Looking at the desperation with which opponents of climate science, and of sensible policy responses such as Kyoto, are holding on to positions that have clearly become untenable, has prompted me to think about my own views on a range of issues, to see whether I am holding on to beliefs that can’t be sustained in the light of accumulating evidence.
The most obvious problem for me is that of continued macroeconomic stability in the face of trade and current account deficits driven (or so it seems) by speculative asset price booms. I’ve long argued that such deficits can’t be sustained and that neither Australia nor the US is on a path to a smooth adjustment. However, while deficits have continued and, in the case of the US, grown steadily, evidence of anything but smooth adjustment is certainly thin on the ground.
The rapid growth of China, and the apparent willingness of the Chinese government (and maybe also the public) to hold low-return $US assets and to buy large quantities of commodity exports from Australia has rendered previous projections largely irrelevant. While the “Bretton Woods II” story that emerged a couple of years ago seemed implausible to me, it has held up pretty well so far.
While I’m not ready to join the optimists just yet, it’s clearly necessary to rethink the implications of a Chinese economy that is already a substantial part of the global total, and growing rapidly.
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