The BRICs success can't survive for too long

I am increasingly confident that we are witnessing another boom-and-bust cycle, this time involving BRICs.

There is so much group-think, herd behavior, "this time is different" thinking related to BRICs that it the whole story must at some point come crashing down. If you believed media, their hired experts and international banks, for whom promoting the BRIC story is just good business that is nothing wrong that could happen to BRICs until 2050, despite their centuries-old history of political upheaval and economic instability.

Glaring weaknesses are papered over, redolent of many crises before - Japan in the 1980's, East Asia Tigers before the 1997 crisis, the New Economy before 2000, the global financial crisis.

Just take Brazil - it has the lowest TFP growth rates among comparable countries, its growth is largely based on agriculture and raw materials (since when do they represent modern sources of growth?), rule of law is weak, business environment is abysmal (127th place in the World Bank's Doing Business report), saving and investment rates are unprecedently low, education outcomes are poor (see latest OECD PISA results), innovation level is nothing to be proud of and--last but not least--social inequality, despite the recent improvements, is still sky-high, leading to waste of millions of talented youngsters in favelas. (And, BTW, it makes me smile when I hear liberals extol the virtues of Embraer, the plane manufacturer, which is an outgrowth of state-led industrial policy and decades-long state subsidies).

The long list could go on for Brazil and the three remaining BRICs (just don't start me on Russia...)

As in any boom, for a while BRICs will continue to develop fast, bringing in ever more speculative foreign capital (with the FED obligingly continuing to print money, ooops, sorry "engage in quantitative easing") and strenghtening the "this time is different" theory until it all crashes down under the weight of falling prices of raw materials ("what goes up, must go down"), Dutch disease of overvalued exchange rates, stretched supply of resources and human capital, ever stronger corruption, hubris, overconfidence and mismanagement.

In a parable to to the Minsky moment, where stability in financial markets inevitably leads to more risk taking leading eventually to a bust (vide the recent global financial crisis after 20 years of "Great Moderation"), success of the BRICs will lead to more risk taking and oversized expectations which in turn will lead to a crisis when the expectations are not met and risks turn out to be outsized (call this the "Piatkowski moment":-)

I don't wish the BRICs any ill - don't get me wrong, their growth will benefit everyone--but I truly think that it would better for them not to get carried away by the golden PR and overconfidence, which can eventually hurt them.