Thursday, September 15, 2011

BRIC Countries

FLG was listening to Marketplace last night on the commute home when there was a piece about BRIC countries deciding to contribute to the developed nations in crisis. The interviewee was a professor from SAIS, which usually bodes well, at least in FLG's experience.

But then this came up:
Ryssdal: [...] I wonder if you can explain how it is that they are doing so well after a global recession -- not just the Brazilians, but the Chinese and Indians -- and the rest of us are still struggling?

Roett: I think a large part is a matter of regulation. It's a matter of transparency. The United States went through a long period beginning in 2000/2001, basically tearing up the regulatory framework that had been put into the place: the Securities Exchange Commission was hollowed out basically. Not much responsibility on the part of the private commercial banks. The same thing happened in Europe where countries year after year overspent, under-saved and then found themselves in a position where they had to be bailed out. The Brazilians, on the other hand, were fiscally responsible, as were the other BRIC countries.

FLG immediately thought, "Oh fuck. This guy isn't an economist. It's a political scientist talking about economics."

Look, if you look at development in terms the Solow Growth Model, then it becomes much clearer. But you don't even have to know all that. Put it even more simply -- Brazil, India, and China are doing better in terms of growth because they are developing. Their growth rate will naturally be higher. The question is not whether they are doing relatively better right now vis-a-vis the developed world because their growth rate ought to be higher than the developed world pretty much always in the foreseeable future. It's just that when we're growing at 4-5% we don't care so much that they're growing 10-12% or whatever.

This isn't to say that political decisions by the BRIC countries, well, except Russia, don't help things. There are political and policy reasons why China, India, and Brazil are growing and sub-Saharan African countries aren't. But when it comes to developed versus BRIC we're talking about apples and oranges. Even if his statements about regulation and overspending/undersaving were entirely true. They're partly true, but FLG thinks misses the big picture, which is, again, they BRIC countries have a growth rate for the foreseeable future. Economic growth makes all sorts of problems easier to tackle, including savings and investing because they can turn into a nice virtuous circle.

Anyway, FLG went home and looked the guy up. Sure as shit. Political scientist.

1 comment:

Andrew Stevens said...

He's also just talking in talking points. In 2002, the U.S. passed Sarbanes-Oxley, the biggest regulation of the economy since FDR. I have never understood how anyone can think of Bush as some sort of great deregulator. Reagan deregulated, Clinton deregulated, even Carter deregulated, but Bush added regulation; he didn't subtract it.

Under Cox, the SEC may have been ineffective, but this is very different from arguing that they were inactive. They were all over the place. Only people who have no knowledge of what was actually happening in businesses across the country would argue that there was lower or lax regulation from 2000/2001 on. Whether it was the right regulation is an entirely different argument.

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