In the 1970s, commodities prices went way way up and then eventually went way down again. Today, they’re going up again. Will they go down again? Paul Krugman’s not counting on it:
For one thing, I don’t expect growth in China to slow sharply anytime soon. That’s a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted — and thereby took a lot of pressure off the world’s resources.
That doesn’t sound right to me. Surely the supply shocks from the commodities markets contributed to the slowdown in growth growth rates. Similarly, isn’t a big increase in basic commodities exactly the sort of thing we would expect to slow down growth in China?
UPDATE: Why I’m wrong — “China’s also growing at around 10 percent per year, a rate deemed too fast by the country’s own leaders. Expansion in China could slow considerably and still be greater than 4 percent–sufficient to place a lot of pressure on food and energy stocks.”