Friday, July 31, 2015

Totalitarian Chassidism - my impressions of this book.

Reading this, recently published, book. It is not for everybody. Not likely to be interesting for non-Jewish people, or for those with no interest in Jewish socio-religious matters. For me it is captivating - a page turner. I find myself alternating between sympathy and disgust. It is one man's perspective - declared a heretic and forced to leave the Skverer Chassidic community - a very puritanical community. (His parents were baalei teshuva Chassidim, who lived 'on the edge' of the Skverer community, and he was born into it.) 

I am intrigued and interested in how others with more knowledge than I react to it. Is it accurate of the Skverers? How different are the Satmars and other groups? Or the non-Chassidic groups (at one point he is very dismissive of what he sees as the Litvisha culture). And as far as I have read in the book, Chabad is sort of beyond the pale for all, or most, of these Chassidic groups - totally corrupted and contaminated by goyishe culture, true?

My reflex impression is of a community caught in and struggling to preserve its tribal (clan) mores and rituals that evolved over many years as a response to persistent existentially threatening persecution. And the overall preservation strategy includes ingenious types of insulation strategies - like regarding all those who disagree as 'mentally ill'. It is a horrifyingly totalitarian society in which the most minute and intimate details of personal life are strictly scripted and departures severely punished by shaming. 

And yet, in spite of that the overall approach is remarkably civilized insofar as it is essentially non-violent and, at times, compassionate and loving. It is a model for an earlier more violent age in which it was superior in its treatment of women and dissidents. Today it is just the opposite.

A moving and revealing exploration of Hasidic life, and one man's struggles with faith, family, and communityShulem Deen was raised to believe that questions are dangerous. As a member of the Skverers, one of the most insular Hasidic sects in...

Wednesday, May 20, 2015

Minimum wages, the discussion continues

Ivry Man encounters Dr, Know at their customary meeting place, and raises the issue of the minimum wage in California. They had previously discussed minimum wages here.

Did you see that Los Angeles has increased its minimum wage to $15. It seems soon the whole of California will follow. Isn’t this wonderful?
Yes, wonderful. Tell me, why only $15? Why did they not increase it to $20 or $25 or, indeed, $100?
Of please Dr. Know. That would be stupid. At those prices businesses could not afford to hire all the workers. That is just common sense.
But at $15 they can? How do you know this?
I am sure the law-makers must have researched it thoroughly to come up with the right wage level.
Why on earth my good man would you believe that?

Thursday, May 7, 2015

The Preacher's Dilemma

[helpful FB conversation with Mario Rizzo is gratefully acknowledged.]

In case you missed it, Pope Francis has been offering strong opinions on a number of very different contemporary issues and pseudo-issues, among which are how to respond to the threat of global warming and what to do about the gender pay-gap. Apart from the merits of his arguments, one may wonder how he can think himself competent to “(a) evaluate the science (Imagine that! The Church that attacked Galileo is to evaluate science!) (b) decide what an efficient/efficacious response would be (c) decide the tradeoff between economic growth in the developing world and the use of fossil fuels.” (Mario Rizzo, FB post).

Yet this is so typical. I think of it as 'the preacher's dilemma'. Vestiges of the pre-modern world. The religious leader, like the 'high priest' of old, used to be a powerful, even magical, figure. In a perplexing world of mysterious and dangerous forces, from nature and from other human societies, the religious leader provided a blanket of structure to 'explain' and comfort. The will of the gods was an explanation for both the moral and the scientific questions - there was no Humean divide, between facts and values. It was all part of the laws of the universe known fully only to the gods.

The ubiquity of religious belief in the post-modern world indicates that humans have not quite gotten over this. Incredibly they still look to their religious leaders for guidance on everything - including lots of stuff that these leaders have no knowledge of or business having an opinion about. But, their (the religious leaders') livelihood depends on them having such opinions. Hence the dilemma.

The situation calls on them to engage in a pretense of knowledge. This is not necessarily a charade. The successful religious leader in the modern world  (priest, rabbi, mullah) must possess the conviction that he/she is, indeed, competent to speak on these diverse matters. But having the conviction does not make it so. And it strains the most basic of virtues that a religious leader is assumed to have, humility.

The truth is that religion struggles for relevance in the modern world – especially in the developed countries. This is less true for fundamentalists who retain the pre-modern belief in the infallibility of the revealed word. But they are, certainly in the developed world, a small minority. A growing number of the world’s population either cleaves to no organized religion or else practices a kind of religion that is very different from its fundamentalist predecessors, appearances to the contrary notwithstanding. The advent to two related phenomena has drastically reformed religion as practiced by many, namely, secularism and pluralism. Secularism, the separation of religious authority from the authority of the state, has meant the loss of the power to compel uniformity of religious practice and belief. And this has led to pluralism, the mushrooming of many different religious doctrines that compete for adherents.

In modern free societies, religious doctrines can be questioned, debated, satirized, without fear of state persecution. So religious practice becomes just one part of one’s identity, and is a matter of personal preference, of choice. One is free to exit. In such an environment, religion arguably plays more of a ‘tribal-like’ role in which familiar rituals, literature, music, idioms, shared histories, etc. provide valued support and comfort, both routinely, and, especially, in times of celebration and grief. The charismatic religious leader can no longer appeal without qualification to the infallible word as a source for his pronouncements and exhortations. These congregations do not believe in simple revelation any more. Instead, he must strive, and mightily he does, to establish the continued relevance of inherited religious teachings. For some communities, some of these teachings will just not fly any more, and so, there is a lot of picking and choosing going on – trying to separate the ever nutritious wheat from the decayed chaff.

As I listen to my rabbis I feel a mixture of empathy and irritation. On the one hand I understand their need appear able to offer valuable insight and advice on all matters – psychology, public policy, foreign affairs, environmental policy and, in my case most alarmingly, economics (all fields in which professional specializations exist and indeed are the hallmark of competence). On the other hand, what they say alarms me for its boldness, ignorance and chutzpah. As Donald Rumsfeld might say, they do not know what they do not know – and apparently do not want to know. With some notable and gratifying exceptions, the few opportunities for frank, mutually respectful discussion with them have not been successful. I have not been let in. The façade has proven impenetrable – in most cases I think unintentionally.

I am not sure how much this matters to my fellow congregants. Those who stay presumably don’t care that much. But many do leave for want of credible inspiration from their leaders – in search of  alternatives. There is a ‘market process’ going on driven by ‘product differentiation’. Like all market processes its future course is unpredictable.

Thursday, April 16, 2015

They're baaack.

It is hard for some of us to believe this, but the Neo-Ricardians (NCs) are still with us. In fact there seems to be something of a resurgence. They are still claiming that the phenomenon of reswitching renders the very concept of 'capital' as a factor of produciton meaningless and, that this, therefore, shatters the *entire* foundation of neoclassical economics. How frustrating it is! Not that these ridiculous ideas will not die, but that a whole new generation has now to be taught how wrong and dangerous they are.
The NCs are wrong in a number of ways. 1. they erect a metaphysics of a world in equilibrium and engage in comparative statics - never addressing the question of how actual economies actually work and move from one 'equilibrium' to another. 2. they confuse the price of capital services with the price of borrowing (any kind of service) and call it the rate of interest instead of the rental rate on capital. 3. they never address the fact that billions of people use capital accounting every day and seem to think that capital is a real thing. I could go on.
But perhaps the 'largest' of their errors is to claim that, while the factor of production capital is non-existent, labor is real - in fact what we think is capital is actually (HT Karl Marx) indirect labor. In fact, it is the other way round. It's all capital. All productive services - from human bodies or from machines or buildings or land - are valuable only because they are 'knowledgeable' - they 'know how' to do things that we value - they are 'embodied knowledge' (HT Howard Baetjer Jr.). The simplest and most plausible way to think of factors of production is to think of them as different types of capital - human and physical.

Tuesday, March 24, 2015

Memo to Frank Underwood

Memo to Frank Underwood

Your plan to cut entitlements by $500 billion and use the money to ‘create’ jobs won’t work. 
Why not use it to cut payroll taxes across the board instead?

By Peter Lewin

The consensus verdict on season 3 of Netflix’s House of Cards will arrive in due course. I will leave it to the literary critics to do their thing. Is it art? Is it commentary? Did it hit the target? I am not sure it matters what they say. What matters most to Netflix is how many people watched it and what the prospects are for season 4.
If Frank Underwood is all about getting votes and the power that comes with it, the Netflix writers are about gaining viewers and all that that implies. Think about it. These motivations are not all that different. The viewers are the voters in another guise – or at least they share the same concerns. And more important they share the same presumptions about how to address those concerns.
So it’s a fair bet that the writers are aiming at the concerns and presumptions of the viewers, who are voters in the real world. In other words, what we see in the script acted out on the screen, is a reflection of what the writers think are the concerns of the American public and the presumptions that underlie them. The writers may be wrong or they may be right. And even if they are wrong, if many of the viewers do not identify with the highlighted issues and/or the suggested solutions, it may still make for good entertainment – indeed that is why I continued to watch, even though I was pretty irritated not only by the moral depravity of that world, but also by the grossly false assumptions that its characters hold. I am not sure, however, that I will stay the course for another season. I came away thinking that the script revealed more about the writers than about their intended audience.
For starters consider the central strategic project that runs through season 3, Frank’s inspired America-Works program (AW). AW serves a number of interesting purposes and it plugs into a number of current issues. It serves to separate the protagonist from his fellow politicians and to fine-tune the tension between them. And it provides him the weapon to outflank his rivals as he appeals for votes. To work, it has to be something that the viewers, and the voters, in the story and in reality, will understand. So it must be connected to the issues they actually face in the real world.
At the top of that list of current issues is unemployment, prominent on the current political agenda as we in America struggle haltingly to escape from the lingering recession. The notion of “ten million jobs” needing to be created is very familiar. Then there is the question of “presidential prerogative” and the “separation of powers” of the different branches of government – as in the president decides to do something with money Congress has appropriated for something else – sound familiar? Is this a criticism or a backslap for President Obama’s wild and independent agenda? Take your pick. Certainly, there is the hint of admiration for Frank Underwood’s energetic initiative in working around a pathetically ossified Congress. He is a man of action able to “get things done” when no one else can.
And then, when the hurricane hits (literally), the program falters (though it still serves Frank’s purpose) and the money goes away. What a pity, if only he could have gotten away with it, all those people would have had jobs. And now they are stuck again without work and pay!
Really? Who believes this? Have we really thrown out an appreciation of the necessity for the Congress to check the power of the president to act independently? And, more important, do we really believe that it is government, and government alone, that creates jobs? There is a name for this kind of thinking. It’s called crude Keynesian economics and it was discredited back in the 1970’s and 1980’s before Obama and company decided to recycle it.
Yet, somehow, nobody in Frank Underwood’s world questions his presumptions, not his Democratic political opponents nor anyone from the other side of the aisle, no-one. The writers see no need to have anyone question the presumptions underlying the AW initiative. Nobody points out that the diverted money was going to be spent somewhere else and would no doubt have ‘created’ jobs there. Nobody wonders how AW managers know what jobs to create and whether these are in any way ‘sustainable’. Nobody wonders how the FEMA money was raised in the first place – by taxes that reduce private incomes and private expenditures. Nobody suggests to Frank Underwood that a tax-cut of that magnitude might lead to enough private spending to create jobs where they are most needed in the private sector. No of course not. We all know that these ideas are so yesterday.
Newsflash, there are some Americans, maybe a few, maybe not so few, and certainly some in Congress, who still believe them. So why are they not in the script? I think I know why. Keep reading.
Consider the hurricane. Playing off of Katrina, right? AW gets derailed because in the absence of the FEMA money hundreds (or more) lives will be lost. Really? Don’t the writers know that this is an unintended cruel joke, that the performance of FEMA in the actual Katrina event was worse than miserable, and actually counterproductive, that, plausibly, FEMA’s bungling may actually have caused more casualties than it prevented? And clearly they don’t know that the most effective efforts at relief and revival came from the private heroic efforts of the local communities themselves and, incredibly significantly, from the likes of private companies like Walmart, Home Depot, and others. How inconvenient a truth this is as Heather Dunbar dramatically excoriates Walmart for the low wages it pays its workers. Yet, again, nobody points any of this out. Nobody in the show challenges these presumptions.
And herein lies the explanation. The show is shot-through with what we may call the “accepted assumptions” that set of assumptions that define the current left-liberal way of thinking to the exclusion of any other. Thinking differently is simply impossible for those whose thinking is constrained this way – it never occurs to them to ask what to others seem obvious questions. It is acceptable to hate Walmart and not acceptable to suggest that Walmart is actually a hero. It is natural for them to identify salvation with well-intentioned government programs (even at the hands of the morally bankrupt Frank Underwood) and unthinkable to imagine that better results may occur spontaneously if only we allowed people to go about the business of making as much money as they can. Terms like John Kenneth Galbraith’s “conventional wisdom” or what Conservatives call “political correctness” come to mind. It is an all-pervasive feature of season 3 and, in the end, serves to corrupt the entire structure of the series. The shark is jumped with the writers’ decision to make this season about gender-inequality, the depravity of masculinity and the nobility of femininity. The whole season is really a build-up to Claire’s dramatic, courageous, empowering, and ennobling grand exit – her decision to leave Frank and his depraved male-dominated world, and, in so doing, reinvent herself to become a moral human being, re-born. And this is something the perceptive soulful writer Tom Gates knew all along about Claire.
Even the sub-plot of the Russian-American conflict, with the men needlessly and stupidly confronting each other while pushing soldiers around the world’s chess board, serves to channel Claire’s unlikely conversion. When she finally sees a target that serves her own particular ambitions (UN ambassador) she finds it impossible to act without the manipulating heavy hand of her husband, who helps her in this only as long as it serves his agenda. The nature of their relationship is, to be sure, ambiguous. They serve each other’s needs. Mutual respect and mutual reliance, a hint of real love. Now she suddenly comes to the realization that she is married to a monster? “We are murderers Frank.” Oh dear I have been a bad girl. If only I had not let this nasty man dominate me to serve his wicked ambition. Do you buy this?
Forgive my cynicism. We know from previous seasons that Claire Underwood is a relentlessly driven narcissist who is an accomplice to more than one murder and a slew of other nefarious acts. Prior to this season she displays only dispensable empathy and can be relied on to do what is necessary to advance her and her husband’s agenda.
What drives this is the issue of gender equality – which fits nicely into the accepted assumptions. The writers push it beyond any reasonable bounds. Heather Dunbar, the feminist role model, declares “all aspects of sexism should be illegal.” The presidential debate scene is maybe the most effective scene in season 3. What is it ultimately about? Sexism and the betrayal of Jackie Sharp (a woman) by Frank (a man, the man). Heather Dunbar is a noble woman, who offers Jackie nothing save integrity and authenticity. Meanwhile Jackie, this egotistical, self-serving politico has been getting in touch with her feminine side – discovering the virtues of family and love. So naturally she comes to the realization that the right thing to do is to unite with her “sister” against the man. And Remy Danton? Who would have thought that he would find his conscience. Did it help that he got to connect with the plight of some of the less fortunate? Accepted assumptions wherever you look. The West Wing wins out against Frank Underwood.
And then there is Doug Stamper, perhaps the most interesting character in the story. There is no redemption for him, but at least he is believable.
In short, there is an implicit narrative running throughout season 3 that embodies the writers’ vision and pretty much reflects the narrow presumptions of the Washington elite and the ideological intellectuals who inform them. And like all popular art, it serves not only to reflect but also to inform.

Saturday, March 7, 2015

Israel and Palestine: The real asymmetry

We hear a lot about the asymmetry between Israel and Palestine. David and Goliath. Ironically, in this view, Israel is Goliath – powerful, threatening and oppressive - while Palestine is David, powerless, victimized but defiant. But, this is not the real asymmetry.

Binyamin Netanyahu faces vigorous and unrestrained opposition in Israel, as do all political leaders in Israel. There are hundreds of thousands of Israeli citizens who believe that Israel can and should adopt policies more conducive to peace with the Palestinians and even with Iran. They are vocal and politically active. Over his high-profile speech to the U.S. Congress, Netanyahu faced opposition from 180 prominent military and intelligence leaders (here). These people are all still alive, there is no threat to their persons, their livelihoods or their loved-ones.

How do matters stand in Palestinian society? Where are the hundreds of thousands of people agitating for peace there? Where is just one such person? I believe that they are there. But we don’t see them. They cannot exhort their people to reach-out to the Israelis in friendship without endangering themselves and the ones they love. That is the key difference between the two peoples. That is the real asymmetry. The Palestinians are twice oppressed: once by the Israelis who perceive them as an existential threat and even moreso by their own leaders who deny them basic freedom of expression and dissent, not to mention basic economic freedoms to produce and buy what they choose.

What is interesting to me it how little attention this gets from intelligent observers of the situation. Of what use is it to vilify Israel for its treatment of the Palestinians without pointing to the more fundamental pathologies within Palestinian society? No Israeli politician could long stand against a clear popular call for peace from a solid Palestinian peace movement – that would certainly team up with its Israeli counterpart (in fact, though muted, there are multiple such initiatives). Those who really care about the Palestinians should be targeting their corrupt politicians who would be made obsolete by the establishment of peace and normality with the Israelis. They should be agitating over the lack of civil rights.

I am not naïve. I understand that given current conditions there is no way to meaningfully ‘democratize’ Palestinian society. The leaders are entrenched and will brook no opposition. Any hint of deviation in the direction of greater acceptance and accommodation of Israel (there have been a few) is immediately and firmly quashed. But without such democratization there can be no real peace. 

Thursday, February 19, 2015

Climate change - a quick follow up.

Add this to my previous musings on this question.

HT: Steve Horwitz: Steve suggests we ask the climate alarmists the following question. But don't expect they will give you and answer any time soon.

What would it take for your belief in "climate change" to be falsified?

Do they even have an answer? Is it a null set? Where is the burden of proof?

Thursday, January 29, 2015

Some Puzzles About Brian Arthur’s Views on Complexity

I just finished reading this important paper by Brian Arthur (‘Complexity-economics: A Different Framework for Economic Thought’). I noted my irritation earlier on Facebook that he has no reference to Hayek or any of the Austrians, and wondered how one could write about complexity in economics without mentioning, indeed examining, Hayek’s work. Now that I have read the paper I have a better appreciation of it and think that it is quite well done and is a valuable contribution. Of particular note is the penultimate section, ‘Discussion’ which contains Arthur’s analysis of the place of complexity-economics within economics generally. He provides both methodological and historical perspective. Here is my quick paraphrase of part of that section, focusing on what I find noteworthy.

According to Arthur, complexity-economics is about open-ended systems that are in the continual process of forming and in which the arrival of novelty is on-going. This means that the methods of traditional quantitative economics, concerned mainly with allocation of ends to means in a closed system, and amenable to mathemization, are inapplicable. Other methods have to be found. In particular, time in complexity-economics is real-time as we experience it and not linear, reversible time as expressed in traditional economics. Complexity must deal for example with events that are essentially non-repeatable.

So, while the familiar Marginalist economics (what Austrians call the “pure logic of choice”) has a role to play in economic education it is only one aspect of a much bigger picture, one only now beginning to fully emerge.  In an important way, complexity-economics is close to old-fashioned political economy. There is a synergy between them. “Complexity-economics allows us to explore the world of formation theoretically and systematically; political economy allows us to explore it intuitively and empirically” (17).

So far so good. Quite encouraging. And he does include a passing shout-out to Hayek as a political economist, though no reference. Austrians will see much to agree with albeit they will wonder if Arthur came to all this (the ‘literary’ side of things) never having read Hayek, or Lavoie, etc. He speaks of “nonequilibrium” not “disequilibrium”. Never mind. But then he turns to “policy implications”. And as satisfying and reassuring as the discussion so far has been it now becomes incredibly irritating and bewildering. To wit:

“Certainly, complexity teaches us that markets left to themselves possess a tendency to bubbles and crashes, induce a multiplicity of local attractor states, propagate events through financial networks, and generate a sequence of technological solutions and challenges, and this opens a role for policies of regulating excess, nudging towards favored outcomes, and judiciously fostering conditions for innovation. Colander and Kupers (2012) express this succinctly as getting meta conditions right. (18, italics added)”

So the principle lesson he draws from his perceptive, and expert, understanding of complexity is that “markets left to themselves” exhibit bubbles and crashes that open the way for benevolent regulation? How can this be right? No mention of the amazing self-regulating properties of the market. Where is the ‘invisible hand’? No mention of “complex adaptive systems” or converging network effects, never mind “spontaneous order”. Now maybe I am being picky, but in a contemplative piece on the place and significance of complexity-economics surely the first and foremost of characteristics to note are the convergent and homeostatic properties of many complex social systems. Am I wrong in thinking that this is a big part of the complexity literature? But they are nowhere to be found in this paper.

It gets worse. He goes on to blame an inability to see the benefits of and necessity for regulation on equilibrium economics. (And here we all thought that the neoclassical perfect general equilibrium edifice lent itself to the advocacy of central planning a la Oskar Lange. Does Arthur even know about that?)

“I believe we can make a stronger statement. The failures of economics in the practical world are largely due to seeing the economy in equilibrium. If we look at the economic crises of the last 25 years—the debacle that followed the freeing of markets in Russia in 1990, the extensive gaming of California’s energy market after the lifting of regulations in 2000, the collapse of Iceland’s banks in 2008, the ongoing Euro crisis, the Wall Street meltdown of 2008—all these were caused in no small part by the exploitation of the system by a few well-positioned players, or by markets that careened out of control (Arthur, 2010a). Equilibrium thinking cannot “see” such exploitation in advance for a subtle reason: by definition, equilibrium is a condition where no agent has any incentive to diverge from its present behavior, therefore exploitive behavior cannot happen. And it cannot see extreme market behavior easily either: divergences are quickly corrected by countervailing forces. By its base assumptions, equilibrium economics is not primed to look for exploitation of parts of the economy or for system breakdowns.

Complexity-economics, by contrast, teaches us that the economy is permanently open to response and that every part of it is open to new behavior—to being exploited for gain, or to abrupt changes in structure. A complexity outlook would recommend putting carefully thought out controls in place, much as authorities put sensible building codes in place in seismic regions.” (18, italics added).

And herein lies the explanation for his neglect of Hayek and similar approaches. It does not fit into his topsy-turvy mindset, his view of the social universe in which complexity applies to everything in that universe except government regulation and policy-making. He refers to “the exploitation of the system by a few well-positioned players” in the market, but seems oblivious to the much greater danger of such well-placed players in government. Knowledge and incentive problems don’t seem to exist for him. He is in the grip of the Keynesian presumption that all that is necessary is to put the right people (the complexity economists) in charge of designing the system of regulation.

Many, I am sure many complexity-economists included, will see this as precisely the wrong lesson to learn. The correct lesson, surely, is that policy in a complex world should be humbled by the inescapable unpredictabilities implied by ongoing formative social processes in real time embodying novelty; should incline toward the setting of general abstract rules at the constitutional level, less amenable to exploitation than ad hoc regulation, as so clearly explained by Hayek, Buchanan and others (Lewin, 2014).

For me this was a revealing lesson in power of mindset. Forgive my naiveté.

Arthur, W.B., 2010a. “Exploitive Behavior in Policy Systems,” Mss., IBM Almaden.
Arthur, W.B., 2013. Complexity-economics: A Different Framework for Economic Thought’ SFI Working paper: 2013-04-012, Sante Fe Institute. 
Colander, D, and R. Kupers. 2012. Laissez-Faire Activism: The Complexity Frame for Policy, Princeton.
Lewin, 2014. “Policy Design and Execution in a Complex World: Can We Learn from the Financial Crisis?” working paper,

Sunday, January 25, 2015

Pondering Piketty – A Simple Analytical Framework


When Thomas Piketty’s book (Piketty, 2014) burst upon the international scene less than a year ago, I felt pressure to write a comprehensive review of this aggressive attack on free-market economics. After all, it was based, as its title implies, on an exposition of the essential nature of “capital” – as in “Capitalism” – and had I not spent a lifetime in the grip of capital theory?

So I got the book and began to plough through it. It proved much more tedious than the reviews I had already read had prepared me to expect. Piketty lays out his premises and conclusions in the first few chapters. So, I already realized that his approach was full of fallacies, that it was fundamentally flawed. How does one then proceed to go through the remaining part of the 655 pages knowing there is no redemption, in fact that the rest will be either irrelevant padding or a piling-on of further fallacies.

By the time I made it through the book, the reviews, scholarly and more informal, had accumulated. It is a fair bet that, numerous though they are, all of the criticisms that could be made of the book have been made somewhere. Thus the marginal value of any review I could offer is probably now close to zero.[1] However, as I was thinking about it, I realized that many, if not all, aspects of Piketty’s approach can be expressed in a simple framework which might be of use to some. I cannot say that this has not been done  before, in some form or other, only that I have not seen it, and that, in any case, it may be of value.

I will, therefore, say very little about the details of the book – how it is written and organized. I have already elsewhere delivered a sweeping evaluation, to wit: Piketty is wrong on the data, the economics, and the policy, otherwise this is a valuable book. You might think it a bit too scathingly smug. But, what I have read since writing that, has enforced my view. In addition to his dubious use of aggregates (about which I will have something to say) it now appears that a strong case can be made that Piketty has distorted and/or fabricated data (Magness and Murphy, 2014). And his economics is surely abysmal, to the point of evincing basic misunderstandings of the workings of supply and demand (McCloskey, 2014, 91). On the matter of policy, I need no confirmation of my conviction that his recommendation borders on insanity.

There are, however, two general comments I want to make about the book. First, many, though by no means all, of the reviews I have read, including some by highly critical authors, suggest that Piketty’s book is, for all its faults, admirable; that it is the work of a serious author with integrity and the best of intentions - Intelligent, industrious, but mistaken and misguided. Perhaps I lack the capacity for charitable interpretation, but I do not see it in this way. The book strikes me as pretentious and almost completely devoid of merit. Its tone, for all the superficial self-effacing expressions to the contrary notwithstanding, is arrogant, something particularly galling coming from someone who has not taken the time (in the purported twenty years of incubation that this book endured) to properly understand his subject.

Secondly, and more importantly, the book is clearly mistitled. It should be titled “Inequality in the Twenty-First Century”. It is from start to finish a book about the evil of growing inequality. Yet, while the book mounts a mountain of evidence to support the assertion that inequality is growing (a project that ultimately fails, as many have shown) there is no real effort to support the assertion that inequality, in itself, is bad. Some reviews have addressed the ethical question of how this concern with inequality elevates resentment and envy. But I have not seen any discussion of the fact that time and again Piketty tries to bolster his case by asserting, without a shred of evidence, that social inequality results ultimately in “social instability” (for example, 10, 21). Indeed, Piketty recognizes that inequality in itself may not be a bad thing, but becomes bad when it is unjustified and against the “public interest” (33). And, of course, he knows what is in the “public interest.”

A simple framework

Piketty’s framework consists of a few basic categories that can be captured using the following.

Y = rK + wL

This is an accounting identity, where Y is national income, r the rate of earnings of capital, K, and w is the wage rate, the rate of earnings of labor, L.

Piketty divides the set of all productive resources into two (exhaustive) categories capital, K, and labor, L, whose owners earn r and w per unit respectively. Thus the earnings of K and L are rK and wL respectively. And the shares of K and L are rK/Y and wL/Y respectively – which we may write as sK and sL respectively.

Piketty’s project is to show that the laws of capitalism imply that sK/sL rises without limit, thus destabilizing the society. To do this he posits the fundamental equation that i > y, where i is the rate of interest, also the rate of earnings of K (i = rK/K), and y is the rate of growth of total incomes ([1/t]dY/Y = gY, explained below).[2]

Piketty reasons that if the earnings of K grow more rapidly than earnings in general, this must imply that K’s share is growing, thus increasing inequality. QED.

Let’s consider sK and sL in a little more detail.

As a tolerable approximation we can write

g(sK) = gr + gK – gY


g(sL) = gw + gL – gY

Where g is the instantaneous percentage rate of growth operator (aka, dlog/dt).

If r is constant so that gr = 0 and gK  > gy, sK will rise.

But if w is constant or positive and gw + gL > gY, sL will rise.

Clearly, the variables are connected.

g(sK/sL) = (gr + gK) – (gw + gL).

If gr = 0, income inequality (sK/sL) will rise iff gK > gw + gL, that is, iff capital grows faster than labor plus the increase in wages.

So even with this simple, really simplistic, framework[3], Piketty’s conclusion does not follow unless one discounts the effects of a large increase in the real wage of pure labor. Indeed real wages have risen astronomically over the period of Piketty’s analysis, but presumably he would argue not sufficiently relative to the earnings of capital – a really astounding claim, that suggests further analysis of this framework is necessary.

What Do These Variables Mean? 

The conflation of personal and functional income distribution

By using only two categories, K and L, Piketty stacks the cards. In examining the income earned by K and L he is conflating the personal distribution of income with the functional distribution of income. To say that K earns income is at best a metaphor. It really means the owners of K earn income. And the same is true of L. Labor rents out its services in return for wages. By drawing conclusions about inequality of incomes from this, Piketty seems to think that all capital-owners own only capital (from which they derive their earnings) and, more importantly, all workers own only labor – no capital – exclusively from which they derive their earnings. What happens if workers own capital (for example by way of their pension investments)? Then the earnings of capital relative to the earnings of labor cannot be taken as coterminous of the earnings of capital owners relative to the earnings of workers. He does have a lot to say about who owns capital, but it is confused.

The neglect of human capital

This conflation is particularly egregious, potentially fatal to his argument, for the case of human capital. Piketty explicitly (and cavalierly) excludes  human capital from his consideration. Yet, human capital is arguably the single most important factor in explaining personal earnings. If we include the accumulation of human capital in capital accumulation as a whole, the tendency would clearly be toward a reduction in inequality – even in the narrow sense in which Piketty presents it.

What does capital mean?

Piketty has a sub-section with the same title (45). His answer is patently inadequate.

To use these kinds of aggregates is always to risk incoherence. This is especially true in the case of capital. A nation’s physical productive capital refers to its non-human instruments of production – machinery, raw-materials, minerals, buildings and land (some have a separate category for land). Beer-barrels, blast furnaces, harbor installations and hotel-room furniture are all capital (Lachmann 1956 [1978]). They are “capital-goods.” Clearly this is a category of diverse and heterogeneous items. In fact there are thousands of different sub-categories of physical capital goods and, owing to the persistent improvement of technology, the number is growing even while the composition of sub-categories changes.

Why are capital-goods valuable? They are valuable only because they are able, when grouped in appropriate combinations, and used together with labor services, to produce goods and services that people (consumers) value and are willing to pay for. But the value of any single capital-good is a matter of speculation. What someone will pay for it depends on his forecast of the value of the stream of future revenues that can be earned by employing this capital-good in a productive capital combination.

The value of the total of all capital goods is thus not an observable phenomenon. Yet this is what K is intended to convey. It is meant to be an index of the physical magnitude of the capital of the economy. But since this category of resources is composed of thousands of incommensurate items, the only way such an index can be constructed is by adding them together on the basis of their supposed values and deflating by some suitable price-index. Still, it is not a physical quantity of any observable entity. The value of any single capital-good depends on the flow of prospective revenue it is expected to produce, but, as this revenue is earned over time it must be discounted in order to arrive at the present value of the capital-good. In other words, an interest rate is already implicit in the construction of K; its magnitude depends on the interest rate used to discount the various income streams. Thus for Piketty to argue that the interest rate is the return to capital, is to commit an elementary but significant error (to be discussed further below).

In fact there is no such thing as a total of productive physical capital. There are only individual forecasts of what each capital-project (composed of capital and labor combinations) will earn. Only in the idealized theory of neoclassical economics, where all of these individual forecasts are identical and exactly match what will actually transpire, a world of equilibrium, can one meaningfully talk of such a total. In the real-world it is precisely the differences between these forecasts, between the visions of different and competing entrepreneurs, that drive the market-process in which many production plans fail and some succeed. It is a process of implicit experimentation, a dynamic process and there is nothing automatic about it.

What is the interest rate?

It follows that there is no such thing as a return to capital in general, an r, that is the rate of earnings on K that is equal to interest. Interest is a reflection of time-preference, of the discount applied, under various circumstance (notably different degrees of perceived risk) to future incomes. It is the cost of borrowing, the price of credit. It is the cost of financing productive projects and represents the sacrifice made for not consuming value now in favor of waiting until later. If such a sacrifice is to be made it must be deemed worth it. So, for a productive project to be undertaken it must earn at least the value of financing it, after all other expenses are paid. Interest is not the return to capital. It is the cost of financing. It is a separate cost of production.

What then does capital earn? Capital earns a rental rate. If the capital-goods were rented from a third party rather than owned, their earnings would be the rents paid for them. If they are owned it is as if the owner is renting the capital-good to himself. It is no different with labor. The value of a worker, in terms of capitalized earnings, depends on how much he can sell his services for over time. Since he is the exclusive owner of himself, his capital-value cannot be alienated from himself, the employer must rent him, he must purchase the worker’s services. If we consider labor to be human-capital, then all capital earns a categorically identical rental rate. The interest cost is never equal to the earnings of “capital” except in the sense of “financial capital” which may be used to finance both capital and labor.

Rather than just two (different types of) categories of earnings, there are very many categories all of the same type, namely, they are all potential sources of income. And their earnings depend on the nature of the productive environment in which they are created and deployed and not on any fundamental and immutable laws of capitalism.

What is profit?

In real-world economies successful entrepreneurs earn profits. Very successful entrepreneurs can earn fortunes – that they sometimes bequeath to their heirs. Profits are a disequilibrium phenomenon. There is no positive equilibrium rate of profit. In equilibrium profits are zero. Profits are the return for being right in an uncertain world. They are a residual after all other expenses have been accounted for – including contractual payments to workers (wages), capital-goods owners (rental earnings) and financiers (interest).  If the entrepreneur is also an owner of the capital-goods she uses, and part-financer of the project, these sources of income will, in practice, be inextricably comingled.


In the light of the realities of the dynamic economic processes that increased the standard of living of millions of people by magnitudes of thousands, it is hard to see what relevance Piketty’s i > y could possibly have. In truth, his is a bankrupt vision, based on a set of flat-earth dogmas that should never have been accorded the esteem it now has.


Lachmann, L. M. (1956 [1978]). Capital and its Structure. Kansas City: Sheed, Andrews and McMeel. .
Magness, P. W., & Murphy, R. P. (2015, Spring). Challenging the Empirical Contribution of Thomas Piketty's Capital in the 21st Century. Journal of Private Enterprise.
McCloskey, D, N. (2014), Measured, unmeasured, mismeasured, and unjustified pessimism: a review essay of Thomas Piketty’s Capital in the twenty-first century. Erasmus Journal for Philosophy and Economics, 7, 2: 73-115.
Piketty, T. (2014). Capital in the Twenty-First Century. Cambridge: Harvard University Press.

[1] I created a folder on my desktop called Piketty Pieces. At this moment it contains 77 separate files, being various reviews (critiques) including a 10-part review by The Economist.
[2] Piketty uses r and g to write r > g, but we need a different notation for reasons that will become obvious.
[3] It is a Ricardian-Marxist (classical) framework with land thrown in with capital.

Tuesday, January 6, 2015

When art is spoiled by propaganda

Just finished watching this four-part mini-series. It provoked a mix of very powerful emotions that, no doubt, will become the spur for an audacious blog on the situation in general, if I have the courage. For right now, let me just note this.
In the decades leading up to the 1967 six-day war the mythology surrounding the establishment of the state of Israel was full of romance and euphemism that buried or glossed over the traumas and injustices done to the Arab population, who we now refer to as Palestinians. Israel was the idol of the left, a phoenix risen from the ashes of Auschwitz - heroic testimony to the resilience of the Jewish people, a symbol of human potential, a confirmation of the validity of optimism. And the Palestinians were mostly ignored. Their plight was seized on as a tool for Pan-Arabism and (increasingly) radical Islam, so that rather than dealing with the problem it was deliberately perpetuated by the power brokers in the Arab world. The UN has been continuously complicit in this insofar as it has continued to recognize all of the descendants of the original refugees as refugees by inheritance. This is unique and totally unprecedented in the many cases of refugee populations with which the UN has had to deal. UNWRA (, the agency specially created to deal with the Palestinian refugees continues to this day to encourage a state of dependence and hostility at the expense of the taxpayers of member-countries.
After 1967, with gathering momentum, the pendulum began to swing back as the economic and technological gap between Israel and Palestine widened and Israel became a country with an army of occupation, until today when the picture, the mythology, is exactly at the opposite end of the spectrum. Marx or Hegel would be pleased by this dialectic. The prevailing mythology is one that vilifies the Israelis beyond redemption and glorifies the suffering and resistance of the Palestinians no matter how barbaric it may seem - to leave no doubt that the underlying problem is the illegitimate establishment of Israel itself. We are left to figure out what the obviously implied next action step is.
This mini-series is a fairly sophisticated and very effective instance of this genre of mythology. It contains hard-truths, half-truths and lies, all mixed together, indistinguishable to anyone not very familiar with the real history. It is a clever story about a grandfather (a British soldier in Palestine during the occupation) and his granddaughter (living in England in present day, who goes to Israel to find out about his experiences there). The two stories are told in parallel, flashing back and forward in time. It should be just a very compelling story, but instead it is accompanied by insidious, seductive propaganda that will surely leave the innocent viewer with the conviction that Israel is an evil entity, albeit perhaps grown from a noble but futile dream. So, acts of terrorism are ultimately justified as acts of desperation, comparable to the acts of terrorism perpetrated by the Irgun against the British occupation - a clear case of moral equivalence - except that the Irgun are depicted as unscrupulous thugs, while the Palestinian terrorists remain out of site. We hear almost nothing of Hamas or any of the other terrorist groups and we see only one Hamas fighter very briefly towards the end of about eight hours - who happens to be a radicalized young boy. The depiction of the British occupation makes it seem like the Irgun was *the* Israeli resistance to the occupation, whereas, in truth, it was a very minority group of radicals, who were strongly condemned by the Israeli establishment and army of the time, the Haganah - even to the point that the Haganah outlawed and fought against the Irgun. The Irgun's tactics were never approved by any but a minority of the Israeli population. Can we say the same about the attitude of the Palestinian population about the acts of terror carried out by its radicals? Check the polls.
With regard to the present day, there are some hard-truths, like the brutalization of young Israeli soldiers (just kids, boys and girls) stationed in the midst of large hostile populations, inevitably hardened and morally compromised, and the arrogance and sense of entitlement of some of the radical settlers. It seems that some of the scenes in the series were there simply to make these points rather than to advance the story. But there are also half-truths and omissions - like the depiction of Israeli society as unbelievably affluent and decadent. The Arabs in the movie are always honorable victims and the Israelis are either monsters or hypocrites - even the peace activists.
The truth of the situation is tragic enough. Why the need to concoct these elaborate lies? Why the need to deny Israel of any credit for what it has achieved, and what the Palestinians and Israelis could achieve together in a different world where the power brokers have to defer to the desire for peace by enough people on both sides of the divide? It saddens and frustrates me.

The Promise is a gripping, political thriller that examines the origins of the Middle East conflict in events that took place under British rule sixty years ago.

Friday, November 28, 2014

The Logic of the Free Market in China

I sometimes encounter a particular version of “cultural relativism” which asserts that the benefits of free markets are culturally specific. For example, I am told that cultures that are more collectivist in nature do not react well to the kind of American individualism that we are used to, and that different cultures need to develop their own kind of open-market society, some that are necessarily more “community oriented” than ours; and that such constraints will not limit their economic growth and development.

About to be published in January 2015 is the second edition of the English translation of an amazing book by the Chinese economist Weiying Zhang that gives the lie to this perspective. It is aptly entitled The Logicof the Market and its English version subtitle is An Insider’s View of Chinese Economic Reform. The message is simple - the logic of the market is universal. Yes, it has its particular expression in different cultures, but, its basic logic is the same for all people always and everywhere.

Zhang’s exposition is, in a word, “beautiful”. His simple but elegant style comes through in the translation as he weaves simple, intuitive truths together with profound insights into the miraculous working of the market process, drawing equally and effortlessly form the likes of Adam Smith and Confucius. The book is full of examples from contemporary and historical Chinese thought and experience. Its potential audience is thus enormous, including readers all over the world. For someone like me, teaching economics to Chinese students studying business in America, it is an invaluable resource. I am going to recommend to them that they buy both the English and Chinese versions, and thereby improve both their English and their economics.  

The content is wide in scope. After an expansive introduction (added to this edition and worth reading by itself if that is the only part of the book you have time to read), the book is divided into four parts. Part one, “the nature of the market” is a comprehensive statement of the workings of the market process – the explanation behind the astounding economic developments of the last 200 years in the West and the last 30 years in China. Zhang tackles head-on the relationship between market and morality. He makes no apologies. The market is simply the most efficient and the most moral of social systems, the most compassionate and democratic. The market is a property-based system. China’s predominant historical experience has been with position-based systems. Position-based systems are inefficient and privilege those with social status to the detriment of the rest of society. China’s state-based system is a class-based system. He warns against the ominous anti-market sentiment that has lately developed in China. By way of numerous illustrations Zhang covers labor markets, housing markets, anti-trust, and much more.

In part two “the logic of China’s reform” Zhang examines in more detail the nuances of the transition that China has experienced in the last generation and emphasizes the need to maintain the momentum towards greater freedom. Part three looks at “the origins of the financial crisis” in which he examines the logic and illogic of much of macroeconomic thinking and the dangers of China’s Keynesian response to the crisis.  Part four ends the book with “the prospect of China’s future”.

Zhang is clearly worried, if not pessimistic. Given the prominence of China in the world economy today, his concerns should be our concerns. Somewhat controversially perhaps, he believes that the role of economists everywhere is to understand and safeguard the market economy. And with this book he has certainly made it a lot easier for those who wish to adopt this mission.

Sunday, October 26, 2014

Israel is still very socialist - Friedberg Economics Institute Fellows Seminar - Fall 2014

My trip to Israel was sponsored by The Friedberg Economics Institute (HT: Bob Borens). I was participating in the second fellows seminar. Simply stated the Institute, like the partner organization the Jerusalem Institute for Market Studies (HT: Corrine Sauer and Robert Sauer), is dedicated to promoting an appreciation of the importance of economic freedoms and the market process in the hope that such an appreciation may lead to movement toward greater economic freedom in Israel. Here is the official statement.

The Friedberg Economics Institute was founded in Israel in 2014 as a non-profit organization with a mission to advance, in Israel, appreciation for the principles of economic freedom and the potential for improving growth and prosperity through application of these principles.

The Friedberg Economics Institute sponsors seminars, bringing the world’s best economists and economic policy makers to Israel to teach ideas of free-market oriented economic thinking and principles of economic freedom.

The Institute’s initial target audience is Israeli university students. Over time we hope to broaden our audience to include thought leaders in government, business, and the press.

My two lectures were concentrated on describing what might be called ‘an alternative economics’ – alternative to the standard technical fare that is taught in all but a few economics departments and business schools around the world. I pitched my content at both economics students and intelligent non-economists (of which there were a few). The first was specifically on the “closing of the economist’s mind” starting with Ricardo, but more especially since WWII as economics became more “scientific” aka scientistic. The vision of Adam Smith inquiring into the nature and causes of the wealth of nations was lost. Why and what are the consequences?

In my second lecture I talked about methodology, epistemology, ethics and political economy. More specifically I focused on how popular presumptions and mindsets determine where the burden of proof is put in any policy action.  I used Hayek’s views on knowledge and complex phenomena to explore a few themes relating to policy design and implementation that I have been working on.

There was also a discussion panel with the four lecturers, Deepak Lal, Leszek Balcerowicz, Michael Sarel, and me, as well as lots and lots of informal discussions.

I think my remarks were well received although they were regarded as very controversial and provocative in the extreme. This did not surprise me much. It is well-known that the fundamental principles underlying popular perceptions of society and how it works and ought to work are socialist in nature. Israel was born out of a blending of Eastern European socialist ideology with Jewish national aspirations. These principles run deep and span all classes of society. Even where they are opposed, as from the religious right, there is no well-articulated alternative. But, what I was surprised to find, was the extent to which formal economics teaching in all of the universities – as far as I could tell – reinforces this. Economics teachers have abandoned any attempt to foster an appreciation of that system of natural liberty to which Adam Smith referred. Hayek is never mentioned and disequilibrium is banished with a wave of the hand. Not much either about public-choice. It is standard technical fare. It seems that anyone not hewing to the party-line would not be able to get tenure or last very long in any institution of higher learning. The objective is to produce quantitative virtuosos. Any resemblance between the economics of the class room and real-world economies is purely coincidental.

I found this quite alarming. While the Israeli economy has moved significantly away from its all-pervasive socialist structure (though not nearly far enough as these still permeate most of it) to become a highly innovative, high-growth economy, the mindset has hardly changed at all. In truth, the entrepreneurial sector encompasses a minority of the population and for the rest it is socialist business as usual. The aim is to get Israelis to begin preaching what their most successful entrepreneurs practice. Perhaps with this seminar we made a small beginning and more will be done with similar events in the future.  See also here.

Saturday, October 25, 2014

Jerusalem 2014

Touchdown Tel Aviv. It’s always a bit emotional for me. So many memories from important periods and events in my life. So much recent misplaced vitriol and the frustration of not knowing how to deal with it.

While I was growing up and into my early adulthood, Israel was the darling of the world’s intellectuals across the political spectrum. This beleaguered nation built by ghetto refugees of Eastern Europe, further propelled by survivors out of the ashes of the holocaust, defying the odds to become a viable democracy and home for Jews from every corner of the globe, including 800,000 from North Africa who had been expelled from their homes. It was a heroic, romantic story of hope and achievement in the post WWII period when people were looking for a brighter future.

All this changed after the 1967 war. Suddenly, Israel’s very success in defending itself, and every success thereafter, became a cause for condemnation and vilification – not to mention wholesale historical revisionism.

I arrive soon after the latest military confrontation with Hamas – a polarizing media and maven event, but, one in which at least Israel’s public persona was clear, unapologetic and persuasive to many, though clearly not to all or even perhaps most. The disproportionate media attention, the misconceptions, the distortions, and the motivationally suspect have left a bad smell with me. What will I find this time – how will I feel?

On my second day I go on an unusual tour of Jerusalem, a tour seen from the position, first, of the security – the lives – of the people living there, and, second, from the point of view of the accurate history of the city. The tour is organized by a highly partisan  organization and the tour guide (an ex-South African who hails from my childhood city of Johannesburg) glosses over some uncomfortable details about the 1949 war and violence against the Arab population in various places. Though much of this history is still highly disputed, there seems to be little doubt that the Israeli forces were guilty of bad things. Both sides were. So he distorts this by saying that all of the Arab refugees of that period left in response to exhortations from Arab state leaders. Many did, but many were brutally driven out. That is disappointing, to say the least.

But, overall the picture he presents is undeniable and highly relevant to the debate over Jerusalem. The world media has quite simply been duped into thinking that Jerusalem was once an Arab city, important to Islam, that the Israelis appropriated, and that the moral thing to do would be to return it to its rightful owners. Not only is this false on the national level (something which Libertarians would find irrelevant and obnoxious even to say) but it is false on the individual level as well. There simply was no large Arab population that was displaced from Jerusalem. And, importantly, Arab and Israeli neighborhoods are so intricately intertwined now that it would be impossible to separate the city into Arab and Jewish sections. Here are some important facts:

Jews have been living in Jerusalem continuously for nearly two millennia. They have constituted the largest single group of inhabitants there since the 1840's. Today, the total population of Jerusalem is approximately 800,000. 

It is a popular misconception that East Jerusalem has historically been populated only by Arabs. In the mid- 1800's, the entire population of Jerusalem lived behind the Old City walls (what today would be considered part of the eastern part of the city). Later, the city began to expand beyond the walls because of population growth, and both Jews and Arabs began to build in new areas of the city. By the time of partition, a thriving Jewish community was living in the eastern part of Jerusalem, an area that included the Jewish Quarter of the Old City. This area of the city also contains many sites of importance to the Jewish religion, including the City of David, the Temple Mount and the Western Wall. In addition, major institutions such as Hebrew University and the original Hadassah Hospital are on Mount Scopus — in eastern Jerusalem. 

The only time that the eastern part of Jerusalem was exclusively Arab was between 1949 and 1967, and that was because Jordan occupied the area and forcibly expelled all the Jews.

So, to treat Jerusalem as part of the so-called “settlements” is just wrong in so many ways. The city is a modern city with a vibrant Arab and Jewish population, and some Christians, including a successful high-tech area. The attempt to make Jerusalem part of any overall settlement is a strategic ploy designed as a first step in the dismantling of the state of Israel. It is the “heart” of Israel. Destroy Jerusalem and you destroy Israel. “East Jerusalem” is not east Jerusalem – it is a ring of territory surrounding what used to be the city within the city wall. As both Arab and Jewish populations have grown the supply of housing has become an increasingly binding constraint to the point that rental prices now rival those of Manhattan.  Achieving some sort of normality in the housing market – with transparent titles and security – would lead naturally to an ordered expansion available to both Arabs and Jews – but the absence of a unifying legal structure – and some places with no structure – has meant that the situation is highly precarious and dysfunctional. The interests of the Palestinian Authority quite clearly do not match the interests of the Arabs who live in Jerusalem – Israeli citizens and, increasingly, non-citizen residents. They come to Jerusalem in large numbers for a better life under Israeli authority and they would opt to live under Israel if given the choice. Many have for generations now.

This tour saddens me but adds to my previous impressions. I try to remain optimistic and to marvel at the beauty and resilience of the city – to the seamless mixing ancient and modern in an open and vibrant market system. I am here to try to explain to Israelis the importance of economic freedom, a topic I will turn to in my next blog.