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Is Mankind Facing New Kind Of 'Malthusian Constraints'?

Iqbal Latif - 10/16/2007

We are facing 'Malthusian constraints' not as a result of geometric progression of population but as a result of too many demanding a middle class consumption level emerging from the lowest level of poverty. Non inflationary growth in the global economy is the key solution to impending problems of debt/liquidity when they arise. Leaderships in the growing countries should realize that: If the economy grows at least a fast as the debt grows, and inflation is low tax receipts shall grow in tandem with the growth of the debt.

Skeptical Optimist Steve highlights ' If interest payment growth stayed even with tax receipt growth, year in and year out, our grandchildren's debt burden would be no greater than ours is today.

Two things cause interest payments to grow: interest rates, and debt growth. Keeping inflation low and steady will help hold interest rates down. Debt grows steadily when we run perennial deficits—but tax receipts grow in tandem with the growth of the economy. Bottom line: If the economy grows at least a fast as the debt grows, and inflation is low and under control, our ability to make growing interest payments will increase at least as fast as our obligation to make those interest payments. '

If consumption continues to grow and global GDP sees multiplication of new consumers in commodity rich countries like India, Russia, Brazil and China being added every day we will see global ability to service their interest costs improve. Latin American debt crisis, Russian meltdown and Asian contagion all look far too distant but they were a threat to the global economy as recent as in the decades of 90’s, the only difference was the world economic balance had only one oasis of stability. The root of these crises also had one common denominator and that was poor commodity prices.

Earlier these countries were impoverished countries with their commodities dependent economies facing doom as world net consumer's post 2nd World war stagnated until around 1990 at 700 million. It is technological integration, falling of the Iron curtain and dumping of socialists’ nehruvian model that has seen new 2 billion prospective consumers on the global economic landscape since turn of the century.

We are not witnessing a challenge from absolute poverty but a challenge from rising expectations of new prosperous masses; we are facing 'Malthusian constraints' not as a result of geometric progression of population but as a result of too many demanding a middle class consumption rising from the lowest levels of poverty. This change of fortune is unprecedented in the human record of evolution like the ability and momentous change of ability of China to export.

China said that it had exported $878 billion worth of goods through the first nine months of this year, up 27 percent from its record shipments a year ago. According to Dinocrat ‘If China’s exports continued to expand at the same rate for a decade, they would nearly equal the size of the entire US economy, around $13 trillion.’ Perhaps such a growth rate is impossible, but these exports should be interpreted in context of serious transfer of wealth from consumers of the west to the poor workers of the East.

Chinese and Indian exports are not a zero sum game, they import commodities from countries that were at the lowest rung of prosperity, they turn these commodities into efficient products some may condemn them as toxic but insatiable demand of global consumerism is fulfilled by Chinese mass production. Imagine these demands being fulfilled by the costly labor from the west.

The poverty trap could not have been broken without all ships rising simultaneously, as if a hidden hand of 'providence' in this age of knowledge has worked miracles, the global prosperity unleashed is quintessentially lifting all boats. only the regions where tolerance and dankness reigns supreme are missing this blissful rising tide.

In this new economy of today we will not miss to forget people like ‘The Man Who Knew Infinity: A Life of the Genius.' Ramanujan his insights contain mysteries for researchers even today. Today India Infosys is icon of its intellectual capital; Indian intellectual exports will touch new thresholds and bring new prosperity. Ramanujan died of tuberculoses due to neglect he suffered in his childhood, today many a thousands of such prospects deaths are avoided as these geniuses are picked up by local versions of Goggles and Msft’s.

The west had taken lead in the service industry and intellectual capitalization whereas mass productions for needs of the entire planet have moved to places where it can be efficiently produced. . Poverty is the worst polluter and worst offender of human rights, it devoids mankind of basic human dignity and makes a human an apex of nature's creation sink down to animal kingdom. Slaves from West Africa were treated as animals, it was darkness of the continent and poverty that led them to that fate. Never again we should say, Greens may differ and may still hurl stumbling blocks by accusing corporates as abusive, however until other more beneficial arrangements are made eradication of mass poverty through free trade will lift fortunes far better. Free trade is removing inequalities and removing causes of mass revolutions.

Charles Dickens would definitely today find heart breaking stories of child labor and exploitation in the East but breaking from the shackles of extreme poverty nations need to find new markets We are lucky that the ‘inequalities’ that took middle ages England hundreds of years to address are now being self corrected. Without markets and consumers there is no prosperity possible, for China to have its indigenous consumer base it definitely needed export markets. The inequalities that 80’s posed were only possible to be addressed with the emergence of a new multiple system of consumers, the island of stability on which world economic balance hangs is now multi distributed.

Low labor cost prevalent in these new BRICs countries helps 'export' of price stability to western established economies. This in turn neutralizes the high cost of commodities that developed world is facing, however the developed world is far more productive and its ability to consume commodity at a very efficient pace is helping revive the global growth at a far higher pace. This is the first time in annals of human history that global pockets of poverty are receiving partial relief through a beneficial economic system. The 2 billion new consumers in the Brics countries are productive members of the society and they are not living on sub prime credit rather in most of these countries credit is rather too limited, credit is still tied in cement in mortar, most of Indian homes are all cash homes the system of mortgage is not well entrenched, once that is released new momentum will be witnessed in the global growth. On global level productivity and stable GDP growth will keep interest rates on a stable level, the era of bust and boom is probably gone, we are at the cusp of new prosperity. It is for this global nature of consumption that MCD had to revise its earnings momentum upwards. In not too distant future this rising unprecedented demand for food and energy shall only be met by new sources of energy.

Our world may have the ability to support 12 billion meagerly living hamosapiens but not with the huge carbon footprint of Mr. Gore the green new Noble laureate. If Noble Laureates want to live in huge compounds with what face they can tell a poor Chinese or Indian to cut his cosnumption,this rising prosperity would find sustainable energy paths through knowledge and research, these were the factors that helped destroy the myths of Malthusian scarcities, these factors and knowledge will once again come to humanities aid. The exponential nature of our growth patterns have unfortunately always been neglected by liberal intellectuals.