Personally, Henry would give Simon Crean a shot at the top job.  He is a team player, a second-generation Labor stalwart and safe hands. He is far more likely to limit the damage at the next election, and his transparent honesty and lack of guile would possibly limit the electoral damage more than Ms Gillard or Mr Rudd.

I don't expect this gratuitous advice to be taken, or even considered carefully, but that just shows the depths to which a once-mighty party has sunk.

Economy.

'There are a lot of people hurting out there' one of Henry's more reliable sources of opinion from the real world of opportunity shops, people working part-time in poorly paid jobs battling to find a half-decent house to rent and to pay the rent when they do.

Gary Morgan has two startling headlines today.

2.21 MILLION AUSTRALIANS UNEMPLOYED OR UNDEREMPLOYED – HIGHEST EVER RECORDED.

UNEMPLOYMENT AT 10.3% – A RECORD 1.28 MILLION AUSTRALIANS LOOKING FOR WORK

A rise in youth unemployment in January is normal, as is a rise in total unemployment.  But the numbers this year are large, indeed set new records.

Gary Morgan says: “The rise in youth unemployment is occurring alongside the broader trend of rising unemployment — which has now risen in six out of the last eight months from a 2011 low of 818,000 in May 2011 (up 460,000 in eight months) — unemployment has now reached a record high of 1,278,000 (10.3%). This is the highest ever recorded Roy Morgan unemployment estimate in Australia. Additionally, a further 934,000 Australians are employed part-time but looking for more work. Incredibly, this means a record high total of 2,212,000 Australians (17.8% of the workforce) are either unemployed or underemployed'.

This helps to explain the unpopularity of the current government, and also why there has been no wages breakout.

The case for another cut to interest rates are supported both by the polling (political and economic) and the anecdotes, but we must wait for the Reserve to pronounce its verdict at 2.30 pm on Tuesday.

Henry's regular column will appear here and in the Oz on Tuesday morning.

Meanwhile, Thursday's blog will help set the scene. 

But what does it mean for our investment portfolios?

Investment markets -Twenty-one reasons to be bullish equities - provided by a reader, written by a highly experienced market man

1. Central Banks globally are forcing savers to take a risk if they want a return higher than inflation
2. The RBA is in a rate cutting cycle
3. The FED has promised 3 more years of free money in the US
4. US M2 money supply is at a record high
5. The ECB is finally starting to act like the Fed, despite Germany’s protests
6. Chinese growth is reaccelerating ahead of a change of Premier later this year
7. All Chinese data is beating low expectations
8. All US data is beating low expectations
9. Europe is considering relaxing Bank capital rules (i.e. allowing gold, blue chip equities and MBS to be held as Tier 1 capital)
10. European banks are being recapitalised by LTRO (2nd trance 29th of Feb will be swamped)
11. European sovereign yields are tumbling
12. Wholesale bank funding costs are FALLING
13. Junk bond yields are falling
14. The US housing market is showing clear signs of bottoming (very important)
15. US car sales are rocketing
16. US natural gas prices have collapsed due to the shale gas revolution (this will also lower Oil prices globally)
17. Global manufacturing is recovering
18. Industrial Commodity prices are recovering
19. M&A is accelerating globally and locally
20. Facebook is worth $100bil
21. Brokers are culling staff (the broker hiring/firing cycle is the best contrarian indicator on earth).

Risk is well and truly “on”, but risk remains historically cheap.

Image of the week - is Chris Judd Cameron Ling's security detail?

 As circulated via the internet

One especially unfortunate fellow in the UK has lost his knighthood as well as his bonus - not so surprising as his bank had required bailout and is currently 80 % (if memory serves) owned by the British government.

Expat Aussie bankers are coming home in droves, or hoping to find a suitable hometown roosting place if still employed.

Equity prices have been buoyant, despite angst and uncertainty over the Eurozone crisis, the slowness of US recovery and questions about the degree to which China's economy is slowing.  This 'disconnect' must surely be resolved soon.

In commodity markets: oil has slumped to a six week low 'on weak demand'; gold futures hit an eleven week peak following Ben Bernanke's comments that interest rates would stay low until 2014 and plus a lecture on the need for faster action to improve America's fiscal position; copper futures slumped overnight with those stern words from Federal Reserve Chairman Ben Bernanke plus a looming US employment report spooked some investors out of the market.

A series of  further good news and bad news reports weighed on equity markets as investors struggled to agree on a coherent story about the global economy.

'CHINA is considering deeper involvement in the eurozone's bailout funds, Chinese Premier Wen Jiabao said overnight, the strongest public indication yet China may marshal its massive foreign exchange reserves to help alleviate the continent's sovereign debt crisis.

'But he fell short of offering firm commitments to increase China's investment in funds intended to bail out heavily indebted eurozone countries, and also stressed Europe needs to address its own problems.

'China is considering "involving itself more deeply in" the efforts to address the crisis through channels like the European Financial Stability Facility and the European Stability Mechanism, Mr Wen was quoted as saying by state media.

'Freight rates hit a record low overnight on weak [Chinese] demand for iron ore, poor weather conditions in mining regions and a glut of shipping capacity.

'The Baltic Dry Index, a composite of commodity shipping costs around the world, fell for a 32nd consecutive session to 662. The previous low, of 663, came in December 2008, during the depths of the credit crunch.

'But unlike the one three years ago, this slump reflects more than a sluggish global economy.

'A conflation of seasonal, environmental and demand-side factors accelerated the index's decline in recent months and could tip it further into the red. The index has plunged 59 per cent this year alone and is down 94 per cent from the peak reached just before the crisis hit.

'More than anything, this collapse "is due to excessive supply of ships and shipping capacity," said Beethowen Nepomuceno, who is responsible for ocean transport at commodities-trading company Cargill's Sao Paulo's office.

'LEADERS of 25 European Union governments agreed yesterday on what some billed as a historic pact to move to closer fiscal union and signed off on the details of a permanent bailout fund for the eurozone - yet Greece's looming debt restructuring threw a shadow over the summit.

'The leaders discussed Greece but gave no more clarity on the eventual outcome of an issue that was yesterday creating growing nervousness in financial markets.

'In a joint statement, the EU leaders noted "tentative signs" of economic stabilisation in Europe but said financial market tensions continued to weigh on the economy.

'The final shape of the deal to reduce Greece's debt is still unknown after months of wrangling between the Greek government, representatives of bondholders, and officials from the EU, the International Monetary Fund and the European Central Bank'.

As a result, she expects the Aussie dollar to remain high, a judgment that markets promptly endorsed as the dollar kept on rising toward its current temporary equilibrium of around $US1.10.

Great news for outbound tourists, who are behaving like fruit bats leaving the Botanic Gardens in the evening - did someone say 7 million in 2012?

Horrible for inbound tourists, for manufacturing exports, for overseas enrollments in our universities and for jobs in these and various other non-mining industries.

At the same time, the 'first crack' in the mining boom has been detected as BHP Billiton begins to look closely at its nickel production.

With totally inappropriate timing, 'unions plan equal pay expansion after landmark Fair Work Australia ruling'.

And Dick Warbuton, veteran captain of industry, says Fair Work Australia has taken our IR system to a pre-Keating state.

'AUSTRALIA is getting back to the "bad old days" of industrial relations problems, according to the executive chairman of Manufacturing Australia, Dick Warburton.

'In an interview with The Australian, Mr Warburton, who is now heading up a new lobby group of some of Australia's biggest manufacturing companies, hit out at the Labor government's Fair Work Act and Fair Work Australia, which he said were giving unions the same power as they had back in Australia's strife-torn past.

"We are back to the bad old days," he said. "The government has taken much of the industrial relations laws back to the pre-Keating days. We are seeing much more union militancy and more industrial disputes. We are seeing fairly punishing penalty rates for small business."

This year will be pretty horrible for non-mining industries and small businesses of all kind.

Further rate cuts will relieve pressure on households whose members have secure jobs, but cannot do much to help people who lose their jobs or struggling companies gererally. Ditto the current (very welcome) fruit and vege price war.

This crisis has a long way to run yet, and will end badly if the 'China story' has mother bear eat Goldilocks rather than the benign ending we all learned at our parents knees.  The happy ending is being recycled in Australia's press at present, but Henry advises readers to tread carefully.  Storms excite the animals, and are said to upset mother bears in particular.

Here is another view on China, curiously our least-read blog in years.

Courtesy The Australian

But it has been alleged that he is a naysayer with no interest in the economy, which (acknowledging my inherent conflict) is the foundation for many of the things that make a nation great.

These allegations are simple balderdash, but any sensible person, even fair-minded Labor voters, should abandon them after reading Mr Abbott's important speech at the National Press club yesterday.

The speech is posted here with the permission of the opposition leader's office.

An early sentance is a prime example of what a person with scientific training might call an evidence-based conclusion. 'The Eurozone crisis is a terrible verdict on governments that spend too much, borrow too much and tax too much yet our prime minister is lecturing the Europeans while copying their failures'.

Sadly, Australia under two Labor Prime ministers has not been immune from the mistakes in the major  western nations. 'In just four years, Labor has turned a $20 billion surplus into $167 billion in accumulated deficits and $70 billion in net Commonwealth assets into $133 billion of net debt. That’s $6000 for every Australian man, woman and child.

'At the heart of Labor’s failure is the assumption that bigger government and higher taxes are the answer to every problem'.

'Emissions are rising so let’s tax the necessities of life. There’s a two speed economy; so introduce a mining tax. Some teens drink too much; let’s have an alcopops tax. People don’t save enough; so increase the superannuation tax. Gambling is a problem so let’s force every club to redesign every poker machine.

''The government has completely failed to appreciate the iron law of economics that no country has ever taxed its way to prosperity'.

Entirely fair criticism, and I welcome comment from any economist (or intelligent non-economist) who wishes to complain or find fault with the material I am quoting. Contact Henry here, and I will provide space for any coherent comments so long as they are not obscene or libellous.

Mr Abbott continues: 'The only foundation for a successful country is a strong economy. The only way to take the pressure off family budgets, to increase job opportunities, and to have the better services and infrastructure that every Australian wants is to build a stronger economy.

''That’s why my plan for a stronger economy is to scrap unnecessary taxes, cut government spending and reduce the red tape burden on business'.

 Mr Abbott was a senior member of a government with a demonstrable track record. Real wages rose under the Howard government, yet inflation was tamed. Many jobs were created, yet productivity rose. Taxes were cut yet budget surplusses were the norm. Mr Keating's government debt was repaid and national wealth greatly increased.

 Mr Abbott lists his personal contributions as employment minister, as workplace minister, and as health minister.  He is able to recount real achievements, not the madness of pink batts, mostly unnecessary and very costly school extensions and a national broadband scheme that could be provided in a far less costly way, not damaging new taxes and record budget deficits.

.'What Australia most needs now is a competent, trustworthy, adult government with achievable plans for a better economy and a stronger society.

'My vision for Australia is to restore hope, reward and opportunity by delivering lower taxes, better services, more opportunities for work and stronger borders.

'The government I lead will do fewer things but do them better so that the Australian people, individually and in community, will be best placed to realise the visions that each of us has for a better life'.

 Mr Abbott outlines plans for a stronger economy, stronger communities, a cleaner environment, strong borders and infrastructure needed to support the other outcomes.  The starting point is to restore Australia's fiscal position to the robust health it achieved during the Howard-Costello government, in the process eliminating waste and mismanagement as well as things currently being done by government that need not be done or that would be better left to the judgment of citizens and companies..

I urge the skeptics among readers to read and ponder Tony Abbott's plans.  If you care to offer criticisms I shall give you space to propound them.  Professor John Piggott and RBA boardmember John Edwards, your thoughts would be especially welcome.

Mr Abbott concluded with a call to arms: 'The best way to help the country right now would be to change the government and the best way to change the government would be to give the people their choice at an election. Changing the government, of course, is but a means to an end: to bring out the best in our people and in our nation.

'In his famous “light on the hill” speech, Ben Chifley said that the purpose of public life was not to make someone premier or prime minister or even to put an extra sixpence into people’s pockets but to “work for the betterment of mankind, not just here but wherever we can lend a helping hand”.

'People should be in public life for the right reasons. Mine are to serve our country, to stand up for the things I believe in, to do the right thing by my fellow Australians as best I can, to build a nation that will inspire us more and to lead a government that will disappoint us less'.

Here is the full transcript.  

Here is a commentary from a man experienced in the ways of government.

And here is another view of Mr Abbott's speech and the IR question in particular.

Nothing from the APL side yet. Too concerned with the coming leadership challenge, comrades?

Could China's rate of consumer inflation be somehow higher than the 4.1 % reported in the year ro December?

Could real GDP growth be lower than the 8.9 % annual rate reported in early January?

Ambrose Evans-Pritchard says that China's slowdown is serious, more serious than the official numbers, swallowed by the global  press, suggest.

'I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc.

'The Shanghai Container Freight Index fell 1.4pc to a record low of 919.44 in November, after sliding relentlessly for several months. It has picked up slightly since.

'The Baltic Dry Index [an old favourite of Henry] measuring freight rates for ores, grains, and bulk goods, has fallen 44pc over the last year. Kasper Moller from Maersk in Beijing said weak Chinese demand for iron ore was the key culprit.

Courtesy TickQuest and

'Cautionary warning. The BDI index also reflects the shipping glut, so it is not a pure indicator.

'However, rail, road, river and air freight volume for the whole of China fell to 31780m tons in November (latest data), from 32340m tons in October. Not a big fall, but still negative. (National Bureau of Statistics of China.)

'Chinese electricity use was flat in over the Autumn, with a sharp fall in the (year-on-year) growth rates from 8.9pc in September, to 8pc in October, and 7.7pc in December.

'Residential investment has been contracting on a monthly basis, and of course property prices are now falling in all but two of China’s 70 largest cities.

'So how did China pull off an economic growth rate of 8.9pc in the fourth quarter?

'Beats me.

'I strongly suspect that the trade and power data reveal the true state of China’s economy'.  Read on here.

'Reserve has no compelling reason to cut rates' says Mr Uren.

'THE two interest rate cuts late last year were keenly debated at the Reserve Bank, as some senior staff argued the bank was jumping at shadows, with no certainty that the dark visions for Europe that drove the decision would be borne out.

When the bank's monetary policy discussion group, which cements the staff recommendation to the board, meets on Wednesday, the losers at the last two meetings have a good chance of coming out on top. It will be harder for the bank to justify a further cut, notwithstanding the nearly unanimous verdict of market economists and financial markets that it will do just that.

'At each of the last two meetings, senior RBA staff have argued that the central forecasts for neither the Australian economy nor the major world economies justified a change in the bank's long-standing view that the massive resource investment boom would stretch the economy's capacity and increase inflationary risk'.

Perhaps Mr Uren has had some especially vivid holiday dreams, or perhaps he has confused the RBA with Henry's alternative (independent) view.

Hard to believe that he would have had the benefit of off-the-record briefings with senior staff that revealed the differences of views he purports to represent.

In November last year, Henry's headline said 'Token rate cut would be foolish mistake'.

Henry concluded that the Reserve Bank’s senior officers would be firmly on the side of those who promote thrift, productivity and sensible decisions by Australian households and businesses. Deleveraging at this time of global economic danger is entirely sensible behaviour, and bringing this to an end by cutting interest rates would be foolish.

In December, Henry's focus was on the mining boom and monetary policy.

Given the size of the stimulus of our massive investment boom, the conclusion was if it were not for the global crisis, the RBA would be raising interest rates.

Henry's advice was for the Reserve yo keep its powder dry until the situation in Europe is clearer. If there is a bad outcome, a cut of up to 100 basis points may well be appropriate, and the Board should give the governor licence to make such a cut. But if Europe somehow finds a sensible solution that allows the Eurozone nations to begin a gradual economic recovery, Australia needs continued overall firm economic policy.

All this is remarkably like the arguments of unnamed 'senior staff' that David Uren presents today.

Is he channelling said 'senior staff' or is he rather channelling Henry?

PM's advisor quits after trying to set up Opposition leader Tony Abbott, or after an act of gross stupidity.

(Even the Age had to run this story, but it was especially interesting that ABC TV led with 'Tony Abbott provokes riot', or words to that effect.)

So was this a stuff-up, the government's story, or a deliberate attempt to engineer an embarrassing incident involving the opposition leader?

We may never know, but Australian politics is becoming nastier by the week.

Advice for world leaders.

Aussie shiela, Judith Sloan, has been interrogating the great and the good at Davos.

'When I pointed out that the role of companies was to generate returns for their shareholders, I was dismissed as an unhelpful renegade.

'When I pointed out that it was not possible to describe the cash held by companies as "excessive" ... I was fearful the chairman might call security'.

Henry and his readers are delighted that Ms Sloan is giving 'em hell at Davos.

Next step is an Aussie economists' igloo (inspired by the tent 'embassy') outside the main meeting place in Davos. Our rallying cry:

Good better best
We shall never rest
Until our good is better
And our better's best

The sporting life

The Aussie cricket team has made a tremendous comeback.  Their defeat at the hands of New Zealand in Hobart is now a distant memory after their four nil whitewash of the highly ranked Indian team.

Henry would suggest that the team should now be called the 'Great Whites', as in 'Great White Sharks', except this moniker would be regarded as racist in, ahem, sensitive parts of the world.

Maybe 'The Dingoes' to recognise their unwelcome chatter when opposition batters are trying to concentrate.  As when Peter Siddle was helpfully suggesting to Mr Kohli that he should not run himself trying to turn 99 into a century.

The tennis will end none to soon, with a shriekathon today and a boring battle from the backlines on Sunday night.

Then, after a flurry of hit'n'giggle cricket, the footy will be back, and Henry will again look forward to the weekend with keen anticipation.

Image of the week

We are glad to read that responsible Aboriginal leaders have repudiated the violence and asserted that the mob gathered outside the Lobby restaurent does not speak for the mainstream. The perps should be arrested and have their welfare payments disallowed.

But, for the rest, the day was a celebration of Aussie values - the BBQ, the swim, the amazing range of weather conditions, tennis, cricket and not too many worries about the tough times ahead.

In the wider world, much angst about the Eurozone debt crisis, with England's David Cameron telling the Europeans to get serious about solving their problems.

Ben Bernanke has suggested US interest rates will be zero for three years and also joined the mainstream central banks with a target for inflation of 2 % per annum.

With breathless enthusiasm, the Wall Street Journal said Mr Bernanke had written an academic article in 1997 arguing for such a target.

We must say with appropriate modesty that Henry's editor wrote a popular article arguing for such an approach in 1990, and was 'rewarded' by the Treasurer telling a bare-faced lie about his policy advice several years earlier.  It took until 1996 for a Coalition government to implement such a policy here, though the post-Keating Labor party has endorsed the approach.

Great it is to see our own Aussie shiela Judith Sloan in Davos telling the great and the good they could 'could learn a lot from the Australian experience'.

'The pity is that the participants could learn a lot from the Australian experience. The combination of aggressive supply-side reforms and reducing government debt laid the foundation for Australia to enjoy one of the highest per capita average incomes in the world, with little inequality.

'By contrast, the Europeans remain in an interminable existential funk, endlessly debating the options to solve the eurozone crisis. But nowhere is there much thought given to reducing the size of government, freeing up markets and citizens taking individual responsibility for their affairs.

'By the way, many here would benefit from a reminder that austerity is just another term for living within your means. The eurozone countries as a whole have not delivered one budget surplus in the past 40 years'.

Last week it was the World Bank that got in for its chop, as Henry’s old Mum used say.

Now it is the turn of the International Monetary Fund (IMF).

‘THE global economy faces a depression-era collapse in demand if Europe doesn't quickly act to dramatically boost the size of its debt crisis firewall, implement pro-growth policies and further integrate the eurozone, the head of the International Monetary Fund warned overnight.

"It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF managing director Christine Lagarde said in prepared remarks before the German Council of Foreign Affairs in Berlin. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.

The dire warning from the IMF's top executive is designed to spur political action in Europe and within the Group of 20 industrialised and developing economies and avoid the political stagnation she said exacerbated the crisis.

Last year, "policy makers let an old wound fester, and in doing so made the situation worse", she said, speaking ahead of a euro-area finance ministers' meeting in Brussels tonight.

We will confess to a feeling we were becoming repetitive on the subject of the coming Eurozone collapse.

We pointed out way back in early 2010: ‘Government debt in advanced G-20 economies is projected to reach 118 percent of GDP in 2014, even assuming some discretionary tightening next year. Getting debt below 60 percent by 2030 will require raising the average structural primary balance by 8 percentage points of GDP relative to 2010 (10½ percentage points for the headline primary balance). Action will be needed on entitlement spending, on other spending, and on revenues. Japan, the United Kingdom, Ireland and Spain are projected to require the largest fiscal adjustment. Only Denmark, Korea, Norway, Australia and Sweden among advanced economies will require little or no medium-term adjustment to keep debt stocks at safe levels.

Furthermore, if debt ratios were merely stabilised at post-crisis levels interest rates would be higher (perhaps by 2 percentage points). Moreover, 'there are important nonlinearities: the impact on interest rates of each additional percentage point of debt or deficit increases as the initial debt or deficit level rises, pointing to a risk that government debt could snowball without corrective action'.

This is all pretty scary stuff. Bankrupt nations are like bankrupt companies - they do not buy much from other nations.

More recently the headline was ‘Europe stuffed, US stagnating; Asia growing’, as we reported the thoughts of a visiting economic guru.

Or readers may pick just about any month in between, reached via Henry’s News + Views pages.

Henry is feeling depressed himself.  There are at least two obstacles to a happy ending for the Eurozone, and thus for the global economy.

It is doubtful that the Eurozone itself has the financial muscle to save the Club Med nations and the Eurozone banks from serious debt default, and even more doubtful that the IMF’s late attempt to assemble a sufficient rescue package will produce the goods.

And it is doubtful that Germany has any strong incentive to provide strong support to sort out the crisis, because German exports are benefitting greatly from the weak Euro.  Germany is in fact doing furtively what China is castigated for doing openly.

Even in the miracle economy that is Australia various pundits are finally beginning to realise that we would not be immune following a Eurozone collapse into depression.  This would snuff out America’s promising but fragile recovery and slow China’s double digit expansion. Record Australian terms of trade would collapse just as tourism, manufacturing and other non-mining industries find themselves flat on their backs gasping for air.

This unhappy outcome is by no means sure but is now looking a better than even money bet. The RBA can cut interest rates but there is little room for fresh fiscal expansion. Poor fellow my country.

Related article

IMF reduces growth forecasts.

I have often thought that the self-congratulation that followed the successful reforms of the 1980s onward (and the rhetorical excesses about the evils of the pre-reform economy) was way overdone.

It typically failed to acknowledge several essential facts:
• that Australia enjoyed an all but unique degree of tranquillity in the 20th century. The worst political violence in Australia in that time - ie ignoring the wars -  was the attempted assassination of Arthur Caldwell by Peter Kocan, which was  not even a blip on the Richter scale by 20th cenntury standards);
• that the ‘radicalism’ of our IR system was largely for show; Oz unions were more interested in gaining higher wages than transforming class relations and unions here never agitated for Euro style work councils or a formal say in management; even notorious radicals like Norm Gallagher were interested in $s rather than revolution (I am told by a friend who knew Gallagher that the BLF leader was cheerfully crooked and regarded leftist thinking of all kinds as a total joke, the Maoist thing was a pose, pure vaudeville);
• that the reform process was possible in the first place because of the social capital and trust built up by the Australian settlement (compulsory arbitration, tariffs all round and restricted immigration);
• that the reform process will peter out as the stick of accumulated social capital depletes - this is obviously happening right now to some extent;
• that the policies of the past, though no longer desirable or practical today, nonetheless served their purpose well enough at that time and that the enduring lesson of Australian economic/social thought should be that we aim for a balance between security and opportunity, with flexibility to tilt one way or another as circumstances require.

As for the next hundred years, I am far from confident. Edward Luttwak once wrote that the future belongs to fascists, because the far right are unique in their understanding of just how corrosive economic and social uncertainty are for ordinary people.  I hope that he is wrong, but doubt it very much.

Henry replied: Another threat to the liberal democratic west is Chinese state capitalism, currently soaking up resource companies and major resource deposits as fast as they can.

The Watcher responded: Re China, I for one am relaxed and comfortable about the threat from Beijing. The Chinese model will soon prove to be vastly over-rated and its attractions deeply misleading. A command economy always looks impressive – vast resources under a quasi-military discipline produce impressive spectacles ... but also equally picaresque debacles when the man on top proves to be human after all or the clique of thugs in charge turn out to have ignored one or other simple fact of life that could not be brought to their attention because it violated the reigning orthodoxy.  People who think that debate and argument are a handicap or an unwelcome cost are not sophisticates, no matter what they drink or what they earn. 

That the Chinese leadership are not that clever shows by their choice of friends: the North Koreans, Pakistanis and Burmese – a dreary dysfunctional lot of losers at best. The vital, creative, successful  and energetic nations (South Korea, Taiwan, Japan, Singapore) all line up with the Yanks. 

If Western history proves anything, it is that the quality of human capital beats quantity or numbers anytime and that sound organisation, innovation and free inquiry are the best assets of all: the Greek phalanx (manned by the middle classes) defeated the Persian hordes and their aristocratic cavalrymen easily enough; Cortes and a few hundred half-starved ruffians with a canon and some ship-building skills brought down the Aztecs over night; and the desperately and shamelessly greedy, vulgar, disputatious and individualistic Dutch and Brits built empires that surpassed those of Genghis Khan ... all to supply the domestic market with sugar, cotton fabric and some colourful dies and tasty spices!