In my last two blogs on the famine in Egypt, I discussed what this story has to teach us about the need to save for the future and how we form our expectations about the future. In this final blog examining Joseph’s governorship of Egypt (Genesis 41-47), I consider whether saving for the future is a responsibility of governments or the private individual.
Let’s start by envisaging the hypothetical situation that Joseph consults a panel of economists before proposing his plan to Pharaoh.
A free market economist might suggest that government intervention in the crisis should be minimal. People can be trusted to make their own choices. Joseph should therefore make sure everyone was made aware of the prophecy (and in a highly religious society where the Pharaoh was held up as a god, most would have believed it) and had the opportunity to make their own plans for the future, by storing up sufficient grain during the years of abundance.
At this point, Joseph turns to a left-thinking economist and receives altogether different advice. The security of the food supply is so vital that a centralised approach should be adopted where the government manages the grain market directly, dictating how much is produced, stored and consumed and by whom. Joseph should work out the total expected supply of grain over the 14 year period and then calculate an affordable ration so that every person would have enough to eat during the seven year famine.
At first glance, we might assume that Joseph took the advice of the second economist. Joseph certainly took a centralised approach but he only actually took control of a fifth of supply (Gen 41:34), even though in absolute terms that was a lot of grain (41:49). That’s 20% taxation – a low rate even in modern capitalist countries. The remaining 80% of the harvest was left to the private sector to manage. Moreover, Joseph doesn’t appear to have rationed the grain. He sold it, initially in exchange for money (41:56-57)and later in exchange for livestock and land (47:14-19). The story indicates that this policy bankrupted the entire private sector of Egypt leading to full nationalisation of all the country’s assets (47:20-22).
This story suggests that the state has an important role to play to rectify market failure. Market failure is a situation where free markets do not lead to an efficient allocation of resources and is therefore a primary rationale for government intervention. In this case, the market failure is myopia and the miscalculation of risk on the part of individuals. In other words, despite hearing the warnings about the forthcoming famine, individuals and households did not smooth out their consumption effectively in expectation of the downturn. This situation is observed in Canaan, where there was no strategic response, and the people were forced to turn to Egypt for help. Jacob, for example, had not planned for the famine and therefore he sent his sons to Egypt to buy grain (42:1-2).
A modern example of this type of market failure is the issue of pensions. Although we all know that there will come a time when we will want or need to retire, for many of us that seems like a long way off and we don’t bother to calculate properly how much we need to set aside in savings or pension contributions until it’s too late. Therefore, to avoid the situation of destitute senior citizens, our government intervenes to ensure that everyone has a basic income (i.e. the state pension). The recent financial crisis also demonstrates how private individuals are vulnerable to risk. When we deposit our savings in a bank, we do not foresee that the bank will collapse so that is why, at huge cost to the taxpayer, the government stepped in to rescue the banks and guarantee people’s savings.
One problem that can be created when governments intervene in markets is referred to as moral hazard. Knowing that the government will always bail them out, people have an incentive to act rashly and not take personal responsibility for their own welfare. This certainly occurred during the banking crisis, where banks had the incentive to take huge risks for a high return in the knowledge that governments, acting in the public interest, would not allow them to collapse.
However, the suggestion in Genesis is that Joseph’s policy got around this moral hazard problem quite effectively. Despite significantly intervening in the grain market, Joseph by no means took control away from the private sector or caused people to become reliant on the state. As well as the 20% of the harvest that went into the common purse, there was nothing stopping people from “topping up” those reserves by storing some of the 80% that was theirs to keep (just like the promise of a state pension should not stop us also purchasing a private pension). The suggestion is that most did not do this but perhaps they should have done if they were responding rationally to incentives. When the famine hit, there were no government handouts. Households had to buy the reserves.
Genesis does not tell us about Joseph’s pricing strategy for selling the grain nor does it tell us what happened when any given family became destitute and had nothing left to exchange for grain. However, it is clear that people had to incur a private cost in order to get their hands on the grain.
So what are the lessons we can learn? At a policy level, every unique problem requires a unique response so I don’t believe that Joseph’s handling of the crisis in Egypt should be applied directly to contemporary issues. Nevertheless, the following points come to mind.
Firstly, government is a necessary and vital sector of society. The story of Joseph shows us the important role that a powerful government can play in ensuring the welfare of its citizens. In countries (such as Canaan) that did not have a civilised government structure, there was no way that such a programme could have been organised on such a large scale and, without the aid of Egypt, the famine would have killed many people. There are many problems that, even with the best intentions, individuals or community groups cannot resolve. The current policy in the UK of increased localism and reduced central control should be undertaken with caution. It is important that the government does not absolve itself of responsibilities that require a strategic and consistent national approach.
Secondly, personal responsibility is also important. The level of Joseph’s intervention was relatively small. Joseph ensured security of supply without taking over the market entirely. People still needed to work hard and generate wealth in order to acquire the resources for survival. This suggests that, even in the midst of crisis, the economy should be run in such a way that hard work and profitable investment is rewarded and the government acts more as a safety net rather than the principal provider.
Thirdly, governments exist to serve the people. Even though Joseph was hailed as a hero, arguably the main beneficiary of his programme was himself. Joseph ultimately extorted the entire wealth of Egypt and many of the surrounding countries for Pharaoh, in the process securing a comfortable life for himself and his family. This seems particularly pertinent today as the current Middle East crisis is exposing and bringing down governments that have essentially been self-serving for generations. I wonder how today’s enlightened Facebook generation, which successfully toppled Mubarak from his comfortable position of power, would have responded to the Joseph administration.
Next time I will be moving on to Exodus and the establishment of the nation of Israel.
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