Tuesday, July 08, 2008

Blood, turnip, onion 

Two thoughts tied together by root vegetables and a little Biblical observation:
  1. The Tax Foundation has a new study out showing that the amount of income transferred from the top 40% to the bottom 60% in America by the federal tax system exceeded $1 trillion in 2004. The Obama plan would take an extra $131 billion from the top 1% and redistribute it to the other 99%. As Shaw once said, the robbing of Peter to pay Paul will always have the support of Paul. And it isn't like the middle fifth already has had some tax breaks. (Data.)

    Of course, some would like you to think wealth is all relative, that you cannot be happy if some others' gains are more than yours. Others focus on your absolute change in living standards over time. What would Jesus shrug? "A sound heart is the life of the flesh: but envy the rottenness of the bones." (Proverbs 14:30)

  2. Lots of people writing about onions today after this article in the WSJ, as well as in Fortune last week. In short, the loss of a futures market leads to more volatile prices rather than less and is very shortsighted in resolving our current issues with oil prices. The onion futures market is the object of the discussion, as it was banned fifty years ago. Courtesy Alex Tabarrok, I skimmed this paper from a 2005 NBER conference which shows the history of opprobrium heaped upon speculators. And yet even in the first book of the Bible there was speculation. If you saw "Joseph and the Amazing Technicolor Dreamcoat", it's in the second act. Pharoah has had a dream in which seven gaunt cows devour seven fat ones, which Joseph interprets as the feast-famine cycle. (Genesis 41.)
    48 Joseph collected all the food produced in those seven years of abundance in Egypt and stored it in the cities. In each city he put the food grown in the fields surrounding it. 49 Joseph stored up huge quantities of grain, like the sand of the sea; it was so much that he stopped keeping records because it was beyond measure.

    53 The seven years of abundance in Egypt came to an end, 54 and the seven years of famine began, just as Joseph had said. There was famine in all the other lands, but in the whole land of Egypt there was food. 55 When all Egypt began to feel the famine, the people cried to Pharaoh for food. Then Pharaoh told all the Egyptians, "Go to Joseph and do what he tells you."

    56 When the famine had spread over the whole country, Joseph opened the storehouses and sold grain to the Egyptians, for the famine was severe throughout Egypt. 57 And all the countries came to Egypt to buy grain from Joseph, because the famine was severe in all the world.
    You might argue, I guess, that Joseph was kind and gave away the grain, and he did, but later he trades grain for the entirety of the flocks of the people, acquires land for Pharoah, and gives them seed and collects a 20% tax. If you're a student of economics, try drawing the supply curve for grain in Egypt in Joseph's time for the seven fat years and the seven gaunt years, both before an after Joseph's speculation in the grain market. What differs between this and the action of onion futures traders? Oil future traders? (This example inspired by a question in Heyne, Boettke and Prychytko.)