The China consensus

One of the great fallacies of progress is that it marches forward by consensus. It's often thought that when a consensus is found on a particular problem, so is the answer. History quickly dismisses such simplicity.

The great breakthroughs in any discipline have been established by heretics who have challenged consensus. Was it consensus that lead to the theory of evolution, the idea that the earth revolves around the sun, or to modern physics? No. It's the outsiders, rather than insiders, who make progress possible.

So whenever an argument becomes one-sided, it 's always a good idea to pay attention to the other side. This is not an argument for being blindly contrarian; sometimes, the experts who form consensus have it right. But, at the very least, opposing views should be considered, even encouraged.

Few things in economics are as agreeable today as the idea that China invests too much. It's something that we, at Intelligent Investor, have commented on. And it's an idea that has a lot of support in political, commercial and investing circles. Almost everyone agrees that too much of China's saving winds up as fixed capital investment. The result of this is wasteful, unsustainable investment and low domestic demand. It's a strong argument.

The Economist, however, recently took it on in an engaging blog. You can read the article here. Like all good contrarian arguments, it made me think again. Is it still knowledge if you thought you knew something and then decide you don't?