Monday, December 28, 2009

The Haredi Pyramid Scheme

One interesting question about the Haredim is how they pay to live, given that so few of them work.

Apparently a pyramid scheme has been going on for a while

Few people know about the pyramids of haredi (ultra-orthodox) free-loan societies (Gma"chim), charitable funds which do not necessarily rely on generosity of donors (whose numbers have diminished in the past couple of years), but which answer the question: how do haredim pay for the apartments that they buy for their large numbers of children.

To obtain money (tens of thousands of dollars) from a free-loan society, partly as a loan and partly as a grant, the average haredi borrower puts aside a much smaller sum (a few dozen dollars) toward the free-loan society when a child is born or shortly thereafter. In this way, money coming in from young parents immediately goes out to older parents who have to marry off a child. With the haredi population's impressive growth rate (about 6% per year) the model has worked marvelously as the pyramid has a growing base.

Of course, all pyramid schemes eventually fail, and the people at the base really get it socked to them. According to the people over at Vos iz Neias, the s**t is about to hit the fan here, thanks to the convergence of a whole bunch of factors. These factors include:

  1. Child Allowance Cuts-The last time the non-Haredi public rebelled was in the 2003 elections, giving 15 seats to the secularist Shinui party. One of the biggest measures they got done was on the financial side in terms of child allowances. See, before May 2003, the government gave far, far larger allowances per child to those families with more children. These families were pretty much all either ultra-Orthodox or Arab. However, whoever it was, this was still an obscene policy. Back in 2003 before the initial cuts, a family with one or two children got 146 Shekels (at the time, about $30) in child allowances per child per month. A family with 8 children, however, got 508 shekels (at the time about $106) per child per month. The law has gradually phased that out. Today, any additional child born after 2003 causes a family to get a flat additional 159 shekels per month, while the rate increases for pre-2003 births have flattened.
    This hurts the Haredi pyramid scheme on two levels.
    • Less Money Coming In-Of course, they could start working (and will have to do that or starve eventually), but that hasn't had that much of an increase yet; the result is less available cash
    • A decrease in birth rates-Mind, they are still very high, because they still refuse to use birth control or condoms or abstain from sex, their reading of the Oral and Written Torah forbidding such things. However, the number who work is still quite low. Only about 40% of those between 20 and 60 in Beitar Illit and Modi'in Illit, two ultra-Orthodox cities right across the Green Line in the West Bank. In Hadera, a secular city, over 80% of those between 20 and 60 work. And 30% of Haredi men work; the women work in addition to dealing with all of the kids. Mind you, the growth rate is still EXTREMELY high. The Bank of Israel's recent study on fertility and child allowances found that ultra-Orthodox women had a fertility rate of 7.5 in 1996-1999, 7.24 in 2001-2002, and (after the allowance decreases) 6.74 in 2006-2007.

      Mind you, my own Jewish great-great-grandparents back in the old country (although all my great-grandparents were born in Europe [one in France, though his parents were born in the Pale, and the other 7 in the Pale of Settlement] I believe a few of them had more children here) also had a very large number of children, at least the four who I know for sure brought their entire families over here. But that's for another post, and at any rate, back when they were born, it was not always clear how many children would survive, and of course the world was less populated. Also, they all worked for a living, or at least one of them did.
  2. The Economic Crisis-Since some of course do work, it's hitting Haredim as well, and those ones have less to give communally
  3. Housing Prices-Housing Prices in many places are high

Anyway, apparently it's coming to a head now.
It is good that it is happening now, because the longer it takes to occur, the more screwed the state of Israel will be.

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