Joseph had a dream, and when he told it to his brothers, they hated him all the more. He said to them, “Listen to this dream I had: We were binding sheaves of grain out in the field when suddenly my sheaf rose and stood upright, while your sheaves gathered around mine and bowed down to it.” – Gen 37:5-7
I was reading Genesis just yesterday and came to the part where Joseph interprets Pharaoh’s dreams (see Gen 41). Pharaoh had two dreams with the same interpretation. First there were the seven fat cows devoured by seven skinny cows, then the seven fat heads of grain devoured by seven skinny ones. The interpretation: there would be seven years of plenty in the land of Egypt, followed by seven years of famine.
You know the story. Joseph is put in charge of all of Egypt, stores up food from the seven good years and feeds the people through the seven years of famine. During the famine he is reunited with his brothers (who had sold him into slavery) and his father, and he explains to his brothers that what they had intended for evil, God had used for good, rescuing the lives of their families.
It appears that there could be some “years of famine” coming, following the years of “plenty” in our time as well.
The crisis in Europe is getting particularly nasty these days, especially if you consider Greece. I’ve seen several articles lately that do not paint a pretty picture. For instance, the Daily Mail is reporting that Greek children are being dumped in the streets by parents who can’t afford them anymore. It is an ugly story. If you have kids, put yourself in that position, and find out just how crushing your emotional reaction is to the mere thought of dropping your kid off at an orphanage because you can’t afford him or her anymore.
The story also notes (as does this one) that Greek pharmacies are running out of aspirin. You see, the Greeks have government price controls on drugs, including aspirin. In order to “help” people they keep prices low, which is driving them into shortages. (Even more nefarious, there is apparently a trivial scam in which one can sell aspirin to the Greek pharmaceutical system, and then ship it outside of the country and get paid twice for it. It is illegal of course.)
Now, are these difficulties as bad as the famine in the days of Joseph? I doubt it. Of course, we haven’t seen the end of this crisis.
I’ll tell you another dissimilarity between the European financial crisis (which will no doubt have global ramifications) and the Egyptian famine of Genesis – the financial crisis is 100% man-made. There were no crop failures that led us here. There was no drought that resulted in a massive drop in the Earth’s ability to sustain crop growth. To my knowledge there was no major drop in production of any natural resources that we use in our lives. The crisis was a 100% human concoction.
And what was the source of the crisis? Greed? Sure. the “Rich”? Sure. Human ignorance? To be sure. But what was the mechanism? Well, there are several facets to consider.
First there was the banking system itself and fiat currencies including (and this is important), credit denominated in those currencies. People put money in the banks, the banks leverage up and lend it out “lending money into existence” and use the ability to print more money on a whim as their backstop against failure of their leverage trade. Instead of free people making wise choices with their own capital, they now have to chase after an increasing money supply and governments/banks that are “picking winners” at every turn. Eventually this leads to misallocation of resources which has to be unwound – and the longer it goes on the more painful it becomes.
On top of this, particularly in Europe, we lay the backdrop of governments that spend far more than they take in (borrowing into the same “house-of-cards” credit system for the overage). They do so for a number of reasons: they want to do more than they are able and have little restraint on their efforts, they want to buy votes with giveaways to their constituents, and they have little doubts about their own brilliance, superiority, and benevolence. This leads to a population more focused on what it can get from the government (who, again, “picks” winners) than what they can do for themselves. Such a condition in the population only turns into a feeding frenzy when things get bad, with each party demanding that cuts, which they acknowledge must happen, must not be applied to their benefits. (“My neighbors can afford to pay more to keep me in the life to which I have grown accustomed.”)
These two failure mechanisms exist for a simple reason. The first exists to transfer money from the poor and middle class to the rich and politically connected. The second exists in part for the same reason, but also to keep the poor and middle class mollified with bribes, hush money, and any number of “straw men” to deflect their anger.
This is the crisis that Greece faces. They have borrowed way more than they can afford to pay benefits to various political classes. The currency system is in collapse (with Greece leading the charge) and the cuts are being resisted at every turn.
It is totally, completely, and in every other way a man made problem – a problem that the Europeans (and Americans for that matter) have brought on themselves.
And what is the way out? Well, there isn’t a painless way out. Even in Joseph’s day the crisis wasn’t painless. The famine hurt a great deal but the people survived, and that was the important thing.
For us, I think survival is important (and probably not that difficult – again, this crisis isn’t as bad as the Egyptian famine). But how do we go forward and keep this from happening again? Well, the simple answer is to dismantle the mechanisms that caused it in the first place. Dismantle the fiat currency system and return to the gold standard (or pick some other not-easily-manipulated store of value). We’ve argued in the past that the fiat currency system is a great evil: “Just Weights and Measures … and Money” and “The Only Color They See Is Green“.
I don’t at all think that the government needs to be dismantled, far from it. But it does need to have its power constrained so that it cannot use taxpayer funds (or borrowed funds for that matter) to bribe constituents and political crony classes. One idea would be to construct a document binding the government to specific limited powers and not allowing it to exceed those powers given to it in the document. Boy, that would’ve been a good idea – wish we could go back in time and convince the founding fathers to do something like that …
But seriously folks, the next time you see talk of “contagion” of the sovereign debt crises, people out of work, and stories about how children, the poor, and the elderly are suffering disproportionately – remember what caused this mess in the first place. This is a man-made problem. The system is built on graft. The people who are suffering these painful consequences are often the people who have the power to vote for something better (except the children, of course). And we hope they do so in the very near future.