I largely agree with co-blogger David Bernstein that today's Israeli elections were a setback for free markets. However, the magnitude of the setback may not be as great as David and others suggest. Yes, the relatively pro-free market Likud lost seats, while various socialistic parties did better than expected. However, much of the former Likud vote went to Avigdor Lieberman's right-wing Yisrael Beitenu Party (which won 12 Knesset seats compared to Likud's 11), and Lieberman is a strong supporter of free market "Thatcherism."

Overall, Jewish parties to the economic right of Prime Minister Ehud Olmert's centrist Kadima Party (28 seats), won 32 seats (12 YB, 11 Likud, 9 NU/NRP), while those to the left won 31 (20 Labor, 7 Pensioners, 4 Meretz). It is true that the Shas Party's (13 seats) main goal is to increase transfer payments to its constituency (highly religious Sephardic Jews), but they do not usually take strong positions on broader social and economic policy issues, and have in the past joined coalition governments that promoted privatization. Obviously election results do not perfectly reflect voters' policy preferences, and many voters are in fact ignorant of the details of party platforms. But, in and of themselves, I'm not sure these results really do reflect a tidal wave of Israeli sentiment for socialism, though they certainly don't bode well for free markets.

Much will depend on which other parties Olmert decides to invite into his coalition government. He needs 61 seats to form a government, which means that he will have to round up enough coalition partners to add at least 33 seats to Kadima's 28.

UPDATE: I may have been too quick to describe the NU/NRP party as "to the right" of Kadima on economic policy. Their platform, available in English here, places little emphasis on economic issues, but supports mostly statist policies (complete with left-wing code words such as "social justice" and "exploitation") where it does mention them. It's not clear whether NU/NRP's policies on these issues are much different from Kadima's and it is still possible that NU/NRP would support a less statist policy than Kadima would in the highly unlikely event that they get to join a coalition government. But they are certainly not pro-free market in the way that Likud and YB are.