What Have We Learned in the Past 4,000 Years?

I recently had a dream.  First, I saw seven fat and joyful office workers, but then seven emaciated office workers came up and ate the fat ones, yet remained sickly and thin.  Then I dreamt of seven beautiful new Teslas, but there, in front of my eyes, they were replaced with seven 1980s Ford Escorts.  I am not exactly sure of the meaning of this dream, but I have some ideas.

We Americans have become accustomed to living in incredible luxury and wealth, which is great, but we need to realize part of the trade off of living in a (mostly) capitalist economy is that we tolerate some economic insecurity in exchange for greater overall growth. There are many boom years, but there are also bust years. There are years where money flows freely and times where finances are tight.  We know this.  We can look back and easily see the trend.  With this knowledge, why on earth do we live our lives like there are only good times ahead?  “Refinance the house honey, I’m goin’ shopping!  We can pay off the loan over the next 30 years with my secure union factory job.”

Knowing that there will be times of difficulty ahead, it would be incredibly short-sighted to fail to prepare for the downturns.  Yet, most of us live completely oblivious to the fact that the good times that we are in today will become difficult in the future.  According to a recent Federal Reserve report, fewer than half of American households could withstand a three month income disruption without having to sell belongings or borrow money.*  

I recently was reminded of the story of Joseph in the Old Testament:  He interpreted the pharaoh’s dream of seven fat and seven thin cows to mean that there would be seven years of plenty followed by seven years of famine. In order to prepare for the upcoming famine, Pharaoh said 20% of the crops yield should be saved from each of the years of plenty so that in the seven years of famine they would have enough food to survive.  Knowing that there are cycles in crop productivity but also in economic health, I think Pharaoh’s savings rate makes sense. In years that you are financially healthy, you should save at least 20% to help you survive in the years of financial difficulty.

During the seven years of famine, not only did Egypt survive, but they also made a handsome profit.  Because the famine affected many unprepared people from surrounding countries, the Egyptians, specifically Pharaoh, were able to sell food to these desperate people.  Think about the similarities in our current era.  When there is an economic downturn, people who are unprepared lose cars, houses, and other assets.  Those who are prepared- usually people who are already wealthy, are able to purchase assets from the financially unprepared at rock bottom prices.  Wealthy institutions and individuals put themselves in a position to increase power/wealth while the financially unprepared become poorer and more indebted.

In the biblical story, people had to trade their animals, belongings, and finally land in exchange for food.  They even sold themselves as slaves to Pharaoh so that they could eat.  After the famine, people farmed the land that had been their property, but now, Pharaoh owned it and they had to pay 20% of their crops to use it.

Digging deeper into lost books of the Bible, I found this part of the story from a few years before the famine in Egypt:  Zebulun sayeth, “Issachar, wilt thou cometh with me to buy a new ass cart? I have traded all my grains for the newest 2016 BC model.  I shan’t be burdened by this grain, as the Lord will surely bless us with bountiful harvests indefinitely.  My favorite wife shall be overjoyed with this stylish outward sign of wealth and abundance.”**  I couldn’t find much after that, but I don’t think it turned out too well for him during the famine a couple of years later.

Recently, the homeownership rate has dropped to a 48 year low, after hitting a high in the boom years a decade ago.  During the economic downturn, some Americans had to give up their homes, and others, who have wanted to buy, haven’t been able to qualify for a mortgage because of credit blemishes or because the prices shot back up before they had the savings built back up.  

As our modern economy continues to roll on, the wealthy prepare themselves for the economic cycles.  The majority of people remain stagnant, staying happy and spending like there will be no more famines.  When recessions come, many people end up having to borrow at high rates, sell themselves as wage slaves for longer than they had planned, or lose their property entirely.  All this sounds familiar…

I often hear mainstream finance types say to save 10-15% of your income.  This sounds much too low, but maybe they are setting the bar low because they have a realistic view of what the average American actually saves – which is almost nothing.  

But please, for your own sake, don’t be like Zebulun and his flashy favorite wife.  Save at least 20% of your income.  I don’t want to find out you had to sell your belongings, land, or kids to the Pharaoh during the next economic downturn.  I don’t want to find out we have learned nothing in the past 4,000 years.

* Federal Reserve Economic Well Being Report

** My biblical analysis should not necessarily be considered reliable.