At the mercy of commodity booms

Dani Rodrik's new Project Syndicate post "The Future of Economic Growth" is well-worth reading (as usual.) My favorite passage:

"But igniting and sustaining rapid growth requires something more: production-oriented policies that stimulate ongoing structural change and foster employment in new economic activities. Growth that relies on capital inflows or commodity booms tends to be short-lived. Sustained growth requires devising incentives to encourage private-sector investment in new industries – and doing so with minimal corruption and adequate competence."

I'm not entirely sure but I might go so far as to say that Brazil, for example (and definitely e.g. South Africa), is facing a challenge here. I am not sure how much economic transformation and diversification is going on in Brazil. However, seeing that Petrobras has been and continues to be the single largest company in the MSCI Brazil Index and the energy and materials sectors account for about 50% of the index, it seems that the country is still heavily reliant on commodities and the commodity boom to continue. Compare that with e.g. the MSCI Mexico, which has nothing in energy and 20% in materials and around 60% in consumer staples--a domestic-demand dependent sector--and telecom. Brazil might still be at the mercy of commodity booms and while its growth is strong and healthy it might also be less stable than one may think. What do you think?

Who bears the cost of fiscal austerity?

A friends sister recently posted some reflections on who bears the cost of various decisions on her (so far) excellent blog. She touched on the Greek fiscal crisis and I felt compelled to comment on who bears the cost of fiscal austerity measures. This was my reply:

In my opinion the costs are borne mostly by lower income strata. What typically happens during booms? Usually during booms higher income strata’s income rises more than lower strata’s. This, to some extent, is an artifact of the nature of booms. They are often engendered by technological innovations or people taking entrepreneurial risk and coming up with new products or starting new businesses. Think of e.g. the dot-com era. However, entrepreneurs are seldomly people on the lower rungs of the income ladder even during that particular time when some of the people coming up with new businesses were college kids. Similarly, technological advances seldomly make the most poorly paid workers so much more efficient that it would cause wages to rise. At this point working the McDonald’s register is as technologically advanced as it is likely to get–until those people are made completely redundant by some sort of fast-food ATM.