Free Rider Problem & Orthodox Jews © 2013 David Held

Recently a working Orthodox man in Teaneck, NJ created the blog “200kchump.blogspot.com” to vent his feelings regarding the tuition crisis in the U.S. He didn’t understand why despite earning well above the average salary for his area, he is required to work every night until past 10 o’clock, never see his children and have no extra money for things like vacations and camp for his family. Other members of his community who earn less money than him enjoy such luxuries due to community sponsorship or family support. Chump’s gripes may or may not have merit but it is clear that the gripes of those who materially support Torah institutions through their tuition are coming to a head in the U.S. With that in mind, economic concepts should have a place in the discussion. There are three issues with which the community must contend in order to deal with the tuition crisis: First, the “free rider” problem is causing a shortage of affordable educational services for Jewish children. Second, market distortions created by misallocated scholarships also contribute to such shortages. Third, these economic problems are a reflection of the entitlement mentality which negatively impacts the Orthodox Jewish community as it does the society at large. The Free Rider Problem: The Mishnah in Avos (2:2) states that “All Torah study without work will result in waste and cause sinfulness.” How could Torah study without work cause sinfulness? Rashi and Meiri on this Mishnah explain that taking from others comes with a cost to the person doing the taking. If he is both a Torah scholar and financially self-sufficient, he will not be tempted to steal from others.1 Many on this blog and in other places argue over the propriety of taking from others in order to further Torah study. A debate over this subject is not the point of my posting. My point is this: just like in economics, so too in the Torah world, nothing is truly free. Economists refer to this as the “free rider” problem and they struggle to find solutions to it. The free rider problem occurs when people enjoy a public service or benefit without paying or under-paying for its cost. When institutions struggle to prevent free riding, many services are underprovided due to inadequate funding to cover the cost of providing the services to the number of people taking advantage of it. If everybody rides the bus without paying for a ticket, somebody is still going to be paying for the bus driver and the gasoline or the bus won’t run or the bus runs less often. It is crucial to note that free riding is rational behavior – both for people who consume public benefits without adequately paying for them and for Orthodox families who find ways to benefit from the system while shielding sources of their financial support from the schools to which they send their children. Whether it is a scholarship for the local day school, a sleepaway camp or money from HUD, someone else pays the financial cost and the taker of these resources must pay a moral cost which may or may not be worth bearing. The fact that scholarships exist is not (the entirety of) the problem. Regardless of
1

A concern that particular behavior may lead to theft is not over the top in the rishonim or achronim. For example, see Bi’ur Halacha, Mishna Berura 529:1: “… and this is a great tocha’ah on our times insofar that many men are violating this and not giving proper attention to how to manage their households to place at a distance permissible things and falling into this evil practice that brings a person in the end to theft and violence…” Instead of treating his warning that certain practices lead to theft as rhetorical exaggeration, perhaps it is time to take the Chofetz Chaim’s warning seriously.

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Free Rider Problem & Orthodox Jews © 2013 David Held
the moral propriety of taking from others via scholarships or government grants, a great enabler of the “free rider” problem is when the taker does not feel that he is taking.2 This is why insurance companies require their policyholders to pay co-pays and deductibles before receiving insurance benefits. Without such financial obstacles, those with health insurance would consume more and more of the insurance company’s “free” benefits. The co-pays and deductibles act as a “cost” to the insured in order to counteract the free rider problem and to incentivize them to economize in their consumption of benefits. To overcome the free rider problem, some private schools adopt a minimum-tuition requirement; every family must pay at least a minimum threshold of tuition per child no matter what the circumstances. One could argue that it is the responsibility of the day school to examine thoroughly family income so that they properly allocate scholarship monies.3 I have no doubt that my children’s day school (in addition to the other two in town) takes this responsibility very seriously. I also have no idea how they do this despite years of association with the school and close personal relationships with several board members. There is nothing available to the public that describes the school’s principles with regard to scholarship money with any level of specificity. This lack of transparency does nothing to increase my confidence, for example, when several families with the “breadwinner” younger than 30 buy a house in this desirable tri-state suburb. At my school, board members have admitted to me privately that they know that some scholarship applicants lie about income or family contributions that are not reflected on their tax returns, shrugging “What can we do?” In this capacity, my children’s day school is probably no different from many around the country. Should families receive scholarship monies when their parents have subsidized the purchase of their house? Or when other family members pay for summer camp? Reasonable people may argue over whether or not such sources of funding should be part of a family’s scholarship package. The issue is that the general public has no idea what the standards even are (should they exist). A lack of institutional transparency leads both free rider problems with the recipients of scholarship monies and an economic incentive for those with alternative resources to cheat the system. Why should those with funds be honest – or “chumps” as the man from Teaneck might say – when free riders enjoy the benefits of the system? I do not feel comfortable pontificating on the following issue but it is an elephant in the room for many: Should a family that has limited earning power have child after child when the community will end up paying for the expensive education of their children? Some families may have fewer children due to the expense – why should they be forced to cover the expense of families who do not think about the issue? While not an observation based upon empirical data, I notice often that families who have fewer children in an effort to act responsibly with their finances end up, through their tuition payments,
2

One may argue that telling an Israel kollelnik that his Torah study protects the state (which it does) without telling him of the sacrifices made by those people who work and risk their lives to support it raises the same issue. Those who benefit from public services should feel the fact that they are taking in order to avoid the negative effects of the free rider issue. Being told that there are no negative effects will not help. 3 I think that meetings between the scholarship committee and applying parents should only take place in the parents’ homes. If there’s been an expansion or a new kitchen, then it will be difficult to hide from the committee if there’s an onsite visit. To my knowledge, no one in my community does this.

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Free Rider Problem & Orthodox Jews © 2013 David Held
financing families who do not take finances into account when having children. I do not have a solution to this problem – if you call it a problem. As I note later in this essay, what a person earns and/or “takes” in order to support his family is an issue of character and different people will answer this question differently. I cite this at this point only to highlight that the system through which education is provided to Orthodox children in the U.S. is suffused with the free rider issue. The Market Distortion from Misallocated Scholarships: A basic understanding of how prices work and their importance is the foundation of economic knowledge. In a free market economy, prices set by the free market perform the function of rationing scarce resources. Educational goods aren’t free – the only way that they could be considered free is if everybody gets as much of this good as he wants. The only way that this good – and every good – gets rationed efficiently in a market economy is through price. While a perfectly free market of educational services in the Orthodox world is neither possible nor desirable, the distortions created by scholarships create undue hardship for those for whom the price is artificially driven upwards. Like other price distortions, the result is a shortage of educational services at reasonable market prices. Prices provide critical information about consumer desires and whether a resource is abundant or scarce. Consider the world’s supply of oil. If the price goes up – this means that more people want it or there is less supply of it. Conversely, if the price goes down – this means that fewer people want it or there is a surplus of it. A price increase in the oil markets may convince the world’s oil producers to increase output to meet the increased demand while a price decrease in the oil markets may have the opposite effect. Without these price indicators, manufacturers and service providers would not know where to efficiently devote their resources in production. This is also how car manufacturers know when to stop producing gas-guzzling vehicles in favor of more environmentally-conscious ones – there’s less demand. Centrally planned systems which set prices and output based upon non-market factors (e.g., the former Soviet Union) often resulted in a surplus of goods that no one wanted with a deficit of goods and services needed by all because the authority controlling the price lacked any indicia for knowing, or caring, about consumer needs and desires. The economist Thomas Sowell noted that if local electric power lines were put out of commission for a few days, the demand for flashlights in that community might increase, causing prices to rise before new shipments of flashlights could arrive. Had prices remained at their previous level, a family might buy several flashlights, so that each member could have one. But, at the higher prices, they would likely buy one or two, leaving more flashlights for others with a similarly urgent need as the higher prices reflected an increased demand and need. Price mechanisms force people to share whether they are aware of this or not. While sharply higher prices may be resented during emergencies, that is when their functions are even more urgently needed. This is also why car lines and gas shortages usually follow when the government mandates an artificially low price of gasoline following a natural disaster – without the selfrationing of increasing market prices driving only those with the greatest needs to purchase this suddenly scarce good, the artificially low price causes misallocations between those who value the good

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Free Rider Problem & Orthodox Jews © 2013 David Held
less and those who value it more. Despite the media-driven nonsense regarding “price gouging”, scarce goods should be allocated to those who value it the most. In the case of private school tuition, the price distortion is when tuition is kept artificially low for some but not all. And as with any centrally-planned system whether run by the Orthodox or by a government, the dangers of favoritism, shortages and corruption are rampant. As with the free rider problem described above, families receive tuition breaks while simultaneously receiving family support which could be diverted to tuition. Families with insufficient income produce numbers of children who can only be educated with the financial support of the community. The system permits these families to purchase educational services at an artificially low price. As with gasoline and (in the case of rent control) housing, the result of artificially lowering prices for tuition can be just as disastrous: people who are unable to afford the market price of a service consume a high proportion of this service where the expense of the remainder resides with those able to afford the market price. Where families would otherwise economize on their consumption of these services, they need not do so due to misallocated scholarships. I am opposed neither to scholarships nor to family support; I am opposed to the reallocation of resources that result from them. Unless the community recognizes the dangers of price distortions and attempts to ameliorate them, shortages (read: higher tuition prices) will result as a matter of economic fact. The Cost in Character “Mar Zutra said: Even a poor person who is supported from charity must give charity.” – Masechta Gittin 7b It is well-known that Rabbi Yissochar Frand was once stabbed by a deranged individual inside the Ner Yisroel beis medrash. One could learn from this event that despite the sanctity of the beis medrash, no one should think that he will escape the problems of society within its walls.4 It is naïve to think that issues like adultery, spousal abuse, sexual abuse, alcohol and drug addiction and other societal ills have not infected Jewish society even to a less extent than the society at large. So, too, another mentality which some may consider to be a societal ill – the entitlement mentality – has infected the Torah world and it, too, has ill effects upon the character of bnai Torah. One could argue that since World War II and especially since the 1960s, the strength of the entitlement state has grown. From FDR’s New Deal to LBJ’s war on poverty, programs – unsustainable programs in their current form – have grown and convinced many Americans that they are “entitled” to benefits from their government. The proper form and reorganization of these programs is beyond the scope of this posting. My point is that when people receive a continuous benefit they eventually feel a sense of entitlement to its continued provision. Rav Dessler notes in many places that humankind can be divided into “givers” and “takers”. “And you should know, with no middle way on this, that the soul of a person always strives for one of these two paths…” Giving the greatest of the middos that Hashem has created and taking is the source
4

I understand that Rav Yaakov Weinberg, the Rosh HaYeshiva, said something to this effect the night following the stabbing but I was not present for this speech, so I am unable to quote him directly.

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Free Rider Problem & Orthodox Jews © 2013 David Held
of all evil in the world.5 He notes, most importantly, that it is not the case that the person to whom a man loves he gives but the opposite – “to whom he gives, he loves.” In other words, Rav Dessler notes that the heart’s feeling and character – either that of giving or taking – follows only the actions he takes and not the other way around. A person can become a giver by acting as a giver but he may not reach this level if he awaits his heart to inspire him to act as a giver. So what happens to the person who acts from day to day as a taker from his community – not paying his way, allowing others to finance the education of his children? Let’s expand upon this question for those members of our community who are so lucky – what would you say if this person has had others make the down payment on his house, finance his children’s summer camp, accept a scholarship for his children to go to summer camp, even (if we’re talking about extra wealth) pay for vacations for his family, make a trip to Eretz Yisroel? Why should a person so fortunate decline this help and assistance? I am not suggesting that he should in all cases. Rather, I am suggesting that such assistance may come at a steep personal cost.6 The concept of removing scholarships is unthinkable – people now expect assistance to be available for those considered less fortunate. Scholarships should be available, but the mentality is set in stone. There is an expectation and an entitlement. The meaning behind Mar Zutra’s statement is that even people who are in need of charity and assistance have the ethical responsibility to be givers and not takers.7 Rav Dessler’s philosophy would judge this person harshly. A man’s heart follows his actions and this person is a taker. Actions have consequences on character. His heart is filled with the poison of the entitlement mentality whether he realizes it or not.8 Conclusion: It is not a matter of opinion but a matter of economic fact: where there are free riders and price controls there will be shortages. This means that the tuition crisis is structural and the moral costs upon Orthodox families will continue to take their tolls. It will not go away with a better economy. It will not go away so long as the current system continues in the same form but the shortages will only get more acute as skyrocketing tuition prices and unreasonable demands upon the financial contributors to the system become less bearable for middle-class Orthodox families.

See Kuntres haChesed in Michtav MiEliyahu, Vol. I. In 1965 Senator Daniel Patrick Moynihan, then Secretary of Labor, presciently noted the same thing with regard to welfare programs: “Indices of dollars of income, standards of living, and years of education deceive.… The fundamental problem…is that of family structure. The evidence…is that the Negro family in the urban ghettos is crumbling. A middle-class group has managed to save itself, but for vast numbers of the unskilled, poorly educated, city working class the fabric of conventional social relationships has all but disintegrated.… So long as this situation persists, the cycle of poverty and disadvantage will continue to repeat itself.” For this opinion he was pilloried as a racist. 7 As John Donne wrote, “No man is an island entire of himself”. 8 Despite his being the father of the yeshiva exemption, it is inconceivable that the Chazon Ish felt entitled to anything. But that is a very high level to reside and perhaps not every Jew is capable of this. I am not saying that assistance is inappropriate; I am saying that it comes with personal costs and spiritual dangers.
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