This month has witnessed a radical change in the tone used in defence discourse. It was triggered by a new paper by Professor Ross Babbage, calling upon Australia to completely reconfigure its defence strategy in order to deter China, or in his previous parlance, to prepare to “rip an arm off” China. The paper called for: the purchase of 12 nuclear powered Virginia-class submarines, instead of the locally-made conventional submarines currently planned; increased cyber-warfare capabilities; the acquisition of ballistic and cruise missiles with 20 “arsenal” ships to fire them; the reconfiguration of the army to perform long-range strike missions; and, most importantly, to increase the number of US military bases in Australia.Sponsored Ads
Defence hawks flocked to the idea. The Australian’s Greg Sheridan proclaimed it: “one of the most important, deeply considered and logically compelling strategic documents ever seen in Australia. It should be the starting point of a broad national debate.”
The rosy forecasts might be right, but they could be equally just as wrong. Extrapolation of the past says that 2011 is going to be a good year. If the world economy decides to “revert to the mean” in 2011, then 2011 will be a lousy year. The real question is – when will the “revert to the mean” process start? Could it start in 2011?
Currently, Europe is shaky. The U.S. economy is not great but it’s growing slowly. China has a massive real estate bubble which could cause significant problems if it pops. Japan is shaky.
What does all this mean?
It means that we are not out of the woods yet, economically speaking.
Friedman’s lesson isn’t that forecasting is impossible, but that the best prediction is usually the basic assumption that prices and growth rates will go back to their historic averages, or in economic parlance, “revert to the mean.” What’s difficult is guessing when that will happen. Indeed, the timing is truly unpredictable. But it invariably does happen.