yoav Gallant (r. 2022–24) revealed that 15,000 more soldiers were needed, and that he therefore called back into service soldiers who were relieved of or disqualified from duty (Zeitun, 2024). After Gallant was fired and replaced with a more compliant defense minister, Israel's newly appointed commander in chief Eyal Zamir repeated that the shortage of soldiers is an obstacle to achieving military objectives set by the Israeli government (Zeitun, 2025).
On the face of it, Israel's leadership faced an impossible task of financing a prolonged war. The strategy of the Israeli government to mobilize the public for compliance, consent to genocide, and even voluntary sacrifice and active participation in the war is a multi-pronged strategy. It includes propaganda, dissemination of disinformation, intimidation and delegitimization of minority groups, and calling in every possible favor from foreign governments. Here, however, I wish to focus on the domestic economic policy.
In March 2025, two Haaretz journalists, Yaniv Kubovich and Tom Levinson, published an article which exposed a secret policy of the Israeli Ministry of Defense geared toward recruiting reservists (Kobovich & Levinson, 2025). Normally, reservists are assigned to a specific unit and are called for reserve duty (or active duty—which is distinct from traditional reserve duty) as a group. Kobovich and Levinson discovered numerous ads distributed on social media in which unit commanders recruited reservists to join their particular unit. Also, reserve duty is normally obligatory and reservists are given the option to volunteer for reserve duty only in specific units (i.e., the air force, intelligence, and medical corps) for which extensive training is required and it is not always possible to fill the troop-level needs when persons completing their mandatory service are not enough. The social media ads, however, called for soldiers to serve as drivers, cooks, and weapon operators in combat roles in which both regular soldiers and reservists can serve.
Furthermore, Israeli reservists are compensated for their reserve duty (or reactivation duty) period based on the amount they are paid in civilian life. Whatever wage or salary they make as civilians will be paid for the time they serve during their reserve duty (or activation). Their employer is not expected to pay for the time in which they are absent from work, and employers are banned from firing reservists during this time. The social media ads promised to compensate those who volunteer for reserve duty with a draft order. This made little sense, because the draft order for persons who have already served their mandatory service period would qualify them for compensation no different than what their receive for their civilian life. Those who lost their jobs because of the war or its attendant economic crisis would receive nothing more than the equivalent of their unemployment benefits.
In July 2025, sociologist Asaf Bondi and historian Adam Raz revealed that the Israeli Ministry of Defense increased payment to reservists to 29,000 Israeli shekels (NIS) per month, the equivalent of 8,800 US dollars, which is more than twice the average wage and more than four times the minimum wage in Israel. Bondi and Raz argued that overpaying the reservists is a way in which the government buys the consent of the general public to turn a blind eye to the atrocities committed in Gaza (Raz & Bondi, 2025). It is a compelling argument, but the social and economic significance of this policy has far greater repercussions.
The Israeli public is experiencing a decline in the standard of living, with tens of thousands of families displaced by the war, tens of thousands of businesses going bankrupt (when a business goes bankrupt, even reservists on duty lose their jobs), and forty percent of households going into negative savings (i.e., monthly spending greater than income and therefore accumulating debt) (The New Arab, 2024; Wrobel, 2025). In this context, the option to volunteer for a specific military unit and receive a very high income has become a lifeline; tens of thousands of households have become dependent on this income. Reservists who extend their service for hundreds of days in exchange for money have become a kind of mercenary force, which became necessary because of the severe shortage of active soldiers. Haaretz military correspondent Amos Harel's description of these soldiers evokes the image of an army of zombies (Harel, 2025):
The rate of soldiers showing up for duty also depends on patching up shortages, with some battalions drawing from a cadre as large as the battalion itself. These are 'attached' reservists who have been moving from unit to unit for almost two years, abandoning their civilian lives in favor of the war. The reasons are varied: from ideological identification with the goals of the war, to alternative livelihoods in place of jobs lost in civilian life, to those who are still emotionally stuck on 7 October and unable to let go (which is entirely understandable).
Paying reservists with “days of reserve duty” tokens is equivalent to printing a new currency, because the Ministry of Defense was permitted to issue the payment without adhering to the parliament-approved budget. Journalists have reported shortages in waiters, couriers, and various gig-economy, low-paying jobs because young Israelis prefer to receive better pay in reserve duty (Shechter, 2025).
The Israeli parliament drafted and passed the 2025 budget in March 2025 during the ceasefire (Knesset News, 2025). After Israel violated the ceasefire on 18 March 2025, the budget was not amended and instead passed under the assumption that the ceasefire would hold. The Ministry of Defense breached the budget almost immediately. The breaching of the budget is creating a financial risk. In principle, the Minister of Finance is responsible for preventing the Ministry of Defense (or any other ministry) from breaching the budget. But Israel's finance minister is Bezalel Smotrich (r. 2022–present), who referred to himself as a "fascist and a homophobe" before becoming one of the strongest voices in support of the genocide and against a ceasefire. Smotrich, a deeply religious man, said that "the budget is a war budget and God willing will be the budget of victory" (Ibid.; Toker, 2025a).
Every year Israel's Ministry of Finance publishes a report on the difference between the approved state budget and the actual expenditure of the government ministries (Finance Ministry, 2025). In 2023–2024, massive breaches were reported to finance the war. Still, large parts of weapons imports were financed by credit, with payments delayed to 2025 and beyond. So the "reserve duty day tokens" could create an unpredictable and possibly larger breach of the budget than ever before (Toker, 2025b).
In the early 1980s, Israel faced a crisis with some similar features. The large banks coordinated among themselves to regulate prices at the stock market, causing a rapid increase in share value across the board, and attracting the public to invest in stocks. The years of the stock market rally were also accompanied by hyperinflation, which drove even more Israeli households into investing in the stock market in order to protect the value of their savings. People even took loans to finance investments in the stock market. When the rate of investment slowed down and the banks no longer had the funds to maintain the price regulation, all of Israel's banks went bankrupt and were nationalized by the government. The stock market crashed and many households were instantly pauperized. The economist Esther Alexander in her Hebrew book The Power of Equality in Economics argued that the hyperinflation and the price regulation of the stock exchange did not coincide by chance, but that the former was the result of the latter. The banks created exchange value by hyping the share prices, and the effect was equivalent to printing money (Alexander, 1990).
Back to 2025. Israel's Ministry of Defense is paying reservists large sums without a revenue source to cover the payments. The Israeli economy, which is in deep crisis, is paradoxically showing signs of inflation (indicating increased demand for consumer goods) and stock prices have surprisingly increased or remained stable despite the bankruptcies, emigration, and labor shortage. A likely explanation for this can be found in Alexander's theory: the "day of reserve duty tokens" are effectively a second currency which floods the Israeli financial market. Reservists use the money to provide for their families and invest in the stock market, but when the well dries up, approximately two hundred thousand reservists—along with the households they support—will lose their main source of income. In addition to the psychological and sociological crisis which is expected when reservists return to civilian society after participating in a genocide, the economic crisis could be dramatic as well.
A second economic crisis is expected when the full extent to which the Ministry of Defense spent beyond the means allocated to it by the budget is revealed, leading to an increase in Israel's risk premium, a drop in Israel's credit rating, an increase in the interest Israel will have to pay on its debt, and a further reason for cautious investors to stay away from investments in the Israeli economy.
More from the Israel's Zombie Economy Series
Part 1: The War Currency
Part 2: The Counterrevolution of the Israeli Arms Industry
Part 3: Israel’s Breakdown into Tribes
Part 4: Is Israel’s Economy on the Verge of Collapse?
Part 5: The Disinformation Bubble
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Alexander, Esther, 1990, The Power of Equality in Economics: The Israeli Market in the 1980s, the True Picture. Hakibutz Hameukhad.
Essalhi, Wafaa. “Israeli Economy Struggles Under Weight of Gaza War,” Al-Monitor, September 23, 2024, https://www.al-monitor.com/originals/2024/09/israeli-economy-struggles-under-weight-gaza-war.
Finance Ministry, Reports on the Execution of the 2024 Budget, 2025, Unknown month, Jerusalem, https://www.gov.il/he/pages/budget-execution-reports-2024.
Haaretz. “The base doesn’t care that hostages are raped. If there will be a deal, it’s only thanks to Trump,” Haaretz Podcast “Hashavua,” No. 456, December 12, 2024, https://open.spotify.com/episode/0au3P4Qx7odiHDKV9hrWWx.
Harel, Amos. “Some of the tanks are already out of commission, and the German embargo could harm the Gaza maneuver,” Haaretz, August 24, 2025, https://www.haaretz.co.il/news/politics/2025-08-24/ty-article/.highlight/00000198-dc96-dd20-a5fc-fcf72f250000.
Jabotinsky, Zeev. 1923, “The Iron Wall,” available at the Jabotinsky Institute: https://en.jabotinsky.org/media/9747/the-iron-wall.pdf.
Knesset News. “Voting at the Knesset assembly begins on the budget bill for 2025, Finance Minister Bezalel Smotrich: ‘This is a war budget, and God willing, it will also be the victory budget,’” Knesset News, March 25, 2025, https://main.knesset.gov.il/news/pressreleases/pages/press25032025.aspx, accessed 2025.
Kobovich, Yaniv and Tom Levinson. “Reserve Service Rate Is in Steep Decline, and Units Recruit Soldiers Through Social Media,” Haaretz, March 12, 2025, https://www.haaretz.co.il/news/politics/2025-03-12/ty-article-magazine/.premium/00000195-8910-dd1f-a3fd-a990612a0000.
The New Arab. “War on Gaza Devastating Israeli Economy, Forces 46,000 Businesses to Close,” The New Arab, July 13, 2024, https://www.newarab.com/news/war-gaza-forces-46000-israeli-businesses-close.
Raz, Adam and Assaf Bondi. “The State Buys the Complicity of Its Citizens with A New Currency: A Day of Reserve Duty,” Haaretz, July 26, 2025, https://www.haaretz.co.il/opinions/2025-07-26/ty-article-opinion/.premium/00000198-3cfe-d96b-a5ff-fcff32fa0000.
Shay, Hanan. 2024. “The Revolution in the National Defense Policy which Caused the IDF Defeat on October 7th,” Misgav Institute, https://www.misgavins.org/shai-the-revolution-in-national-defense-policy/.
Shechter, Uriel. “It’s not regular military service, it’s a side-gig: the war which doesn’t end presents – have an economic problem? Come to the reserves,” TheMarker, July 18, 2025, https://www.themarker.com/weekend/2025-07-18/ty-article-magazine/.highlight/00000198-16e9-da26-abba-d7e9e6e90000.
Swirski, Shlomo. “The True Price Israel Pays for the Occupation,” +972 Magazine, May 17, 2017, https://www.972mag.com/the-true-price-israel-pays-for-the-occupation/.
Toker, Nati. 2025a. “Cost of Expanding the War: The Government Authorized Breaching the Budget, and a 3.3% Broad Cut from Next Year,” TheMarker, August 19, 2025, https://www.themarker.com/allnews/2025-08-19/ty-article/00000198-c115-dc9d-abd9-dbdfb3420000.
Toker, Nati. 2025b. “Ministry of Finance Executive Director Attacks the Defense System: ‘management of the reserve duty days is done without checks and violates proper governance,’” TheMarker, September 15, 2025, https://www.themarker.com/allnews/2025-09-15/ty-article/.premium/00000199-4c5b-d65c-a9f9-cddf01050000.
Wrobel, Sharon. “More Than A Third of Israeli Households Spend More Than They Earn, As Living Costs Rise,” The Times of Israel, January 14, 2025, https://www.timesofisrael.com/more-than-a-third-of-israeli-households-spend-more-than-they-earn-as-living-costs-rise/.
Zeitun, Yoav. “Due to Troop Shortage: IDF Brings 15 Thousand Civilians Up to the Age of 35 Back To Reserve Duty after Being Exempt,” Ynet, August 19, 2024, https://www.ynet.co.il/news/article/hj11dyyzi0.
Zeitun, Yoav. “The Chief of Staff to the Government: there is a great shortage in warfighters – ambitions in Gaza cannot be achieved,” Ynet, April 14, 2025, https://www.ynet.co.il/news/article/yokra14331600.