We explore eight things that contribute to a healthy, growing economy and where Cuba and Argentina have fallen short.
Topics covered include:
- Why Cuba continues to have rolling energy blackouts
- Why economic sanctions frequently don’t work
- How Argentinas’ President Millei is taking a “chainsaw” to the nation’s economy
- Why emerging markets will need to change their export-oriented growth trajectory
- What are the risks to the long-term health of the U.S. economy
Show Notes
Cuba is out of supplies and out of ideas—The Economist
Cuba plunged into crisis by long power blackouts by Ed Augustin—The Financial Times
Power Outage Plunges All of Cuba Into Darkness by Frances Robles—The New York Times
The Impact of the Cuban Adjustment Act on Cuban Immigrants in the US by Tamarys Bahamonde—SSRN
The weakest links in the global economy are on the mend by Ruchir Sharma—The Financial Times
Argentina’s poverty rate soars above 50% under Javier Milei by Ciara Nugent—The Financial Times
Argentina Inflation Slows to 2021 Levels in Win For Milei by Manuela Tobias—Bloomberg
Argentine Debt Rises Out of Distress Territory on Milei Reforms by Kevin Simauchi—Bloomberg
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Transcript
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 499. It’s titled “What Makes an Economy Prosperous? Spotlight on Cuba and Argentina.”
Cuba’s Disastrous Economy
Eight years ago, I visited Cuba for the first time with my son, Bret. I had promised him years earlier that if Cuba ever opened, that we would go visit it. That opportunity came in early 2016 after the Obama administration loosened sanctions to allow more Americans to visit the island. We found the Cuban people incredibly warm and welcoming, and very entrepreneurial. They all had some type of side gig catering toward tourists, one of the few businesses that the state allowed Cubans to operate, including the Airbnbs where we stayed.
We didn’t know what we would expect when we arrived in Havana. Would there be a strong military presence, a police state? We didn’t see it. We saw a lot of decay in the buildings. Obviously, the cars were ancient, American cars, running on Russian engines. Cubans weren’t allowed to purchase new cars.
When we think about the Cuban economy back then and now—a disaster. The economy remains primarily state-controlled, as it has been since 1959 after Fidel Castro and his forces overthrew the government and established a socialist state. The major industries, banks, and most businesses were nationalized. Cuba has been trying to centrally plan their economy for over six decades. This island of 11 million people, where 70 to 75 percent of Cubans work with the state.
Things have gotten worse since 2016, where there were a lot more Americans visiting Cuba, even though the government in 2021 allowed even more private businesses, allowed them to expand and employ up to 100 people. But they’ve had difficulty getting hard currency, like the dollar, to purchase inputs that aren’t made on the island to build anything.
We saw this in 2016, where the people we met that ran Airbnbs, they now had dollars, but there was nothing to buy. The Economist reports, as they interview individuals in Havana, that the shortages in Cuba have not been this bad since the early 1990s.
They point out that Cuba doesn’t produce enough sugar, which it once exported to the world. Not enough eggs; it now has to import those from Colombia. Or milk powder, which it gets from the UN. And they’re not producing enough power, and that’s why there’s been a series of blackouts, where the power can be off for four hours at a time in Havana, 12 hours or more outside of the Cuban capital.
The Financial Times reports that residents have to carry buckets of water from cisterns or wells because without power, they don’t have running water. It got so bad that the president of Cuba, Miguel Diaz-Canal, went on television wearing military gear, which he typically doesn’t, and said they’re working on it. That 90% of Havana has power, but it was only 36%.
Prime Minister Manuel Marrero said the country could no longer afford to buy enough fuel on the international market to generate the power it needs. And it turns out the power generation capability are old Soviet infrastructure that has not been maintained. The government is just unable to produce the basic needs of its citizens. But it also hasn’t opened up its economy to allow more innovation and entrepreneurship.
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