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Economic Fables

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Ariel Rubinstein

5. (Sort of) Economic Policy

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Beginning

1When I was a boy, I strolled every afternoon from my home through Shabbat Square toward the Workers’ Library at the top of Strauss Street. Half-way up the hill was a kiosk that displayed all the daily newspapers, attached by clothes pegs to the wide-open metal window shutters. As a curious child, I would stop and read the newspapers, peeking under the corners of the pages until I had my fill, and then continuing on my way. My favorite two newspapers were always on the lower-left side. Hamodia – ”the Mouthpiece of Ultra-Orthodox Jewry” – would vilify the police for brutally beating demonstrators at Shabbat Square. Kol Ha’am declared: ”Workers of the world, unite!” and reported unpatriotically about border incidents. I became fond of both of them – perhaps because of their particularly bold typeface. Perhaps it was because both were slim, or perhaps because they gave voice to departed heroes my mother would mention with veneration: her brother, who would sit in the study hall of the Slonimer Hasidic Yeshiva until midnight; and her brother-in-law, who was a clandestine communist in Warsaw before the war.

2We, who were born into the young State of Israel, grew up in the shadow of two cultures. One was Judaism, which we did not really know. But we were able to glean bits of it from our homes, from the street, from bar mitzvah preparations, and from what trickled into Israeli secular culture. The second was socialism, which we knew even less. We encountered its slogans on bulletin boards, in youth movement activity, and in what remained of the values of the Zionist socialist society after the establishment of the State of Israel. Both Judaism and socialism were regarded as absolute truths, great doctrines that provide answers to all questions, both intriguing and intimidating. We lived in a society that was trying to build a new type of ”Israeliness,” young and just, an antithesis of the past. But ultimately, I absorbed the message of solidarity not from the May Day parades, but on the eve of the Yom Kippur service.

3At the Shalom Shachna Meisel synagogue, the children would jeer at me as someone who was not familiar with the prayer book. The librarian at the Workers’ Union Library insulted me by chuckling when I asked to borrow Marx’s Das Capital. I wandered between these two giant mountains, Judaism and Socialism, not climbing either one. I remained at the foot of these mountains, gazing up at them wonder.

4Meanwhile, most of the newspapers hanging from the iron shutters of the kiosk on Strauss Street disappeared, and were replaced by sensational and commercial tabloids. A culture of materialism crept into our lives, exuding aggression, indulgent, unsatisfying and populist, supported by scientific method in the guise of economic theory. And I found myself part of the infrastructure that supports its existence.

5I came to economics only because it serves as a workshop for pouring words from real life into formal models. I did not imagine that my professional work would touch upon questions of economic policy. For many years I considered problems of social injustice to be of far lesser consequence than the existential questions: Jewish identity, what it means to be Israeli, and Israel as an occupying nation. Eventually, when I began to think also about real-life economics, I realized that I had opinions on these issues too. However, my opinions have absolutely no relation to economics in its academic sense.

The economic system as a game

6My favorite game as a child was Rikuz, the Zionist version of Monopoly. In Rikuz, you could build red houses and blue hotels, purchase remote communities, and control all of the capital of the electric and water companies. You could tour the country and even visit Hebron and Bethlehem, which were far beyond the border at the time. It was great fun to play the game during summer vacation, on the cool green floor of my bedroom.

7There are many games that enable children to learn, exercise their imaginations and dream. How did we choose which game to play? We understood that chess is for deep thinkers, that Scrabble is for the fluent of tongue, and basketball is intended for the tall. Everyone liked a different game. We agreed on which game to play by balancing our conflicting desires, and because we wanted to stay friends.

8I think of the choice of economic policy in the same way as I think of the childhood choice of which game to play.

9There are many economic games that enable people to consume, produce, contribute to society, grow and prosper. Some economic games benefit the workers and some benefit the wealthy; some are beneficial to the elderly, and some to the young; some of the economic games are complicated and suitable only for the best minds, while some are simple and can be played by anyone. Most of us believe that the rules of the economic game should be fair, but there is no consensus on the concept of fairness. Is it fair to compensate people according to the fruit of their effort or according to the effort itself? Should the economic game give more to those who need more? Is it right for someone whose parents won a lot in the previous game to enjoy an advantage when it is his turn to participate in the next game?

10In order to define the economic game, answers are needed to questions such as: Who are the players? How should we deal with redundant players? What moves are allowed? What should be done if a few players acquire a dominant position in the game? What can be owned and traded? Should we take into account the possibility that some players have limited ability to play the economic game? How flexible are the rules of the game? And what course of action should be taken when players opt out of the game completely?

11A society must decide which economic game it will play. Those who favor the natural economic game, which is seemingly free and without rules, actually support an economic game with very rigid rules – the rules of the jungle. Economics, as an academic field, has little to say about the question of which game to play. I reject the term ”the right economic game.” The political system – through public discussion and the balancing of its citizens’ conflicting desires – must decide how to formulate and enforce the rules of the economic game.

The players

12The definition of a game begins by specifying the players. This is true for board games and equally applies to economic games. Nearly all public economic decisions are made at the national level. Therefore, the definition of the group of players in the economic game is almost identical to the definition of who qualifies to be a citizen in the state. Citizenship laws define the jurisdiction of the rules of the economic game, and also define the individuals whose welfare is taken into consideration when setting the rules of the game. True, it is possible to imagine a state that not only looks after the interests of its own citizens, but acts in accordance with the dictates of universal justice. But the overwhelming majority of us, even if we care about all human beings, feel a stronger commitment to the covenant with our fellow countrymen and members of our nation. We feel that the rules of the game should serve, first and foremost, the members of our own society, protect us from those outside of the society’s borders and perhaps even enable us to grow stronger at the expense of other nations. Who is entitled to join the nation? Who will be excluded? Who will be born into the covenant and who will not be born at all? These are difficult questions that have an enormous impact on the society in which we live and, of course, on its economy as well.

13”Who are the players?” we ask, and must address the rules of acceptance for new members to our club. In other words, we are dealing with immigration policy. The immigration laws in Israel are both inclusive and exclusive. On the one hand, they do not enable non-Jews to join the club, and on the other, they mandate the absorption of anyone who is defined under Israeli law as a Jew. Israel has shouted for years: ”aliya!” (Jewish immigration) and conducts a policy of encouraging immigration by anyone who claims a genetic connection, even a dubious one, to the Jewish people. Thus, Israel has absorbed church-going Christians only because the family name of one of their grandparents sounded Jewish, and has brought in groups of people who practiced traditions that somehow resembled Jewish ones. Bringing them to Israel was not motivated by universal humanitarian motives or aimed at building a culturally unique society. If we felt we were carrying the entire world on our shoulders, we would open the gates to refugees seeking entrance at our borders and would not expel people who had the misfortune to be born in lands devoid of hope and who found a future among us. If we intended to build a society with a common cultural foundation, we would have fenced ourselves off from others according to cultural distinctions rather than ethnic ones. When all is said and done, the guiding principle of our immigration policy is apologetically racial. The desire not to appear as racists led us to suffice with a requirement for a flimsy genetic connection to the Jewish people. In recent years, this policy has also brought some immigrants whose connection to the Jewish people is a weak one, whose commitment to Israeli society is limited, and whose contribution to the economy is minimal.

14”Who are the players?” we ask, and contend with the question of policy regarding the birthrate. Israel has always acted according to an ethos of encouraging childbirth. We have glorified families with many children (called ”blessed with children” in Hebrew) even as we realized that most of them would have meager resources. The roots of the birthrate policy can be traced to the instinct of refilling the ranks that arose in the wake of the Holocaust. However, this policy engendered a tragic situation: we are inundated with births only among the population groups that are in dire need of assistance from others. And the others who are supposed to support the children of those groups are not eager to do so, and it is hard to blame them.

15”Who are the players?” we ask, and need to decide on the status of the temporary players – that is, we need to formulate a policy regarding foreign workers. In recent decades, many countries, including Israel, hastily brought in large numbers of foreign workers out of national greed. We treated them as if they were raw material. Employing them improved the situation of the middle and upper classes, who enjoyed cheap and submissive labor, but it worsened the situation of those who could only serve as unskilled workers, particularly in the sectors in which the foreign workers were employed. We did not want to regard the foreign workers as part of our society, but the avarice blinded us from seeing that sooner or later they, or their children, would indeed become part of our society.

16There is a consensus in Israel that it is one of the most talented nations, if not the most talented in the world. However, the nation is not a well-defined entity. Not every collection of human beings, even if it lives close to the holy places, can lay claim to this title.

17The policy of providing incentives for childbirth, the policy on foreign workers, and the immigration policy are changing Israeli society to a greater extent than the construction of a subway in Tel Aviv, the addition of thousands of teachers to the education system, or the building of a land bridge between Yemen and Cyprus. Encouraging childbirth among the weaker segments of society and actively promoting immigration through negative selection – while at the same time expecting constant growth in per capita GDP and an improvement in pupils’ achievements in the schools – is an expression of national psychological repression. Per capita GDP, which economists regard as an index of a society’s wealth, is ”the value of the national product” divided by the number of people in the society – and the denominator, not only the numerator, affects the quotient.

18Many moral and ideological considerations influence the decision about who will play our national economic game. This decision has absolutely nothing to do with insights derived from economics. An economist’s words carry the same weight as anyone else’s on these issues.

The redundant players

19The time: tenth grade, perhaps eleventh grade. The place: near the Allenby military base in Jerusalem. The event: a day with the Gadna Youth Corps, devoted to intensive pre-military training. The counselor appoints two group leaders, who alternately choose children for their groups. The groups are supposed to form two lines. Each child, in turn, has to run to the tree several hundred meters away and back, and when he gets back, the next child in the line sets off. The air is full of adolescent excitement, two years before their army call-up. It is strange how much people care about their group winning, even when they are divided into groups arbitrarily, and by the next day will not remember who was in which group. This competition really did not suit me. I was not physically fit, suffered from a lack of motivation and hated all physical activity. The group leaders had good reason to believe that even social pressure would not push me to succeed in finishing the run. In other words, the group that was ”lucky” to have me on its team would never win. It goes without saying that they chose me last, after all of the girls. I was an unwanted player.

20Each person comes to the conventional model of the economic market with a ”basket.” There are consumption goods in the basket, as well as production inputs to manufacture other products, and an important commodity called time. Each person would like to receive as much as he can, while giving as little as he can. And the market determines the terms of exchange for all of the products. In the model, as in reality, people are not equal; some have many assets and others have few. It seems that at least in one commodity, time, we are all equal: each morning, we all wake up and have at our disposal a treasure of 24 hours. But even in this there is no equality. People differ in their ability to turn time into other desirable products. A good education system tries to rectify the inequality in the productive capacity of people. However, it is not at all clear that progress and education compensate for the innate differences between human beings. As a result of technological progress, it is no longer necessary to exploit tens of thousands of slaves to build pyramids. It is unnecessary to send millions of soldiers to attack an enemy, and we can get by without batteries of women bent over small sewing machines. Very many people have become redundant. The economic desires and needs of human beings can be fulfilled without these superfluous people.

21In children’s games, there are ways to get rid of superfluous players. The other children ”forget” to invite to the game a boy who dreams of playing in the NBA but does not know where to shoot the ball. A player in the chess club who always loses and spoils the match is showered with ridicule until he keeps away. I quickly realized that it was best for me to keep away from sports.

22In the economic game, the redundant players do not vanish. If they could migrate to another country where they would be less redundant, many of them would do so. But the option to migrate is very limited. The redundant are on the fringes of society, censured and blamed for their own unfortunate situation. Society calls upon them to break out of the cycle of unemployment through programs for professional retraining that they have no chance of completing. They stand in endless lines to receive welfare benefits that are barely enough to sustain them. Some of them take consolation in the illusion that one day, things will be better, and if not for them, at least for their children. All this only hides a simple truth: we have no need for the redundant, they have no economic value. Economics has nothing to say about the question of how to contend with their redundancy.

Permissible actions

23Every game has rules that define what is permissible and what is prohibited, who can do what and when. The rules of the game are intended to give each of the players an equal standing. Sometimes there is no alternative, and the rules create inequality among the participants. For example, someone has to play with the white pieces in chess and receives the advantage that white has over black. But even when the rules of the game do not discriminate the players, they have an impact in determining who will be the strong players in the game. If the rules of basketball allowed players to shove their opponents, the outstanding players would be like football heroes. If the rules of the game of chess prohibited the players from looking at the board and they needed to play by memory alone, a chess master with poor memory would become weak. If scrabble players were allowed to use a computer, the outstanding players would be Internet mavens rather than those with a rich vocabulary.

24The rules of the economic game are heaped together in countless voluminous books of laws, regulations, rulings and administrative instructions. They are worded in a way that purports to place all players on an equal footing. But only ostensibly.

25Take, for example, the players of the economic game called entrepreneurs. An entrepreneur chooses a business in which to invest his capital and energy. The decision whether to allow entrepreneurs to open manpower businesses is likely to affect the outcome of the economic game, and to be significant not only for the entrepreneur, but also for the workers and employers.

26Let’s consider the case of a female engineer who is interested in working if she can find someone to help her with the housework. Across the street lives a woman who can serve as a cleaning lady but cannot work as an engineer. It would be beneficial for everyone if the woman across the street devotes time to helping with the engineer’s housework and, in exchange, receives some of the engineer’s earnings. Two questions arise. First, how will the two women find each other? And second, what portion of the engineer’s earnings should she give to the cleaning lady?

27”Matchmaking” mechanisms create these matches: bulletin boards, employment bureaus, social connections or private intermediaries. The engineer will not publish an advertisement in the newspaper if cleaning ladies do not look at the Help Wanted ads, and the cleaning lady will not visit the employment bureau if potential employers do not turn to these bureaus to look for workers. If private individuals can open manpower agencies, an equilibrium might be created in which all of those involved, from both sides of the street, turn to a single manpower agency that operates in the area. In this equilibrium, the agent is in a position to charge a significant agent’s fee as a condition for putting the engineer and the cleaning lady in touch with each other. The result is that the engineer’s income will be divided not only between the engineer and the cleaning lady, but also with the agent.

28What is wrong with this? First, a manpower agency is simply unnecessary. Ostensibly, it is a service that matches workers and employers. But the engineer and the cleaning lady can easily be matched via other means: bulletin boards, community centers, employment bureaus and the Internet. The problem of suitability is not a complicated one in the case of cleaning ladies, and the nature of the relationship depends mainly on their meeting in person. The entrepreneurs make a profit not because of their contributions to others, but because they position themselves on the bridge between employers and employees. Second, for various reasons manpower agencies in this market give preference to the employers’ interests over those of the workers. The result is not only that they eat into the wages of the cleaning lady. They also influence the outcome of the negotiation between the engineer and the cleaning lady and prevent the cleaning lady from benefiting from her economic power even when there is a shortage of cleaning ladies in the market. Most remarkable are the importers of foreign workers, who bring them to Israel and often collect fees that are equivalent to a year’s wages – a fee greatly out of proportion with the expenses involved in arranging their transfer from their home countries to their place of employment. When there is a severe shortage of foreign workers, the manpower agencies separate the demand and supply sides, and ensure that the shortage in workers is translated into an increase in their profits rather than a raise in the workers’ wages.

29Other entrepreneurs mediate between workers and employers, presenting themselves as service contractors. They sell a product called home cleaning without citing the identity of the worker who will do the work. Instead of employing the worker directly, the engineer contacts the contractor who provides her with the submissive worker. The contractor relieves the engineer of the headache of employing the worker, as well as of any guilt feelings about the fact that the wage is below the minimum wage. During the past decades, one can find these service contractors almost everywhere. Public and private entities have grown tired of employing cleaning personnel, gardeners and security guards directly (”Who has the patience to deal with them?”), and they employ these workers via a service contractor whose main job is to make sure that the worker’s salary and status remain low – for the benefit of their clients and their own profits.

30The rules of the economic game must determine which moves are permissible for these talented entrepreneurs who have the knack of identifying business opportunities. Just as the government prohibits touting movie tickets, it could prevent entrepreneurs from acting as middlemen between workers and employers. At the same time, just as the government is committed to issuing currency notes, it is obliged to operate a public employment service that connects workers and employers in a simple and efficient way, without nibbling away a piece of the pie.

31No, I do not think that the government should provide matchmaking services in all economic areas. In the luxury housing market, for example, the estate agents share information with the buyers and sellers, thus facilitating activity in the market. There is less risk of estate agents prejudicing the outcome of the bargaining because the buyers and sellers in the luxury housing market have more or less equal capabilities. Sometimes the market players are on the side of the seller and sometimes on the side of the buyer. Government intervention in this market is redundant because it would not prevent or correct injustice, or improve the efficiency of dealing in this market.

32The employment conditions of workers at the lower end of the scale have received some public attention in recent years, and a number of regulations have been introduced that slightly enhance the standing of these workers in the economic game. It was not professional economists who generated this change. Even after legislative reforms, these workers remained powerless and transparent in the workplaces where they scrub, garden and guard. In the future too, the weak may find more consolation in poems than in the discussion papers of economists.

The problem of wealth

33Every few years, the world of children revolves around cards with pictures of cartoon heroes, sports champions or weapons of war. In schoolyards, children gather with the cards they purchased at the nearby kiosk. The children repeatedly play a particularly simple game that ends with the loser surrendering one card to the winner. The children also trade the cards according to a price system determined in the children’s market and expressing the rarity of the cards. All is peaceful until one morning a child comes to school whose parents treated him to a large number of cards. The child’s pockets bulging with cards arouse great envy, not only among the children who have no cards at all, but also among the ”middle class,” who have just a few. Occasionally, he graciously gives a card or two to a child he wants to be nice to or as protection money to the class bully. This is sufficient to win him an exalted status in the society of children. But one day, the ”exalted one” goes outside during the recess and forgets his cards in his satchel. When he returns to the classroom, he screams. The cards have disappeared.

34Game designers assume that players want to win. But winning is not always players’ only objective. There are chess players who do not want to take advantage of a blunder by their opponent and allow the opponent to take back a foolish move, even when this means giving up a sure victory. There are sprinters who are mainly interested in their time, and would rather come last in a race against champions than win against poor opposition. But some players also have less positive objectives: those who not only want to win, but to win again and again, and to do so in a big way, in order to feel the intoxication of superiority over their rivals, that gives them status and power.

35The accepted model in economics assumes that people are interested in enjoying as much as possible: bread, books, health services and living space. Money is intended to be a means of exchange for obtaining goods and has no intrinsic worth. In the economic game, however, people have desires beyond the aspiration to increase their consumption basket. Some of these desires are beneficial to others. There are merchants who do not feel comfortable exploiting a mistake by another party to a transaction. Some employers feel they should pay a decent wage to their workers, above the market price. But there are problematic desires too. One such example is the desire of very wealthy people to become very, very wealthy. This only involves a small number of people, but these few can determine the fate of many other people. If they become even more affluent, this will only have a marginal impact on their consumption. Even Bill Gates does not eat more than five eggs a day and cannot travel simultaneously in two private jets. Extremely affluent people long for greater wealth, but not in order to get more consumer goods. Success itself is what enchants them. Some of them enjoy being able to share their wealth with others; some of them crave the power of control over those who are subject to their authority and benevolence.

36Many countries suffer from the problem of wealth – that is, the concentration of great wealth (and therefore, great power) in the hands of a few. What is wrong with this? We do not want a class of aristocrats to control our lives, regardless of how small and enlightened this group might be. Concentration of wealth is anti-democratic because the idea of democracy does not only mean conducting elections every four years, but also aspiring to distribute political power equally between all citizens. Whoever is not worried about oligarchy, whoever does not want to take responsibility and make an impact, whoever prefers that others determine his way of life – must hope that the wealthy elite turns out to be a community of angels who do not abuse their power.

37The damages caused by the concentration of wealth can be seen in the daily evidence of tycoons wielding influence over public figures and the media, the takeover of public assets through the exploitation of wealth, and the use of wealth for political purposes. Even philanthropy, the charitable aspect of wealth, is not necessarily as welcome as it seems. When a society assigns authority to philanthropists, it also leaves them to set the priorities. For example, as a result of generous donations received, the universities develop in directions that are far from being the result of academic considerations and national priorities. Some of the salient changes in academia and in cultural institutions have expressed the priorities of tycoons interested in commemorating themselves and their relatives on the walls of buildings. And these refined individuals prefer quasi-academic areas rather than the faculties of arts and science.

38The problem of poverty is urgent and cries out for attention. The problem of wealth is less obvious, but threatens to transform democracy into a mere formality. From one perspective, it is easier to address the problem of poverty because it involves giving, while dealing with the problem of wealth requires taking. People get angry when they do not receive something they feel is due to them, but they are very, very angry when something they already possess is taken from them. Let’s look at the inheritance tax, for example. It is the most just tax I know. It is so just that there would be justification for it even if the government did not collect taxes at all. Inheritance tax dilutes the concentration of capital in the hands of the few. The tax is only slightly detrimental to the system of incentives that encourages people to conduct useful economic activity. Nonetheless, and despite the fact that inheritance tax is imposed in nearly all of the countries we envy, there is enormous opposition to instituting this tax in Israel. The tax is perceived by most people, including those who are not affluent, as crueler than income tax. This is because income tax takes something that is not yet owned, while inheritance tax takes a bite out of something that has already found a home among a person’s assets.

39Economic models generally ignore the aspiration of individuals to gain power and control over other people. The problem of wealth is not a topic of discussion in the customary economic discourse.

Assets

40The rules of the game specify what each player holds at the beginning of the game. In chess, each player starts the game with 16 pieces ready to capture and eliminate the other player’s pieces. At the beginning of the game of Monopoly, most of the assets are in the bank. The players receive banknotes throughout the game. They can accumulate the banknotes or convert them to properties, houses, hotels or railroads at prices set in advance by the designer of the game. Players cannot take a coin from their pocket and add it to the game. The houses are not tradable between the players, and you cannot take a loan from the bank.

41In the economic game too, someone (the state, who else…) must decide which assets the players can play with. We are familiar with the idea of a commune, in which all of the property belongs to the collective; the collective not only decides the fate of the material assets, but also decides what work each individual will do, what he will eat and what he will wear. On the other hand, in the completely free market, a person can sell himself into slavery, his body for prostitution and his body parts for transplants. Between a commune, where there is no place for private ownership, and an economic system in which every object belongs to someone and everything is tradable, there is a broad range of possibilities. In order for ownership to have validity, the community must recognize it and it must be backed by an enforcement authority. The designer of the economic game is the one who determines which assets can be owned, which assets are tradable, which assets will be under the state’s control and which will be privately owned.

42I think that most of us believe that it is appropriate for a person to own what he has produced with his own two hands and that a person has a right to trade what he has produced in exchange for something else. Most of us also believe that a person’s ownership of his body should be protected and should not be an object of commerce; that parks and beaches should not be in private hands. Beyond these principles, the issues are controversial.

43I understand the revulsion felt in light of the revelations of corruption and waste in the public service, revulsion that feeds the enthusiasm for the privatization process, which is essentially a transfer of control over assets from public to private hands. But the sale of a bank to a businessman does not ensure its efficient operation and certainly does not improve its business ethics. Before a government company is privatized, the appointment of a crony as CEO is liable to result in a criminal indictment. After the privatization, the appointment of a party activist favored by the controlling owner is considered to be his right.

44True, it is problematic to assign too many tasks and authorities to the state. The government is too large an entity, with an abundance of missions and a narrow-topped pyramid structure. Leaders, like tycoons, sometimes use their power – and not necessarily for the good. I also believe that it would be best for us if the government focuses on governing rather than managing. The government should concentrate on defining and enforcing the rules of the economic game and not engage in the ongoing management of matters that others can execute without fear of harming the public interest. But removing control of the nation’s assets from government hands does not require converting them into private, fully tradable assets. In order to address the problem of wealth, the concept of ownership of assets of special public interest could be defined in a way that restricts the use that can be made of them. For example, we could require that the ownership of such assets be distributed between a large number of individuals, or that a government company that passes into private hands be managed with extra consideration for the welfare of the employees.

45Assets can be outside of government control and still not under private ownership. Authority could be divided between the government and a public non-governmental entity that manages the nation’s assets. The directors of the Public Economy Authority could be elected by the founder shareholders – that is, all of the citizens of the state – rather than being appointed by the government. It is not absurd that citizens would not only elect their leaders but also the directors of this Authority. (In the U.S., the attorneys general are also elected by the public.) The director must be a person of integrity, with managerial attributes. He should be committed only to the public that elected him and will perhaps reelect him, and must consider not only the balance sheets of the Public Economy Authority, but also the Authority’s level of service and how it treats its employees.

46Of the assets that individuals can accumulate, land is the best candidate for expropriation. The Bible was familiar with this notion too. The economic significance of the idea of the jubilee year is that land is to be held by individuals for a limited period and is eventually redistributed among all. Land is also a unique asset in the high-tech era, a sought-after treasure that is dwindling quickly and which cannot be smuggled abroad or imported without wars. Leaving land in public hands and only selling leasing rights would drastically reduce the problem of wealth without harming market activity. Even if the rules of the economic game do not permit the accumulation of land, people will continue to be exposed to enough incentives to work and exert themselves.

47The question of ownership is discussed in economics, but the main economic discourse focuses on the efficiency of various ownership arrangements. In any case, it seems to me that the views of economists regarding the boundary between the public and private ultimately derive from emotional positions rather than scholarly conclusions. Some are wary of government and would like to hand the world over to the private sector, while others are outraged by tycoons and wish to strengthen the power of the state. I see nothing wrong with this. I do not see why economic models have a place in these matters and emotions do not.

The player’s limitations

48When we think in game theory about a game, we assume that the players have a perfect ability to play it. In tic-tac-toe, for example, it is reasonable to assume that each player prefers a victory to a tie, and prefers a tie to a defeat. Thus, we have a game with an absolute conflict of interests. Some will argue that if both players are rational, game theory proves that the outcome of the game is known in advance – a tie. This is because each player in the game has a strategy that ensures he will not lose, regardless of what his opponent does. Consequently, if the game does not end in a tie, at least one of the two players must have made a wrong move at least once, a move that led to a situation in which the other player could win.

49But human beings are not perfect players. They make errors and do not always take advantage of opportunities. Despite the fact that tic-tac-toe is a well-known and simple game, not everyone is familiar with the strategies guaranteeing that a player will not lose in the game. This fact enables the game to survive. No one would be interested in participating in a game whose outcome is known in advance. The limited rationality of the players makes the game more interesting than it appears when analyzed via game theory. This also applies to other games. A game’s outcome is likely to be unpredictable, even when we have a mathematical theorem stating that if the players act rationally, the outcome of the game is known in advance. The outcome of a game in the real world depends on the abilities of the players to play the game, i.e., their memory or logical ability, associative ability or manipulativeness.

50Most of the players in the economic game have only limited familiarity with the economic game and make plenty of mistakes. Almost all of us have difficulty accepting rational decisions on substantial matters such as pension planning and health insurance. And, of course, most of us are unable to trade in derivatives on the markets in Chicago and Shanghai (if we even know what they are). Most economic players find it difficult to identify economic opportunities and respond to them. This is a problem for supporters of traditional economic thought, which assumes the existence of an unlimited number of entrepreneurs ready to jump at every opportunity that comes their way. A complex economic environment gives an advantage to speculative and manipulative players. The designers of the economic games tend to ignore the emotional and cognitive qualities required to excel at the game. I think the designers of board games are more sensitive to the personal qualities the game rewards and encourages.

The flexibility in the rules of the game

51We all hated to lose in our childhood games. We were hurt, angry and kicked. Sometimes one of us would suddenly announce – that is, after realizing that the accepted version of the game was not working to his advantage – that we were actually playing a different version of the game. Usually it was the strong kid who made this declaration. We had no choice but to yield to him, to be angry and hold our tongues.

52The players who are high up in the economic game, as enlightened as they pretend to be, aim to preserve their status and wealth. When market forces finally are about to benefit those who are lower down, someone announces that we are actually playing according to a different version of the game, one that ensures that everyone remains in their assigned places.

53Here is an example: according to the rules of the economic game of the free market, occasional excesses of supply and demand affect prices, including the price of labor. The import of foreign workers in a particular industry affects the supply of labor and lowers the wages of those working (or who could have been working) in that industry. The movement of foreign workers is not determined only by market forces. We live in a village that is less global than it seems. Capital flows have become freer, but few people, even among those who champion the free market, would argue for the unregulated migration of labor. The designer of the economic game still sets entry quotas for foreign workers, even in states that practice economic liberalism. In order to comply with the principles of the free market, the designer must define a policy for importing workers in a particular industry that will depend on how critical the labor shortage is in that industry, and will ignore the status of those employed in it.

54Indeed, for years there was a shortage of registered nurses, computer programmers and even economics professors in Israel, on the one hand, as well as of farm workers, caregivers and construction workers on the other. In conventional economic parlance, the added value to the economy of a worker in the first group of professions was higher than the added value of a worker in the second group. In all of these professions, there are very many foreign workers highly willing to come and work here for wages that are lower than those of Israeli workers. But we did not see plane loads of registered nurses and programmers at the airport, not to speak of economics professors. But we did see planes full of Thai workers, Filipino caregivers and Romanian construction workers. For years the state has permitted the entry of foreign workers in industries where local workers are not unionized and lack political power, and has refrained from doing this in industries with a well-organized work force, despite the fact that in those fields the contribution of foreign workers to the economy could have been greater.

55So, when attorneys, accountants, economics professors or programmers are lucky and the demand for these professionals exceeds the supply, then it is all well and good for their wages to rise, as the free expression of market forces. But when it appears that luck is shining on those who are only capable of working as caretakers, and the surge in demand threatens to benefit them, pressures are exerted to make the rules of the game more flexible and allow the import of foreign workers, thus preventing the market forces from performing their role. I am not aware of any moral or economic justification for this absurdity. In order to understand how this occurs, there is no need to study economics. You just need to recall how the strong children changed the rules of the game when they were not to their liking.

Spoiling the game

56Sometimes in children’s games, a great drama is enacted, when some players abruptly quit in protest. This happens after some of the children are struck by a feeling that something is unfair to them. In the economic game we play, this type of abrupt exit from the game is also not a far-fetched scenario. Let’s imagine that we have reached the (not so distant) moment when there is nothing left to privatize. The postal bank, hospitals, universities, prisons and television channels – all have been privatized. An oligarch who made his money on a soccer team and power plants in Sleazistan has completed the acquisition of the police. All of the nation’s lands have been sold. Nature Day, which was once a festival of renewal, became the holiday of privatization, celebrating the victory of the forest over the wasteland, efficiency over bureaucracy, the private over the public.

57But then some minor shareholders, who invested their money in the largest company in the state, discover that the company’s chairman of the board has appointed his son, a famous ne’er-do-well, to manage a subsidiary company. These shareholders file a class-action suit against the company’s defective management, claiming that the firm’s obligation is to maximize its profits and not to pamper the well-born. This does not entail a criminal offense, so they cannot ask the police to get involved. The embittered shareholders are unable to prove that the appointment stemmed from extraneous interests, and the lawsuit is rejected.

58Next, the shortage of land in the metropolitan area engenders a rumor that several tycoons from overseas have gained control of most of the valuable lands in the area, and are refusing to sell them, anticipating a rise in prices during the coming decade. At the same time, there is an unexpected water shortage, despite the fact that it has not been a particularly dry year. Someone on a popular television program claims that the privatized water companies have collaborated to cut back the supply of water in order to drive up its price. However, no one is watching the program because on the competing channel the reality show A Director is Born is being broadcast. Rumors are circulating that the value of pension funds’ investments in Mongolian currency slumped after Mongolia’s application to join the European Union was rejected, contrary to expectations. This leads to a new banking crisis.

59The situation reaches a boiling point when a dirty bomb is discovered in the subway. The privatized market finds it difficult to cope with the catastrophe. Investors reach the conclusion that the idea of investing in this country is not only uneconomic, it is crazy.

60At this stage, people begin to have a sneaking suspicion that perhaps we have gone too far. There is a growing realization among the public that privatization has transferred control of the society from the hands of elected politicians, who are subject to some sort of oversight, to other people who are no less infantile, who do whatever they want. Now, only one thing remains for the people of this country to do: to change the rules. Or, in other words – nationalize.

61At best, there are only a lot of tears shed when the rules are changed in the economic game. It is really not very pleasant. Unlike privatization, nationalization hurts; and only when it occurs do we recall that the smartest way to prevent the cruelty of expropriation is to make it less easy to accumulate wealth. The economists I know do not discuss nationalization, at least not until very recently. For those who wish to be ahead of their time, I would advise putting aside their research plans and starting to discuss the question that will become more relevant – what to nationalize and how to go about it.

Almost the end

62It is possible to discuss social and economic issues in an abstract way and to treat Israel like Finland and Thailand, as just another society whose members want to survive, plus a little bit more. But a fundamental problem makes Israel unique. The existence of the national home for the Jewish people in the Land of Israel has about as much economic logic as building a convalescent home on a traffic island. I use the word economic in the sense in which in recent years we have examined the need for public infant welfare clinics, the construction of the separation wall and the transition to alternative energies. Yes, it is possible to build a sanitarium on a traffic island. You just need to also build acoustic walls to block the noise, stop the traffic on the highway whenever a guest arrives, or (if this is not sufficient) completely close the highway. A convalescent home on a traffic island would disappear if our economic world were managed by the forces of the free market, which would move the convalescent home from the traffic island to the mountain forests.

63Let the market forces operate over time without constraints and you will find that the Zionist project is foolhardy. Look at the members of this so-called talented nation, from the development towns to the nouveaux riches high-rises of Tel Aviv, and send them forth, from Manhattan to Silicon Valley, and you will receive a much more economically efficient outcome. And here’s a thought that is not mere demagoguery. Israel’s annual defense expenditure per average Jewish family in Israel would be enough to pay a year’s rent on a fine home – four bedrooms, two baths and a garden – in Wisconsin. If you add the cost of investment in the West Bank settlements, you could also have a swimming pool.

64Perhaps things would be different if we lived in a virtual Middle East in which Israel had peace with its neighbors and led the region to progress and prosperity. I am doubtful about the possibility of such an ideal space. According to both the Zionist left and the messianic right, the Jewish state is inherently separate and aloof.

65Anyone who wants a Jewish state in the Land of Israel must accept the necessity of imposing limitations on the free economy. In order for Israel to exist, its citizens – particularly its most talented and mobile ones – must have a reason to live there even at a significantly lower standard of living than they could enjoy elsewhere. Some have a religious reason for this: the holiness of life in the Land of Israel. For the majority, this reason can be the language, or the unique culture, or ensuring the framework of strong solidarity that includes a commitment to the principles of the welfare state: ensuring a basic basket of services – in the fields of health, housing, education, security and law.

66Adherence to the principles of the welfare state does not contradict the value of personal responsibility. I am not referring to the prime minister’s personal responsibility to resign after embarking on an unnecessary war (though taking such personal responsibility would not hurt either), but rather the personal responsibility of the individual for himself and his family. Thus, for example, the Home Front Command must make sure that bomb shelters meet the required standards, but the maintenance of the shelters should be performed by the citizens who are slated to use them in time of trouble. The welfare bureau should care for broken families and for those who are alone in the world. But the elderly bedridden man from the north who has family in central Israel should be cared for during a rocket attack by his children, grandchildren and great-grandchildren, and not by officials from the municipality’s welfare department. Ensuring a basic level of health for all citizens is one of the foundations of the welfare state, but the decision whether to devote financial resources today for costly, life-extending drugs tomorrow should be made by each individual for himself through insurance plans whose premiums are linked to income. Even if Israel continues to sanctify the Law of Return, the responsibility for absorbing new immigrants to Israel should be assumed by the immigrants themselves.

67The concept of the welfare state reflects a set of values expressed in Israel’s declaration of independence: ”The State of Israel… will be based on freedom, justice and peace as envisaged by the prophets of Israel.” And the prophets of Israel were not market economists. But I fear the worldview that demands exaggerated public responsibility for the individual. I am afraid that the group in society which is supposed to take care of others will not be able to carry the burden expected of it and will find refuge in right-wing economics. Perhaps we complain too much about society shirking its responsibility for the individual and too little about the individual’s exaggerated expectations for society to protect him. Solidarity does not require patronage, and society’s concern for the weak is not a license for evading personal responsibility. Exemption from personal responsibility is not efficient, is unfair and constitutes an imposition on others.

End

68On one side of my room when I was a child stood a large dresser, with an alarm clock and my mother’s sewing box perched on top of it. Inside the dresser was the forbidden drawer containing the secret letters and pictures that my mother and father kept from their parents’ homes. Next to the dresser was a large bookcase containing an encyclopedia for the young, a world atlas, Edmondo De Amicis’s The Heart, and several other books that I read over and over again. Along the walls, opposite each other, were two iron beds with squeaky springs. On the other side of the room, opposite the dresser, stood a desk that faced a three-leaf window and two large, green trees that protected me from the southern sun and caressed me on summer days. Even now, when I think of an exciting moment that occurred not long ago while sitting at a desk – thinking, writing or speaking on the phone – I imagine myself sitting at that desk from my childhood and looking out through the window at the two trees.

69Between this bedroom furniture, my soccer field stretched across the floor of the room. The field was a matrix of green tiles, twelve tiles long and nine tiles wide. When I discovered in the encyclopedia that the dimensions of a regulation soccer field are 120 meters long and 90 meters wide, my soccer field became perfect. The goal posts were red-topped, lacquered wooden pins, remnants of a children’s bowling set I received as a gift from neighbors on the day my sister celebrated her bat mitzvah. Two large Lego pieces represented the two teams. A blue Lego piece was the Israeli national team and a red, green or yellow one represented the foreign team. The ball was a small Lego piece. I would hold the two large Lego pieces in my hands, dribble, pass, kick, block, miss and score on behalf of all twenty-two players. The Israeli national team included all of the stars of the period, with one exception: I played in place of one of the forwards. And I was also Nehemiah Ben Avraham, the legendary Israeli sports announcer who broadcast all major matches, and now also those from the stadium on the floor. I could not remember the real names of the players on foreign teams, so the lineup of the rival teams was always: Ig (goalkeeper), Big and Gig (defenders), Dig, Vig and Zig (midfielders), and Hig, Tig, Kig, Lig and Mig (forwards). When a goal was scored, the roar of the crowd escaped my lips in a whisper, because the game was top secret and no-one could watch it. When someone was about to enter the room, I would hide the Lego pieces between the clumps of fluff under the dresser and stand with the feigned innocence of someone who has something to conceal. During most of the game, the rival team was ahead and held a 3:0 lead in the final minutes. But then, an unknown forward (that is, I) would score four goals to win a great victory for the team in blue.

70I would immerse myself in this game almost every day, even when I was already in high school. In fact, perhaps I am still playing the same game. The room became lecture halls and academic journals. The Lego pieces became the players in the formal models. I realized that the green floor was an imaginary world that enabled me to do what I could not do in the real game in the neighborhood. Standing by the podium, I realize that the models I deal with in economics are fables. The games on the cold floor did not help me play soccer and the economic models have not helped me formulate views on social issues. Everything, for better or worse, comes from those green tiles and remains there.

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