Ativo Capital

Rigorous Thinking

Financial and economic commentary reflecting Ativo’s world view:


Tuesday, December 17, 2013


A revolution is like a rashomon, individual observers have their own visions. “The  Cuban revolution is about providing justice and full stomachs for the downtrodden.” “The revolution is about providing dignity to the oppressed, who had been marginalized by the capitalists and American business.” “The revolution is about introducing socialism and displacing the inequities that developed from private ownership of the means of production.”

Cuba is shrinking; its revolution has hit the end of the road.  Its population growth is stagnant at the rate of 0.1 percent a year.  The female reproduction rate is 1.7, or 0.5 percent below the rate necessary to maintain a stable population. In the next fifteen years, the number of women between age 15 and 40 will decline, and the number of births will decline further if the reproduction rate remains unchanged. The best and the brightest vote with their feet, between thirty thousand and thirty five thousand people leave each year for the opportunities in Miami and Mexico and Venezuela.The dependency ratio of the number of retired to the number of workers will increase, as the number of seniors increases relative to those in the active labor force, living standards will decline.  And the dynamic is that more people will leave as the perception of bleaker economic prospects becomes more pervasive. (For reference, if the Cuban population were more or less constant with zero growth, there would be one hundred twenty five thousand in each one-year age cohort–the ten  year olds, the twenty year olds, the thirty year olds, etc; hence about twenty five percent of each age cohort leave. The proportion of university graduates and professionals probably who leave is higher.)

The shrinking of Cuba is the unintended result of the policies of the government, and its inability to think through the consequences of its choices. The rhetoric in the public square in Havana is that the hardships are the result of the Amerian blockade.  The blockade imposed costs on Cuba forty years ago, but the current hardships result from the reluctance of the government to recognize and respond to the consequences of its choices.

Some of the developments in Cuba are remindful of the economic history of Detroit, once the fourth largest city in the United States, and for the last forty years an urban industrial complex in decline. Every city and every region depends on its ability to grow its exports to achieve higher levels of household income. Between the 1920s and the 1960s the exports of Detroit surged as the American demand for automobiles increased rapidly; GM and Ford and the other auto firms were able to pay super-high wages for unskilled workers because they had  a semi-monopoly position. Then lower wage competitors headquartered in Europe and Japan began to use a labor cost advantage to capture market share from the American automobile firms, which shifted production from Detroit to lower wage areas. The managerial class fled the city as its government was taken over by elected officials with an affinity for corruption. Detroit has a bloated infrastructure.

Cuba’s economic rationale was that it was a low cost producer of sugar. Cuba has lost some of its advantage as a low cost sugar producer.

The anomaly is that Cuba has been successful in increasing the supply of medical services, and the result is a dramatic decline in infant mortality.  The likelihood is high that Cuba now trains too many doctors for the future needs of its own population. Many of these newly trained doctors are “rented” to foreign governments for a year or two while they complete their indentured period; the Cuban government is paid by the foreign governments.  The irony is that doctors are the only good or profession that is in excess supply. The activities of Cuban doctors in various countries is a foreign policy plus for the government, but Cuba probably subsidizes foreign countries, including those with significantly higher per capita incomes.

Some of those in the Cuban leadership may have concluded that changes will be necessary to avoid the collapse of the dream. But they may not have realized how extensive these changes are.

Contrast the economic well-being of two “Cuban nations”, one centered in Havana, and the other around Miami. The quality of life of ninety five or ninety eight percent of the Cubans in Florida is higher than the one they would have had had they stayed on the island; the few who are worse off lost a lot of property.  The cash remittances to Cuba are $2.6 billion, or nearly $250 for each of the 11 million in Cuba; the remittances in kind are $2.5 billion.  That’s $450 for every person on the island, perhaps ten or fifteen percent of their per capita income.

More than half of the foreign money that comes to Cuba is charity from the offshore Cubans. Someone in the Havana leadership should ask what would happen in the streets of its large cities if the inflow of this money suddenly stopped. Similarly someone should ask how Cuba will adjust to the inevitable loss of the oil subsidy from the Venezuelan government, which was based on the Chavez-Castro friendship.

These notes are based on observations during a visit from November 9 to November 16, 2013. Some of the statements are based on conversation, some of the data on prices and incomes are from the CIA World Yearbook. There are a few
back-of-the-envelope calculations or guesstimates.  (There are also a few notes to myself about data to be collected for the next draft.)  Several of the remarks are responses to criticisms and suggestions from readers of earlier drafts.

The next section summarizes the streetscape observations; the dominant impression is of extensive deferred maintenance, an economy like the one in Detroit that has been eating its capital.  Countries and cities that eat their capital have relatively low savings and investment rates; consumption expenditures are exceptionally large as a share of their GDPs.  The second section reviews data on prices and incomes; the key insight is that if forty or fifty percent of agricultural land is fallow while the country imports much of its food, the price of the Cuban peso is too high.  The third section assumes I received the assignment to develop a policy to set a new value for the Cuban peso that would enhance the economic well-being of the Cuban people.


The Streetscape

The fleet of 1947 to 1959 Chevys that circulate in Havana is amusing. Many of these vehicles are well maintained, and their upholstery is in remarkably good shape. I am an aficionado of older autos since I am reluctant to buy depreciating assets;  the tipping point in the decision to trade is when the annual cost of repairs of the older car is higher than the annual depreciation of a newer vehicle. New vehicles are not available in Cuba or are prohibitively expensive, while the cost of repairs of the sixty year old Chevy is modest; my guess is that the mechanics earn US$3.00 to US$5.00 an hour.

The deferred maintenance in the housing stock and public buildings is depressing. The chatter is that three buildings in Havana collapse each day–which seems high. Sections of older Havana are remindful of the bombed sites in London and in Berlin in the late 1940s and the early 1950s–or of some parts of Chicago that had been abandoned by stable families because of gang violence.

The contrast between the love and affection shown the older automobiles and the decay of the eighteenth and nineteenth century buildings in old Havana appears to parallel private ownership and public ownership.  The private owners of the autos know that they have to keep their vehicles in operating condition to maintain their livelihoods. The ambulance drivers are paid, regardless of whether their vehicles are operable.

There is a movement to use profits from tourist hotels to restore historic buildings.

Some public properties are in good repair. The Museum of Fine Arts has little deferred maintenance. The surfaces of the major highways are in good shape.  The roadsides are free of litter, apparently because everything is retained for eventual re-cycling.

Very little streetside political propaganda–none of the pictures of Marx and Engels that used to dominate East Berlin. Occasional wall murals of Che Guevara and the two other Cuban heros. No pictures of Fidel, except in the museum of the  revolution in Havana and the museum at the Bay of Pigs.  Several billboards that condemn the genocide of the blockade. I missed the color of streetside advertising that breathes light into other capital cities. The streets are very dark at night.

The churches in central Havana are well maintained. Candles and crucifixes and prayer cards are not for sale. No flower stalls in front of the churches.

Our tour group met with groups of visual artists and musicians.  Individuals seemed upbeat and well fed.  The openness of discussions and the criticism of government policies were impressive. None of the dourness that pervaded East Germany and Poland in the 1980s.

Everyone appeared to have access to a good dentist.

Our bus made a brief stop as we were driving to Cienfuegos from the Bay of Pigs. (I left the modest museum at the Bay of Pigs with anger and embarrassment of the incompetence of the leadership that led to that U.S. disaster.)  Some rice was being dried on one lane of the asphalt road; the rice was in a long furrow that might have been more than a mile long and perhaps fifteen or eighteen inches wide.  One farmer held a scoop, something like a snow shovel; his buddies held an open plastic bag. Very labor intensive. The farmers seemed unconcerned that so many rice kernels remained uncollected.

Our tour guide said that the rice would be sold in private stores for US$0.30 per pound. The government sells imported rice in the ration stores at US$0.08 per pound; the government might pay US$0xx for each pound of rice,

The memory unit in the elevator in our hotel had a random element, there was a disconnect between selecting a floor for a destination, and whether the elevator went up or down. A very high proportion of the toilet seats in the private restaurants were missing–but the toilets were clean.

Lots of begging near tourist spots, underemployment, and overstaffing.  Many street musicians that perform for tips.  A massive number of Pedi cabs around the Capital building.  Large numbers of guards in the public buildings.

More police are evident in Hanover NH than in Havana. A lot of street noise, but little of the sirens and klaxons of London and Chicago.

Many fallow fields in the countryside. Lots of horse drawn vehicles, with air-inflatable auto tires. Some oxen pulling plows in the fields.

A Chinese-made tour bus was dedicated to our group. The tour guide—by training a lawyer—is employed by a firm owned by the Ministry of Tourism. The tourist buses are run by a firm owned by the Ministry of Transportation. The agency bought the buses because of cheap credit from a Chinese export credit agency. China is the largest borrower from the World Bank, China also owns $3,000 billion of international reserve assets.  Go figure


The Data

The most striking data on the Cuban economy are the low birth rate, the large amount of fallow land, and large food imports. These features are closely related and reflect the government has failed to understand the significance of the price of the Cuban peso.

First, consider how well off Cubans are as a group, what is per capita income compared with those in Mexico, Jamaica, and Ecuador? Until several of the recent reforms, virtually everyone except the farmers and those who worked for cooperatives was on the payroll of a government agency or a government-owned firm, and each received a monthly wage of 480 Cuban pesos, with modest variations around this amount depending on labor skill. Anyone who wants a job has been able to find one with a government owned firm but this policy is as the government seeks to shrink the number of employees.(Remember the quip from Warsaw in the mid-1980s—“They pretend to pay us and we pretend to work.”)

There are 24 Cuban pesos to the U.S. dollar, so the monthly wage of 480 pesos is the equivalent of US$20 or US$240 a year.  That the monthly incomes are the equivalent of US$20 a month came up again and again and again.

The statements that monthly incomes average US$20 is a myth, a great myth—and even after recognizing that this number does not include income in kind—free medical services, education, and the implicit rental income of owner occupied homes.

First a bottoms up approach to estimating Cuban GDP. Assume an active labor force of five million. The product of US$240 per year and five million is US$1.2 billion. Non-wage income in the form of free health care and free education should be added to this cash income; income per capita would be US$400.

There is something very incomplete and probably very wrong with this “bottoms up” approach to determining Cuban GDP.  Cuba exports $3.0 billion of tourist services, and another $2.5 billion of sugar, tobacco, nickel, and pharmaceutical products for total annual exports of $5.5 billion. Virtually all of the value of these tourist services and exports is Cuban value-added–that is, few imported items are embedded in these exports. (In contrast Chinese exports have lots of embedded imports.) Most of these exports of tourist services and commodities are from government-owned firms. Assume Cuba produced only these exports; then its GDP would be thirteen times higher than the estimate of GDP based on the product of the five million in the labor force and the $240 a year for per capita income. Add fifty percent for health and education services that are available without cash payments, and Cuban GDP is the equivalent of US$8.0 billion–or per capita GDP of $1,600 if the only people who created value were those in the export industries, and those who supplied health and education services to them.

The U.S. dollar receipts of the Cuban government from the exports of goods and tourist services are US$5.5 billion less a modest adjustment for tourist spending in private restaurants.  Assume that the US$5.5 billion is all Cuban value added. The product of US$5.5billion and 24 pesos per US dollar is 132 billion pesos. Each year the Cuban government pays 28,800 billion to the five million individuals who receive the peso equivalent of US$20 a month. Subtract the 28,800 billion pesos from the 132 billion pesos that is the counterpart of the US$5.5 billion of Cuban exports; the difference is a bit more than 100 billion pesos—this is a lot of cash income. The implication is straightforward—a lot of people in Cuba receive monthly cash incomes much much higher than the 480 pesos.

I made no effort to learn how many Cubans are in the military and the security services. Probably a significant number. It’s a safe bet that their monthly cash incomes are higher than 480 pesos, and probably significantly higher.

Consider the National Income Accounting identity:  GDP=C+I+(X-M). Assume a multiplier of 3 between an increase in Cuban exports and an increase in Cuban GDP. Then an increase of Cuban exports of US$5.5 billion lead to an increase of US$16.5 billion in household income, households spend $15 billion on consumption goods and save $1.5 billion, and investment spending is $2 billion. Together consumption spending and investment spending sum to $16.5 billon, and imports comprise $5.5 billion. Cuban GDP is $16.5 billion, and at the exchange rate of 24 pesos for each U.S. dollar, GDP is 396 billion pesos. Divide 396 billion pesos by 5.0 million workers, and the result is an annual peso income per worker of 79,200 pesos or US$3,300. In contrast, if each of the 5.0 million workers receives an income of 480 pesos a month, then their annual income is 5,760 pesos.

There is an immense difference between the conservative estimate of GDP calculated from the exports of tourist services and commodities, and the estimate of GDP projected from monthly incomes of 480 pesos. Something is screwy, on average annual peso incomes are many times higher than the product of 12 times the monthly income of 480 pesos. And this gap cannot be explained by income in kind in the form of free medical care and education.

It seems like an insider and outsider problem. The outsiders are the large group who receive the cash stipend of 480 pesos a month plus stipulated amounts of food at below-market prices plus free medical services and free education, and the insiders are those who earn much more. The insiders are those in the military and security services and the other institutional arrangements that provide for state control.

The alternative approach is to estimate Cuban GDP by applying a set of national  prices to the market basket of goods and services consumed by the Cubans. The data from the CIA Handbook notes per capita GDP at $11,000, more or less in the same ball park as Mexico.  My visual take is that this number is grossly inflated, per capita income in Cuba is significantly below that in Mexico. Chinese GDP per capita is in the range of US$5,000 to US$6,000; Cuban GDP in its cities seems much below that in the large Chinese cities.

One of the stylized facts is that high income countries have low birth rates and low income countries have high birth rates. Cuba is an outlier, a low income country with a low birth rate. China also has a low birth rate, which reflects its one- child policy, a mandate from Beijing with harsh penalties for those who violate the policy. In Cuba the low birth rate reflects the voluntary decisions of women of child-bearing age to have small families; one possible explanation is that these women are concerned about the shortage of food, or uncertainty about the availability of food.

The Cuban government has a pricing and distribution policy to ensure adequate food supplies for young mothers and children through the combination of a coupon rationing system and price ceilings. The government has been unable to deliver on its promises; the amount of food available at the government stores is smaller than the amount that would be needed to satisfy the monthly demand if everyone used all of their monthly coupons.

In effect Cuban mothers have voted no-confidence in the food management and distribution policies of the government.

The government has used scarce foreign exchange to import food. These imports almost certainly were not part of the plan.

Some of the fallow agricultural land was taken from the farmers who owned more than three hundred hectares because of the socialist ideology that it was inappropriate for any individual or family to own large parcels of land. But no one appears to have thought through a policy that would have kept this land in cultivation under public ownership.  The government is leasing land, but the would-be farmers lack the capital and access to the credit that would enable them to cultivate and restore the productivity of the land. It’s Detroit all over again.

Some of the land that is owned by the state and is no longer cultivated because those who had been working on the land have concluded that they would be better off working in the cities for a guaranteed wage of 480 pesos a month, even though they would be able to grow some of their own food had they stayed on the farms. And the inference is that their cash incomes from selling the food to the government procurement agency would be very low.

Food is imported because the price of imported food is less than the cost of producing more food from both the fallow land and the land now under cultivation. Either the government has failed to understand that food imports are necessary because its policies have led several hundred thousand farmers to leave the land, or it can’t figure out how to solve the problem.

The fallow land in Cuba has no social cost to Cuba the country, unless the land requires more fertilizer and other inputs than comparable land in the countries that export food to Cuba. The policy objective should be to import food only after all the land that could be used to produce food in Cuba is in cultivation.

If food output is to increase, than the Cuban farmers will need an increase in their incomes, and that implies that their incomes should be subsidized much like the incomes of some U.S. farmers, or that the food prices must be increased.  Higher prices would enable the farmers to buy fertilizer and more productive seeds and to replace the oxen with diesel powered equipment. The Cuban government is cash poor, and the money that isn’t there to prevent the beautiful structures in old Havana from falling down is the same money that isn’t there to subsidize the farmers.


Managing the Price of the Cuban Peso

The price of the U.S. dollar (or of the Euro or of Japanese yen) is one of the most important prices in any country, since it determines which domestically produced goods can be profitably sold in foreign markets, and what goods and services should be imported because it is less costly to import them then to produce them at home.  Cuba has been subject to five or six shocks in the last fifty years, and each has affected the demand for its exports or the supply of its exports, and most have led to a decline in the shadow equilibrium Cuban peso price of the U.S. dollar.

From the end of the nineteenth century until 1960, the Cuban peso was pegged to the U.S. dollar at the rate of one Cuban peso to one U.S. dollar. The price of the peso declined in response to the U.S. embargo. Subsequently the Cuban peso was pegged to the Russian ruble. The peso began to float when the Soviet Union collapsed, and the price fell sharply.  In 1993, the U.S. dollar was made legal tender in the effort to attract hard currency to Cuba. In 1994, the convertible currency was introduced and its value was set at one CUP was equal to one U.S. dollar.

The U.S. blockade in the early 1960s was a bad-news demand side shock for Cuba; its foreign exchange earnings declined sharply. The United States had been a major market for Cuban sugar and other products. Cuban-produced sugar entered the U.S. market through a window in the quota fence, and the Cuban sellers received the high U.S. price rather than the much lower world price. The benefits of this implicit subsidy went primarily to the owners of the sugar plantations, many were U.S. firms. Still, sugar production in Cuba was higher and probably much higher than it would have been if sugar had been sold at the world prices, which meant that the employment in the sugar industry was significantly higher than if Cuban sugar did not have a privileged position inside the U.S. quota wall.

A supply side bad-news shock shortly thereafter was the departure of many managers and capitalists; much of the saving and investment had been undertaken by those in this group.

A good news shock was that the Russians decided to become major buyers of Cuban sugar.  Then in the late 1980s the Russians withdrew the subsidy that was implicit in their purchases of Cuban sugar; another bad news demand side shock. Then the Russians stopped selling petroleum to Cuba at below world market prices. Then the Eastern bloc collapsed, and Cuba lost access to a market that paid what in effect were higher than world prices for its various goods.  Each of these bad news shocks led to a decline in the equilibrium value of the peso, and would have led to a decline in the market price of the currency if market forces had been allowed to determine this price.

The major recent good news shock is the sharp increase in foreign tourism in Cuba, and the assumption is that the government opened its borders to offset the hardship associated with the early 1990s bad news shocks.

The customary statement is that Cuba has two currencies, the convertible peso that has a parity of one CUC equal to one US dollar, and the inconvertible peso; 24 inconvertible pesos are equal to one CUC and hence to one US dollar. Owners of CUCs can use them to buy US dollars at parity; owners of CP cannot use them to buy the US dollars—that is what inconvertible means. Holders of CPs need official permission to buy U.S. dollars.

The conventional story that there are two Cuban currencies focuses on the legal distinctions and distracts from the reality of market place events. If there were two currencies in Cuba, there would be two prices for the U.S. dollar, one in terms of the CUC and one in terms of the CP. The price of the US dollar in terms of the CP would be higher than the posted price of 24 CP=US$1.00, perhaps 30 CP or 35 CP. I looked for the black market but could not find one.

My interpretation is that the demand for pesos by the Miami Cubans is now large relative to the demand for US dollars by the holders of non-convertible pesos. The demand for these dollars would be from those Cubans who seek to move wealth from Havana to Miami, and those who want to import goods and can’t get permission to buy U.S. dollars at the rate of 24 CP=US$1.00. The former group might include individuals in Miami that have inherited a home in Cuba, they have sold the home, and now want to bring the money north. The latter group might include those who want replacement parts  for their automobiles.

The Cuban government has indicated that it will unify the two currencies. Hereafter, there will be one price for the U.S. dollar. The key question is the price of the U.S. dollar in terms of the peso after the reform, and the related question is whether the Havana government will abolish all currency controls.

Because there are no McDonalds in Cuba, it was impossible to compare the price of a Big Mac in Havana with one in Hanover, NH. Our group had six lunches and dinners in private restaurants; the price per meal with one drink was in the range of 30CUCs to 40CUCs when we went as a group.  Two of us went to another private restaurants and spent 120 CUCs for two, including a bottle of Spanish wine. The food in these restaurants was ordinary; the prices in these restaurants were much too high for them to stay in business if they were on the Main Street in Windsor, Vermont.  Postcards seemed expensive. I paid the equivalent of US$10 for each of two taxi rides, the price per mile and minute is much higher than in most developing countries.

In the 1980s, I would have to buy 25 East German marks everytime that I wanted to visit East Berlin from West Berlin. (Not quite every time, actually once a day.)There was very little for sale in East Berlin, very occasionally bananas and always postcards.  The currency purchase requirement was a tax on tourists.

The stylized fact is that in the 1980s the Russian ruble, the Polish zloty, the East German mark were all overvalued. Restaurant food and hotel rooms were overpriced compared with prices in most comparable Western cities. Tourists paid these high prices because they wanted to visit the Hermitage or the Pergammon or the Staatsoper.

The CUC is overpriced; part of the evidence is that these meals and taxi fares are too high, and part is that a country that should export agricultural products imports a lot of food.

There are two significant differences between the situation in Havana and those in these Eastern bloc countries. One is that the residents of these countries had massive savings because their money incomes had been so large relative to the goods that they could spend the money on; Cuban residents in contrast are savings poor.

The second is that the CP does not sell at a discount relative to the CUC; the implication is that the only meaningful reason for the peso to be convertible is that private individuals could then have the ability to import and make payments abroad.

Often a decline in the price of a country’s currency is prompted because its costs and prices are too high. Cuba does not now have a lot of underutilized capacity that would lead to a significant increase in exports if the price of the Cuban peso were to decline significantly. Cuba has a lot of underutilized land that could be brought back into cultivation; the pace of the increase in farm output will depend on the scope and pace of increases in farm prices, and the availability of fertilizer and farm equipment.

Poland and its neighbors re-oriented their economies to participate in the global economy; the prices of their currencies declined sharply. That choice is available to the Cuban government, but it would involve a radical change in its control policies.

The dominant objective in setting the parity for the new peso is the needed change in the relationship between foreign price level and the Cuban price level that will bring all of the fallow land under cultivation within two years.  Okay, maybe three years.

The fallow land could be brought into cultivation if the prices that the farmers receive increases; the higher the prices, the larger the increase in domestic production both from the fallow land and from the land that is now under cultivation. As the price of the Cuban peso declines and the implicit price in pesos of foreign food increases, the prices that Cuba farmers receive will increase. Cuba’s GDP would increase and its payments for imported food would decline.

The Cuban economy would have to adjust to higher food prices. The supply of food would be greater since the increase in domestic production would be larger than the decline in imports, and since the supply is greater, the average price would be lower. But those who now buy food at the price ceilings will be worse off because they would have to pay higher prices, but they could be given cash subsidies to compensate for the implicit subsidy they now receive. The implication is that the government would need additional revenues to subsidize this group.

The price of the new Cuban currency should be between three and four pesos  per US$1.00.  The predictable response of most readers is likely to be that the proposed decline in the price of the peso is much too great.  In the 1980s, I would have to buy 25 East German marks everytime that I wanted to visit East Berlin. (Not quite every time, actually once a day.)There was very little for sale in East Berlin that seemed attractive and competitive, very occasionally bananas and always postcards and art books.  The currency purchase requirement was a tax on tourists. Before the collapse of the Berlin wall, the West German mark and the East German mark traded at a one-to-one parity, but after the collapse the rate was eight East German marks to one West German mark. And the provinces that had once been East Germany were still not competitive and required massive assistance.

The likelihood is very high that the Cuban government will get it wrong, and underestimate the reduction in the price of the Cuban peso that would be needed to relieve would be mothers of their concern with food scarcity.



The tragedy of Cuba is that there are too many doctors and not enough food.  Individuals respond to incentives; the female reproduction rate is extremely low for a low income country because of a concern with food scarcity. The women of Cuba have sent a message to the leadership that its economic policies have failed, but the leadership is deaf, dumb, and blind. The achievements of the Castro government in improving literacy and the health of the public–and especially the declines in infant mortality and the increase in longevity–are impressive. Just as the United States produces too many lawyers because there is an industry of one hundred fifty law schools organized to produce more lawyers, so Cuba almost certainly produces too many doctors.  Some of the resources employed in the production of medical doctors would have been more productively employed in training engineers and agricultural economists and botanists and food supply specialists. All of the deferred maintenance suggests that Cuba like Detroit is in decline, economic entities that have been eating their capital. The counterpart of the lack of advertising is that the public and private savings rates are among the lowest in the world, and so the country is desperately short of savings. The abundance of automobiles from the 1950s is amusing; these autos are extremely fuel inefficient, their emissions are a health hazard, and the resources that have been devoted to keeping this ancient fleet running would have been more efficiently directed at producing exports that would have provided the foreign currencies that would have enabled Cubans to buy small fuel efficient vehicles from India and China and South Korea. The outmigration of the several tens of thousands of young people each year is another vote of no-confidence in the management of economic opportunities.

There are a lot of data on Cuban GDP, much of the data are wrong, and the difficulty is to determine which data are wrong. Per capita income is many times higher than the oft-mentioned $20 a month, but less than half as high as the estimates provided in the CIA handbook.

The failure of economic leadership is evident in Castro regime’s reliance on charity. The Russians supplied the charity in the 1960s and the 1970s and the 1980s, and then they wised up to the idea that the poor at home were more deserving. Sometime during the next several years, the Caracas government will conclude that it needs more money from selling oil at world market prices, and its aid will diminish. The remittances of money and goods-in-kind from the émigré community in Miami finance nearly fifty percent of Cuban imports.

The strongest evidence of economic mismanagement is that a country blessed by God with rich soils and a beneficent climate imports a substantial amount of food at a time when forty or fifty percent of farmland is fallow. The price of the Cuban peso has been mis-managed, and should be reduced to thirty or forty percent of its current value to increase the incentives to produce more food at home and to discourage imports. This change will require changes in the way the food purchases by the poor are subsidized, which in turn will require new sources of revenues.

Would a change in policies lead to an increase in the female reproduction rate so that there might be positive economic growth? Perhaps, but the evidence is strong that without such changes the economy is on a death spiral. Slow suicide because of the vanity and arrogance of leadership.

The challenge for U.S. policy is to accommodate the inevitable changes in Cuba.
The blockade should be progressively lifted, and especially the constraints on American tourism and business investment but only as the next government commits to increased freedom for divergent views.