Tuesday, March 10, 2009

Does China Need A Blizzard?

Or does China at least a new round of blue ear disease among pigs? What kind of absurd question is that you may think? But it is not absurd if you are an adherent of the non-Austrian view on price deflation, which are always considered bad, indeed not just bad, but it is the worst possible calamity, something which should make us "abandon all hope" according to one well-known columnist.

In 2008 China had a temporary spike in price inflation, related not just to high money supply growth and the global commodity price boom, but also negative supply shocks like a severe blizzard and blue ear disease among pigs. That latter factor had a greater impact on the Chinese consumer price index than it would have had in other countries, because pork is something of a staple food in China.

This year, there have no outbreaks of blue ear disease among pigs, and while there have been blizzards, none have been as severe as the one China suffered from last year. The result is that the Chinese consumer price index fell 1.6% in the year to February, led by a 18.9% decline in the price of pork.

Since we don't want the Chinese to "abandon all hope", then any good Keynesian would at this point hope for a new severe blizzard or outbreak of blue ear disease among pigs, so that prices can again start to rise.

The Chinese however doesn't seem to agree with the Keynesians, as car sales started to boom during the period when consumer prices fell, in sharp contrast to the big declines in most countries where the CPI rose during this period. That hardly indicates that they have abandoned all hope.

So who should we believe? The Keynesians or the Chinese? I am personally more inclined to believe the Chinese.....

3 Comments:

Blogger HellKaiserRyo said...

I suppose a blizzard would be excellent for those people whose pigs aren't killed by it. It reduces the supply of other competing pigs, and allowing you to get a higher price for it on the market. Of course, such a scenario is probably a zero-sum game.

3:02 AM  
Blogger stefankarlsson said...

It's not a zero-sum game since the total supply of valuable goods (pigs) is greater. For that reason, the gains for consumers and farmers with pigs that aren't killed will exceed the losses for other pig farmers.

11:20 AM  
Blogger Heng Wang said...

An interesting thing is the former China No.1 Richest guy who ran a top website in China (NTES on Nasdaq) has decided to invest RMB 100m to start a pig farm recently.

10:06 AM  

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