Wednesday, June 12, 2013

Great Op-Ed on Commodities

I complain a lot about op-eds, but I am glad to report there is a great one, written by El Salvador's former Finance Minister Manuel Hinds.

These graphs show why you should not be surprised when seeing that Latin America is going down after having gone up at record rates for almost 10 years. What has changed is not policies, but the variable that traditionally determines the region’s rate of growth: the prices of commodities.  The graphs also show the superficiality of common economic commentary. The relationship between commodity prices and GDP growth in Latin America has been known for centuries. Yet, for almost a decade the mainstream press commentaries ignored the evidence and attributed the Latin American boom to superior economic policies, when it was clear that it was caused by the old, reliable predictors of growth in Latin America: commodity prices.

This is exactly on the mark, and similar to what I wrote just a short time ago. I am snagging this figure as well, which sums it up visually:

Will any analyst listen? This is how Latin American economies have been run forever, and although the reliance on commodities often gets brief mention, somehow it never gets the dedicated attention that it requires. Instead, we get a boom and hear about how great things are and what great decisions policy makers are pursuing, and then the boom ends and everyone seems surprised.


Anonymous,  9:22 AM  

Nice post. The chart would be more convincing if it went back to the ISI era, and showed that the trends still follow one another closely even then. The 70s and 80s were when the debates around policy really overstated its impact, on both sides of the issue.

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