“Life is not an easy matter. You cannot live through it without falling into frustration and cynicism unless you have before you a great idea which raises you above personal misery, above weakness, above all kinds of perfidy and baseness.” -Leon Trotsky
Let’s say you want to disrupt the establishment.
And you’re thinking BIG:
You want to replace an entire model with something new completely.
Why does your community need to be represented by the Federation? Couldn’t someone build a better model for Jewish life on campus? Or maybe you’re tired of paying dues to your rabbinic association?
I’m not saying these changes should happen—or that you even want them to. But I bet you can rattle off the reasons why such shifts feel nearly impossible. Incumbents hold enormous advantages—and not just financial ones:
The community already knows their brand.
Politicians—local, national, international—are used to calling them.
Real estate, philanthropic structures, and legal frameworks are designed to remain in place in perpetuity (i.e., forever).1
And even if you manage to clear all these hurdles, don’t kid yourself: the incumbents won’t sit quietly while you try to replace them.
So maybe you wonder: Is it even worth trying?
Last week, we looked at a zombie idea tied to legacy institutions.
This week, let’s go in the opposite direction: Why do innovative Jewish startups rarely topple old giants? Why are some organizations so hard to dislodge, even when new ideas seem better?
Sometimes, the rent is just too damn high.
Rent
Do you pay rent?
“No, Josh—I bought my yurt years ago…”2
Sorry—not that kind of rent. Let’s talk about economic rent.
“Rent” in this sense appears in Adam Smith’s The Wealth of Nations. When someone owns land and charges rent, they make money not by producing value but by controlling access to a resource others need. As Smith writes, rent is “a monopoly price… proportioned… to what the farmer can afford to give,”3 reflecting the landowner’s power to extract payment simply because of ownership, not contribution.
David Ricardo built on Smith’s work, arguing that rent is tied to the land’s “original and indestructible powers”4—that is, landlords profit because some land is naturally better situated or more productive than other land. As demand for land grows, those who control the best plots can charge more, not because of their efforts, but due to factors such as luck and location.
But rent-seeking goes far beyond land.
In real estate, rent is generated by controlling scarce space. In modern economies, economists often point to tariffs as a rent-seeking force.
Consider this: you’re deciding between two cars—one foreign-made and superior, the other domestic and inferior. If your government imposes a 300% tariff on foreign cars, you’re likely forced to buy the domestic one. The domestic producer benefits—not because its product is better, but because the tariff shields it from competition. Consumers lose. The company gains what economists call rent, profit not earned through innovation but secured through protection.
The cost of these policies is central to Gordon Tullock’s 1967 analysis, in which he argues that tariffs create not only market inefficiency but also a waste of resources, as firms spend time and money lobbying for protective rules, thereby imposing an additional social cost on society.5
In 1974, Anne Krueger expanded on this idea, coining the term rent-seeking to describe how the pursuit of privileges, such as tariffs, leads to “a divergence between the private and social costs of certain activities.”6 Rather than developing better products, firms allocate resources to influence policy, thereby blocking rivals and harming the economy as a whole.
Once you understand economic rent, you begin to see it everywhere—even in Jewish organizational life.
The Captured Economy
What happens when rent-seeking distorts an entire market to the point where it no longer reflects what consumers want? That’s what Brink Lindsey and Steven Teles explore in The Captured Economy.
Lindsey and Teles—economists from opposite sides of the political spectrum—warn that the U.S. economy teeters on the edge of “regulatory capture” across multiple sectors, defined as “the dynamic whereby private industries co-opt governmental power for their own competitive benefit.”7 But they are clear: this is not a left-or-right problem. As they write, markets are being “[distorted… in an inegalitarian direction]”8 by both public and private forces.
One of their prime examples: occupational licensure.
Imagine you’ve been doing makeup for friends and family, and you're now ready to open your beauty salon. Sounds simple enough? False. To become licensed, you must complete courses, pass exams, and pay the required fees. You might keep doing makeup informally, but becoming licensed starts to look hard (and that before you jump through the hoops of starting a business!)
Licenses exist for many professions, and for good reason. I find comfort knowing that an emergency medical technician (EMT) is licensed. But cosmetologists?
Lindsey and Teles note that in the U.S., “cosmetologists must complete an average of 372 days of education and training before getting their license,” while EMTs must complete on average only 33 days.”9 Being an EMT is far riskier, yet much easier to get certified. The discrepancy is bizarre, but not an anomaly.
This example is one of many that Lindsey and Teles offer to show how U.S. licensing rules are highly arbitrary,10 varying widely from state to state and profession to profession, often without any relationship between the danger of the job and the difficulty of entry. These rules benefit incumbents by inflating incomes11 and shielding them from new competition, blocking the creative destruction that drives innovation.12
Since we operate in the non-profit space, few, if any, Jewish organizations have been subject to the legal or legislative actions required to address rent-seeking in our sector. The closest came over a decade ago regarding rabbinic placement.
In 2013, Duke professor Barak Richman argued that the placement systems run by North America’s major rabbinic associations—the Rabbinical Council of America (RCA), the Central Conference of American Rabbis (CCAR), and the Rabbinical Assembly (RA)—function as an illegal monopoly.13 Richman’s thesis was that when synagogues in these networks are required to hire only rabbis credentialed by these associations—and those associations control membership, which in turn depends on attending a small number of approved rabbinical schools—the system creates artificial scarcity and restricts choice.
As Richman sees it, this amounts to a form of regulatory capture, the very kind of rent-seeking force warned about by Lindsey, Teles, and Krueger, among others.14
Ultimately, Richman’s argument was never tested in court. The associations rejected his theory as flawed, and truthfully, many of these systems lack the vice grip they once held, only accelerating as the shortage of non-Orthodox rabbis grew.15 But the example illustrates Lindsey and Teles’ caution: “Rents can reflect either natural or artificial scarcity, and their existence can be either good or bad for the economy”16—but either way, they demand scrutiny.
Take a hard look at the part of Jewish life you care most about.
Does it work well?
If not, how hard would it be to build something new?
If the answer is “very hard,” you might be staring at a system shaped by rent-seeking. And unless we’re willing to acknowledge these invisible forces, we may miss our chance to create the breakthrough changes that so many of us claim to want, while the system quietly keeps them out of reach.
Conversations with Tyler
2
Two musical notes, E and F, were selected by John Williams for the theme to Jaws, which opened in theaters 50 years ago.
Amazing how something so simple can become iconic…
What I Read This Week
Mozart and Mr. Beast: Do you watch Mr. Beast? My son does, but I don’t. But Mr. Beast is a worldwide YouTube phenomenon we should learn about. Here is a profile of him in The Guardian.17
You Can’t Fire Your Way to High-Performing Government: The deeper I delve into my career, the more I sense that one of the worst strategies new CEOs can employ is assuming that every existing employee is a problem simply because the CEO didn’t hire them. Recent events support my hunch.
Nathan Fielder Saves Airplanes (Or Not?): I try to watch Nathan Fielder, but I will confess that I don’t get it, especially when I want to laugh. But this past season of The Rehearsal raised many eyebrows, and it may be time to take this comedian seriously.
Ryan Burge Analyzes Jewish Voting Patterns: I don’t find internal analyses of Jewish voting patterns interesting; there is too much confirmation bias involved. But Ryan Burge is not Jewish and mainly focuses on evangelical Christianity. So I pay attention when he takes an interest in this question.
If My Kids Play Outside, They Will Be Bullied!: I live in the city, so my kids rarely play outside without adult supervision. However, it turns out that even families in suburbs and rural areas are having their children play outside without adult supervision. And Jonathan Haidt thinks this is very, very bad.
FOR-E-VER…
Yes, a yurt. Consider this yet another expression of gratitude to Litza and Ari, whom my congregation honored this past Shabbat.
Ibid.
Ibid., 94.
Ibid., 92.
Ibid., 108.
Ibid., 24-25.
Barak D. Richman, “Saving the First Amendment from Itself: Relief from the Sherman Act Against the Rabbinic Cartels,” Pepperdine Law Review, Volume 39, Special Issue (2013).
Full disclosure: I met Professor Richman while in rabbinical school, and he has been nothing but generous to me over the years when I’ve needed someone to explain some of the concepts I outlined in this newsletter. However, I have no particular opinion on the question of whether rabbinic placement constitutes an illegal monopoly (nor do I have the expertise to offer an informed opinion.)
Another interesting example of a rent-seeking force is local kashrut certification. I’m from Baltimore, which is fortunate to have a large number of kosher restaurants, many of which are pretty good. However, there are Jewish communities with a large kashrut-observant population that have far fewer options.
In this instance, the theory is that communities with a single kashrut authority can charge exorbitant prices for certification, making it no longer worth opening a business. The kashrut authority is rent-seeking by excluding other certifications from the marketplace and harming consumers by limiting their options.
However, to the best of my knowledge, this theory has also never been tested in court.
When these rabbinic associations had a large number of working rabbis and a consistent stream of new graduates entering the association, it was easier to maintain stricter rules around placement because there was a supply of the “product” people needed. However, as the number of rabbis retiring started to outpace the number of new rabbis entering the system, synagogues had greater leverage to challenge the rules and find rabbis outside of the system.
Brink Lindsey & Steven M. Teles, 16-17.
Image from Wikimedia Commons: Steven Khan - Own work, CC BY 4.0, https://commons.wikimedia.org/w/index.php?curid=142493333.
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