prosperity and true to form the
current bout of rising markets has contributed to
sharp increases in the prices of staples. I wrote
about this a few months back (3), arguing that
China will have to loosen its currency peg in
order to reduce politically sensitive inflation,
but clearly the export lobbies continue to have
greater success than people's deputies within the
Communist Party. Then again, recent events in
Burma (or Myanmar as the world's
communists and this
publication call it), where the normally stable
populace erupted after a long-term economic
decline that resulted in their purchasing power
plummeting to near zero, would probably help
change this equation for China.
For an
example of a country that keeps the voice of the
public above that of business lobbies, Asia
doesn't have to look further than India. By
allowing its currency to appreciate - the rupee is
now below the important 40 level against the US
dollar - the country has reduced the cost of food
imports, thereby keeping its populace happy.
Indeed, inflation in India is now at its lowest
(3.8%) in recent history even though food prices
are rising at over 7%. In India though, the rise
in food is led by fruits and vegetables rather
than meat-related products, and is a result of
farmers allocating more land to staples such as
wheat whose prices have been going up steadily.
The reasons for wheat prices rising have been
explained in "A quick aside" below.
Not
having adequate control on monetary policy might
be okay for the Americans and Europeans, but it is
distinctly not alright for Asians who still have a
century of economic growth ahead. The choices are
therefore to allow currencies to increase against
the US dollar, or look for alternatives that help
to constrain the demand side of the equation.
Asian central bankers do not have enough political
strength to put in effect the first alternative,
in effect leaving the second idea as the only real
path available.
A quick aside Perhaps a
quick view of the economics of meat would help
here. Cattle, pigs (livestock) and poultry raised
for their meat consume more food grains than
people do directly. Global livestock numbers
exceed the human population, which effectively
implies that the main consumption of food grains
is for raising meat. Rising demand for meat thus
has an exponential impact on the demand for food
grains, in turn causing inflation in food prices
across the chain.
Raising livestock causes
efficiency gaps in the food chain, due to the need
for sustaining life. Put simply, a calorie from
meat is produced at the expense of more than 4
calories from food grains. This clearly positions
the consumption of meat as a luxury good which
guarantees that the price of meat would be higher
due to associated costs. However, governments
across G7 have consistently provided financial
subsidies to farmers that are aimed at keeping
input costs low enough for them to make a living
from selling meat products, which is why Europe
has an interesting position of mountains of food
along with rising subsidies.
The
environmental impact of livestock is also negative
- for example, more than 60% of methane emissions
globally come from cattle. As I wrote in a
previous article (5), allowing a negative economic
good to be priced at zero causes the obvious
reaction of mispricing, which is observed in this
case as well as farmers around the world increase
their livestock due to rising demand for meat.
Alternative way out The way out
of this self-created mess is for the major G7
economies as well as emerging markets to turn the
clock back on meat consumption, in effect reducing
the demand for both dairy and meat products.
Fortunately for anyone grappling with the sheer
difficulties associated with propagating this
diet, there is a centuries-old religion that
stands ready to do just that.
Buddhism is
forever associated with the principles of
non-violence and kindness of human beings to each
other, as well as to other animals. Whilst not
prescribed as a basic principle of life in the
holy texts, Buddhists generally abjure meat. Their
pacifist principles are broadly applicable to
solving the most intractable crises in the world,
including those of the Middle East. The centuries
of debate between Buddhists and other religions,
including Hinduism, have produced more than
adequate philosophical sophistication in dealing
with intellectual challenges from the well-to-do.
Then again, people don't have to convert to
Buddhism to follow the principles laid out.
Accepting the religion or at least its
principles therefore carries with it a steady
decline in the demand for meat and related
products, which will help the US Federal Reserve,
the Peoples Bank of China and other central banks
to cut inflation expectations at home. In turn,
this helps to engender greater efficacy for
monetary policy. Given that markets love to listen
to the Fed chairman, perhaps it makes sense for
him to be the first to recommend the Buddhist way
of life, in some suitably informal chat - perhaps
a quiet word to Maria Bartiromo (5) would do the
trick.
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