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#170 Prof Russ Roberts - The Failures of The Israeli Economy

October 28, 2021 תמיר דורטל Season 1 Episode 170
על המשמעות
#170 Prof Russ Roberts - The Failures of The Israeli Economy
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Show Notes Transcript
Economics vs. Intuition with Professor Robert Russ 


Why are human intuitions often incorrect when it comes to grasping economic phenomena? What do economists understand that the average person misses? We are joined once again by Prof. Robert Russ, economist, author, and host of the EconTalk podcast, for a riveting discussion about understanding our world through economics. We examine the magic of the markets and how, through its complexities, it provides us with invaluable insight and connection. 

Prof. Russ Roberts, producer and host of the EconTalk podcast. EconTalk has over 750 episodes, millions of listeners, and welcomed high-profile guests including Milton Friedman, Yuval Harari and Christopher Hitchens. Roberts authored several books on economics, produced two viral rap videos, and created animated video poems. He taught at Stanford University and many other well-known colleges in the USA. We are glad to have him join us in Jerusalem in his newly appointed position as President of Shalem College.

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האזנה נעימה!

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הלו אין טודאי און מינינג פוטגאסט אמרת אותה אלגי זה לגנדרי פרופסור ראס רוברט.

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די פאונדור פיקונטוק בפאקסט פאקסט אין אור באות אקונומיקס אנגלית אין טודאי ואין פאקסט אונומיקס אין פרטיקולר באות איזראלי אקונומיקס.

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אין וואי הראוזי פריסס אין ישראל.

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רייזי גן רייזי אין דוי אופורטי נקט גנרל ראשון.

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אלמה שמרות פולטקאסט פילוסופי פוליטי.

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שלום פרופסור רוברט שלום.

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סוף את היום אנחנו נדבר על את המסע שלך על אקונומיקס.

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אתה מלך אקונומיקס עד 30 שנה וכתב הרבה קטעות ומסעים.

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נתחיל לדבר על למה אינטואיציה האנשים על אקונומיקס על מה שהם יודעים מה הם חושבים שהאקונומיקס היא ואיך זה מפעיל.

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זה נכון אם אתה מפעיל את זה למודלים אם אתה מפעיל את זה לאנשים שעובדים על הספקות ואת התהליכות שלהם בעולם.

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אקונומיקס מאוד מלחמת.

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יכול להתליך בהרבה מיני מיני מידעים.

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זה מיוחד להתליך כתוביות מתמטיקה שהיא איתן.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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זה לא בלתי הכי מיוחד לדבר על אקונומיקס.

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הם צריכים להתקשר למהלך.

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הם צריכים להתקשר למהלך.

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אנחנו צריכים להגיד לקהילים

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שאת תלמידיי

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בקורס של אקונומיקס

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שהתלמידיי

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בקורס של אקונומיקס

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ואתה עשה

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מישהו טוב

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מהלך להתקשר לאקונומיקס

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ולמדעי

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אקונומיקס

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ולמדעי

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ולמדעי

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ולמדעי

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אינסטנטיב ס.

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אינטרנט סטייט רולר מרקט סנד אלו סטיינס טווינט רוסטן מנטיבי בלתייף זה מזווהי of thinking require practice experience of them thinking about them apple applications of these ideas to different areas of public policy and different areas of human activity and that's what economic education is about.

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So let's give examples so people will deeply understand what we're talking about let's talk about the masks and corona in the beginning the mask was the masks were very expensive so legislators want to limit the price isn't it good.

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Not available here in israel unfortunately i think unfortunately although we'll see how it goes and having some challenges these days around the world that not related to israel but but in places where uber exists.

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When there's high demand the prices are higher for the trains it rains or storms worse or it's just rush hour or there's a big conference in town or whatever it is.

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It those times the prices are higher people say that's not fair you're taking advantage of people you shouldn't profit from people's necessity in a in a crisis or tragedy or a storm.

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And it's a lovely idea you could argue that it's that you should do that the problem is of course is that has a consequence.

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You have to ask and then what so you've made it cheaper for people to travel but and then what and the answer is you've made it harder for people to travel at the same time because even though it's cheaper.



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They're not going to be as many uber drivers willing to drive when the price is low and similarly if i'm going to be producing masks on short notice.

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Urgently and i want to run my factory twenty four hours a day and not just eight hours a day like i have in the past i'm gonna run my factory twenty four hours a day i'm gonna need to do more maintenance is going to break more often i need to pay my workers extra to get them to come at times of the day when it's not convenient for them.

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So i need to have a higher price to incentivize me to give me the incentive to do these steps that are actually are quite good for the world.

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Now you say yeah but but it's terrible you're taking advantage people and you can argue that's true.

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But that's how you get more mass so if you want more mass you have to generally let the price rush you could just beg you could just plead you could just implore.

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You could say please please work twenty four hours a day you the worker even though you're going to have to give up time away from your family to work a sixteen hour shift instead of an eight hour shift.

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Don't you care about me and the answer some people do and they might work that longer shift but.

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The price incentive is a very powerful way to unleash that willingness to work longer hours.

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This what Adam Smith said in the in the book from seventy seven six the wealth of nations.

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Well prices incentives matter people respond to incentives now something only way to get as i said to get people to change their behavior.

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But it's the most effective way that we found in situations where strangers interact now with my own family i don't need to charge my.

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My children extra money when there's not enough cookies to go around for dessert let's say i have four children so this my wife and i are having dinner with their four children there's six of us.

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And there's only five cookies should we sell it to the highest bidder.

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One one just the five cookies for example.

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Exactly right exactly and maybe the biggest one the oldest one the strongest one and i'm going to intervene from the top down as a socialist dictator and say sorry we're going to share them equally and if there aren't enough to go around.

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Maybe i'll give one up or maybe the kid who had a ice cream an hour before dinner will go without a cookie tonight and that would be okay too.

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But we make those decisions when we love each other in a very different way than we're dealing with strangers i give the example of my assay is there was a case in sydney and australia there was a terrorist attack.

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And uber prices went through the roof meaning they went very very high and people are very upset.

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The at that time people were desperate to get out of the central part of town into the to the airport they want to get out of town and dumb.

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People said it was unfair to have these high prices and in some sense they're right it is unfair but you get a lot of people willing to drive to head think about how crazy this is.

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What the price does is it gets people to head toward danger instead of running away from it people want to run away from it we want there to be people who head toward danger.

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Now in the biggest sense of the word you know we do the biggest sense of that concept we do that with police fire the army right they head toward we pay them.

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The head toward danger that's part of the deal we say to you to those people we're going to pay you a certain amount of money.

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And you have you understand that there will be times when you will be asked to put your life at risk for the for the cause that we're working on together.

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That's a beautiful idea in a crisis it doesn't work so well here's the deepest point about this you have a crisis of of this terrorist attack in sydney.

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It's not just a question of getting people motivated to head toward danger these drivers there people desperate to get out of this area we've we pay a high price.

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They pay a high price to the uber app.

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To incentivize workers drivers to come and take care of them it would be a beautiful thing if instead we just sent out a notice there's danger please come help we do that certain situations where there's a shortage of blood.

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Most countries don't pay people for extra blood they ask the bag which is beautiful people rise to the occasion they come in they donate blood.

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But there's an extra piece of this it's not just that it's motivating them the higher price it's informing them there's an existing mechanism to tell them.

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That suddenly there are people who desperately want their service they don't know why they don't know it's a terrorism attack they don't know if it's just a big concert they don't know if it's a sporting event.

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They just say that oh and it's a little bit unfair to the drivers by the way cuz they don't there's a they might decide if they knew there was danger but the point is that there's a mechanism.

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To alert drivers built into that system which is kind of amazing when you think about it i write the example.

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I used to live in st louis missouri in the middle of the united states and there was a big flood st louis on the mississippi river big river there's a big flood.

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And a lot of people lost their houses had damage to their houses and three months after that flood i wanted to build a porch.

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On my house an extra piece to my house so i got an estimate from a carpet from carpenters and builders as to what it cost and it was about double.

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What i thought it was gonna be and i thought this is ridiculous how come it was so expensive i can do this now but i forget it.

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And what i was doing there i didn't realize cuz i'd forgotten cuz my house was far away from the flood.

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I forgot that there had been a flood three months before and that there are people who desperately wanted builders and carpenters not to build a porch but to rebuild their house.

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And so what that high price said to me was don't build the porch now if someone had said to me i know you really want to build the porch.

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But my house got destroyed by the flood could you let me have the carpenter first and i would have said yes but i that person had no way of finding me.

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What the high price did is it informed me that somebody wanted those builders more than i wanted them and i let him have it and that's a beautiful thing because without.

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We forget sometimes that information is very scarce the beautiful things about decentralized prices the fact that prices steer resources without someone having to do it from the top down.

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From what we call command and control of an expert at the top deciding who should get what and when prices just say well.

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It's up to you you want it you can have it if you don't want it you have to do without it that.

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Decentralized system of prices provides information it's more than it provides information it sends signals of information to people to behave as if they knew.

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As if they knew they don't know i didn't know that i forgot there was a flood.

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In this story it seems that you forgot two things first that there was a flood and because of the flood there is higher demand for carpenters and second that you were a professor of economics.

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Those intuitions are so hard to get rid of like the intuition that we were born with the Hayek said says the family intuitions because our family the way it's built the way it's built the social structure of a family of a close friendship is so so different than the social construct of a family of a community of strangers.

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Which this guy with the house couldn't talk to you couldn't even if he was talking to you to trust i might decide to talk talking to other people that i wanted to read it.

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And i'm excited after i heard a story i'm not such a nice person i decide you know i appreciate your.

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Situation but i think i want to porch really badly i miss my porch.

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And so what the price system does is it it pushes me aside it tells with without anyone having to find each other and go through this negotiation.

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It just gave him the porch which the carpenter which meant he could have his house back before i got my porch which is the right thing actually did build the porch i built it about two years later.

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What the demand for carpenters had gone down and for builders had gone down and the price was much lower and i had i got my porch then.

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I remember in class that you were talking about this incident and you were saying one more thing which is really good and i use it in class when i teach all the time sorry for stealing your ideas.

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And it's not stealing it's not even borrowing that's what's great about ownership we can both enjoy them at the same time actually you're glad that i'm stealing your ideas.

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And so i remember that you were saying about let's say that some commissar would lower the price in.

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What's the name of the city saint louis in saint louis.

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So.

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Carpenters from california wouldn't move to saint louis for a few months leave their family in order to supply a greater supply for for the city.

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But if the prices would still.

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Be up as it is the market demand say they should be so people from all around the united states would come to saint louis because there's a higher demand for carpenters and the tragedy would finish sooner.

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Yeah exactly it's beautifully said i'm so proud that you remember it makes me so happy.

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But it's a great it's a great relevant important point that it's not just determining the higher price doesn't just determine who gets the porch or the carpenter or the builder.

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It determines how many porches are available to be built how many houses are available to be built how many carpenters are there to help people and it's exactly exactly right.

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So let's talk a little bit about the real estate and economics i just came back a month ago from a trip to los angeles to my brother.

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Which is working in the industry of real estate.

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I remember that all the buildings or most of them most of the buildings in los angeles are only one story high.

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And i used to ask my brother and his friends why is it only one story high so they say there are much earthquakes in los angeles blah blah blah so i asked them but the buildings in downtown the 40.

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40 floors high don't they have earthquakes in downtown so they were like scratching their heads and it was like the guy who learned some economics with people that they just heard rumors and stories even they live in the cities more than me.

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I was there only for two days until i was starting to asking those questions.

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And the building in LA are really old nobody rebuilding the house and tearing it down and rebuilding it all apart and the economics is the answer why didn't it happen.

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And also in Israel we have a very high price of housing in Israel if you compare it to the united states for sure and people don't really understand why the price is keeping being so high.

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Because of greedy real estate owners right greedy landlords people want to make a lot of money and builders i don't think that's the reason that was not it was we say in english tongue in cheek meaning a joke.

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Bitsy newt.

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But seriously.

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There are a lot of reasons why real estate is expensive in Israel some of it is on the demand side the fact that there are a lot of people moving to Israel from around the world like me i played my small role in pushing up the price of.

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Of rental units here for this year.

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Same one you.

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Yeah shame on me fortunately i'm small i'm only buying i'm only rent my wife and i were renting one apartment so our impact is small but but it's a very important point.

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As hundreds and thousands and tens of thousands people of people try to do that the price will start to rise.

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So the demand is part of it but it's not the whole story the other side of course is the supply and in Israel.

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I don't understand yet the full range of restrictions on real estate and supply but certainly they are part of the problem for why it's expensive to live in Tel Aviv in particular say or Jerusalem and just take one example maybe you know the details of the problem.

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I do because i'm a newcomer but.

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Yeah but we can talk about New York we can talk about Los Angeles.

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Great because it's the same by the way they're also expensive and and so those the bigger cities in America i know a little bit more about.

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But the part of Israel that i wanted to highlight is that it takes a long time to get permission to build here.

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So i was talking to someone about this and they said yo but the build look around you can look around your shaliam there's cranes everywhere there's building everywhere every corner there's a new apartment going up.

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The question is when did it start when did the owner of that property start to try to build on that space and when it takes i'm told it takes many years is that correct.

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Yeah 20 sometime 20 years.

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Well i heard seven or eight i don't want to exaggerate but if it's sometimes 20 what that means is that that's 10 28 whatever it is years where you have no revenue.

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And so to recover your investment you're going to have to get a higher price meaning the price is going to be higher to get people to be willing to take those risks and build in those places.

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Now in other cities where i know a little bit more about the regulatory environment the regulations that that are in housing to take New York for example.

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First of all they all said the same issue about the heights of the buildings there are certain parts of New York where the buildings are really high and other parts of New York where the buildings are really low.

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And so they say well how can you build in a city where the heights of the buildings are really high and other parts of Manhattan where they're not high how could that be and they make the same story you just told about Los Angeles.

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I'm just a little different it's not a ridiculous story so that the only it's not the relevant part the relevant part is that there's special prices on taxes on how high a building.

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How special taxes depending on the height of the building and how far away from the street it is and that has discouraged certain parts of the city from having taller buildings usually when building when land is expensive.

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Build high and of course what's amazing about that is that a high building is a way of getting more land you think well the land area of Tel Aviv is fixed so of course as demand increases of course the price has to go up but it's not true in many parts of the world through much of human history even though demand was rising.

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The prices don't rise so much because people can build higher they can build a little further away farther away but what's happened in cities like New York and other places besides the taxes.

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There's also the fact that they require this is such a tragedy they require an apartment to be a certain minimum size you think well that's nice isn't that nice that way everyone have enough room to live.

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The problem with that is windows windows of course everything should be parking to parking is compulsory for every new building.

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Yeah and i think that's a mistake i have a recent episode with Donald troop on that Nikon talk because what that does is it for people who don't.

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Have a car or for places where you'd like to have fewer cars in the whole area what you've done is you've taxed.

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This is the creation of new buildings which means that you force the owners in order to recoup their investment to charge more than they otherwise would so in case of the minimum size.

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There might be people often there are who are young poor for whatever reason they're willing to live in a small small small apartment.

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Return to live in a very exciting place where they can get a great job or have a great experience living with other people in the city that's alive and vibrant which will be true tell me which we true new york.

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Other great cities and what you said is you can't have that choice you can only live in a apartment with it has a certain minimum size.

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What you do that of course you're going to there are going to be any inexpensive options on the market and people then say oh look at that we need more affordable housing.



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They forget the fact that the affordable housing has been priced out of the market by the regulation you don't need to have special laws limiting rents you don't need to have special laws subsidizing buyers both of which.

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Effectively raise the price of housing against what you want to achieve what you need is to allow certain options to be available for people who at this point in their life.

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Are willing to exchange money she's me size for great location and what you do is when you have a minimum size of a certain amount you're basically saying to them.

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You can only afford to leave here if you live far away you have to have a longer commute you have to know it's not just standing traffic and stuff like that but the first factor you were talking about is the year that it takes for someone to get a permit.

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But let's talk about the bigger picture the bigger picture is a permit is needed because.

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If someone has a land in city if you build 10 stories high or 40 stories high he externalize.

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Some of the effects of the building to his neighbors it meaning that if you build really high you block the view of your neighbor you block the sun you make much more traffic in the road you make you make the sewer have to be bigger so.

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Isn't there has to be a department or some kind of a body of really best professionals who could argue and decide about if your building should be 10 or 40 stories high.

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Well let's see if we have three or four more hours we could talk about those issues so it's a very complicated question but i want to say.

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I'll say two things one is that you're right when I build my building I have impact on people around me the question that is how can we make that process work well in general.

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This is an area where the economist ronald coast CEO a se ronald coast has written profoundly interesting things about externalities.

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But you could argue in many people do that we do we do need a vaad we need a commission we need a place that where people can.

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Where experts can decide what is best when people's desires conflict.

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The problem is that in history at least in the united states the situation a little bit better but I suspect is the same here those bodies don't really necessarily work for the people in general they often tend to work for the rich the powerful.

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The people already live there already have the building.

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What the people that already have housing the neighbors meaning that so instead of the right of property it's a right of who came first.

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Right which is not ideal so it's very important to point this out.

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Both of those solutions the vaad or the unconstrained market where you can build whatever you want and of any size.

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They're both imperfect they both have problems the question is which is better they're both flawed.

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I recently had mike munger on the program on econ talk on my podcast to talk about this issue he says something I love it's actually adapting an idea from harold demsets.

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What is the total about the general idea of when we have two policy options the market say or commission which which is better.

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And he said we often fall victim to what he calls the prettiest pig.

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So most pigs are ugly so let's have a contest we're gonna see which pig is the prettiest we have two contests to contestants to participants in the contest so they bring out the first pig.

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It's hideous it is so ugly the judges say this pig is so ugly we're gonna give the prize of the prettiest pig to the second pig but you haven't seen it yet I don't need to this pig it could be uglier than this one.

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Of course it could be there pigs are generally kind of ugly so when we have a choice between what we might call a market solution or government solution people say well look at the market solution it's terrible they block the sun for these people they have they impose cost of congestion.

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Then they say well so we should eat a commission but you also need to see how the commission turns out it also has some problems it tends to favor the existing landowners it's captured politically by the people who are have the biggest stake in it and spend the most time on it.

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It's a dress so you wanna look at both solutions because they're both imperfect they're both ugly like pigs.

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So will you take a recommendation of the mic mic mic mic by episode with the on a contact and the cause term which we need to read thank you very much professor roberts.

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Thank you so much to make great talking to you.

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I love my food podcast philosophy.