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*Nuclear Folly: A History of the Cuban Missile Crisis*

Although they did not know it at the time, the seamen of the USS Cony and other ships of the Randolph group were moments away from being killed or shipwrecked by the tremendous waves that a nuclear explosion would produce. Savitsky’s torpedo carried a warhead with 10 kilotons of explosive power.  If dropped on a city, that would suffice to kill everyone with a half-mile radius. Moreover, the torpedoes’ nuclear warheads were designed to create shock waves that would topple or incapacitate ships. The 20-kiloton load tried by the US Navy in the Baker underwater test in 1946 produced waves up to 94 feet high. The Soviets tested their T-5 torpedoes near Novala Zemlia in the Arctic in 1957 but never released the results. Any ship hit by the torpedo would almost certainly have been destroyed, while the rest of the Randolph group would have suffered significant damage.

That is from the new book on this topic by Serhii Plokhy.  An excellent book, with much more on the Soviet side than any other source I am aware of.

Is Cuba putting the brakes on private business?

On Tuesday, Cuba’s government said it would suspend the issuance of permits for a range of occupations and ventures, including restaurants and renting out rooms in private homes.

The suspension included the growing field of private teachers, as well as street vendors of agricultural products, dressmakers and the relatively recent profession of real-estate broker.

The announcement did not say when the issuing of permits would resume and said that enterprises already in operation could continue.

Cuban President Raul Castro expanded an opening of the economy to private-sector employment in 200 categories of business in 2010. It later also legalized nonagricultural cooperatives.

The government has said nearly 570,000 people are employed in the enterprises, which include hundreds of restaurants and guest houses.

The latest moves have created fears that Cuba is putting the brakes on plans to reform its centrally planned economy, though officials said the country is not going back on its economic opening.

Here is more, via the excellent Mark Thorson.  Here are related stories, and here is my earlier bearish Bloomberg column on Cuba.

Cuba reforms are stalling

Cuban president Raúl Castro is preparing to step down next year, Venezuela has cut millions of dollars in aid and Donald Trump’s election has cast a shadow over the nascent US-Cuba detente. Unnerved by the changes, Havana has allowed its domestic reform drive to grind to a halt as the Communist party battens down the hatches. Marino Murillo, the senior official leading Cuba’s reforms, has not been heard in public for almost a year.

And:

The slowdown in domestic reforms suggests the orthodox wing of the Communist party is strengthening, says Carmelo Mesa-Lago, professor emeritus of economics at Pittsburgh University and a long-time Cuba watcher.

And:

Some US businesses have scaled back their initial euphoria about opportunities in Cuba. Although 615,000 Cuban-Americans and US tourists visited the country last year — of a total 4m foreign visitors — Frontier Airlines and Silver Airways cancelled scheduled US flights on March 13, citing lack of demand and market saturation. American Airlines and JetBlue have also reduced their schedules.

Here is the full FT piece by Marc Frank and John Paul Rathbone.  Here is my earlier Bloomberg column on Cuba.

The internet culture that is Cuba

El Paquete is the underground Cuban Internet; a 1tb hard disk filled with US music, films, TV shows, magazines and smartphone apps, passed around by street dealers. You can copy what you like for $8 a week. “My friends assure me, El Paquete and chill is definitely a thing” [Wil Fulton]

That is from a longer Tom Whitwell post about 26 things learned in 2016, interesting throughout.

Cuba’s glum economic forecast

That is my latest Bloomberg column, here is one excerpt:

One way to approach Cuba’s economic fate is to consider the Caribbean region as a whole. For the most part, it has seen mediocre results since the financial crisis of 2008. Economic problems have plagued Puerto Rico, Trinidad, Jamaica, Haiti and Barbados, with only Jamaica seeing a real turnaround.

The core problems of the region include high debt, weak commodity prices, lack of economies of scale and an inability to upgrade tourist facilities to compete with the U.S., Mexico and further-flung locales. Cuba cannot service its foreign debt, and losing most of its support from Venezuela has been a massive fiscal problem.

Perhaps the country most like Cuba in the Caribbean, in terms of history, heritage and ethnic composition, is the Dominican Republic. Currently, it has a nominal gross domestic product of somewhat over $6,000 per capita, depending which source you prefer. That’s far from the bottom tier of developing economies, but it’s hardly a shining star. And Cuba will take a long time to attract a comparable level of multinational investment, or to develop its tourist facilities to a comparable level of sophistication. Well-functioning electricity and air conditioning cannot be taken for granted in Cuba, especially after the major decline in energy supplies from Venezuela.

The most optimistic forecast for Cuba is that, after a few decades of struggle and reorientation, it will end up at the income level of the Dominican Republic.

If you are wondering, the World Bank measures Cuban GDP at over $6,000 per capita, but that is based on a planned economy and an unrealistic exchange rate. In reality, Cuba probably is richer than Nicaragua, where GDP per capital is approximately $2,000, but we don’t know by how much. Cuba does have relatively high levels of health care and education, but we’ve learned from post-Soviet reform experiences that it is easy for a nation to lose those advantages. There are already shortages of many basic health care items, including medical technology and antibiotics.

There is much more at the link.

Mark Cuban on what has gone wrong

When private companies can’t or won’t go public, they become easy pickings for their competitors to buy them…In my not so humble opinion, this is the ultimate productivity and investment killer in the USA today.

And this:

One of the reasons today’s 3700 public companies hoard cash is because they know that rather than investing in uncertain R&D and productivity enhancements to protect them against the “Innovators Dilemma”, upstart companies that could disrupt them and their industries, they can simply buy those companies.

Finally:

It is undeniably destructive to our economy and future when many of our most innovative and exciting companies are bought by their competition.  It is a “Precognitive Anti-Trust Violation” I know that sounds laughable in so many ways. But at its heart, it’s true. It’s also incredibly destructive to our standing in the world and our economy.

Speculative, but worth a ponder.  The full post is here, and for the pointer I thank Michael Milburn.

How much economic potential does Cuba have?

I’m not one of those who thinks Cuba is the next Singapore or even the next Puerto Rico.  Why not?

I’m willing to assume that the end of the American embargo will mean some kind of economic liberalization over the next ten years.  But how much good will that bring?

We could start by looking for relevant comparisons.  We could ask how well have non-British-ruled, non-Dutch-ruled, non-American-ruled Spanish-speaking Caribbean islands done?  There is a fairly clear example of such a country with some ethnic, cultural, historic, and linguistic similarities to Cuba, namely the Dominican Republic.  For non-PPP-adjusted gdp per capita, the D.R. clocks in at about $5800 per year.  And that is about where I think Cuba will end up, after a good bit of turmoil.

Now various official sources put Cuban per capita gdp (again, non-PPP-adjusted) at about that same level.  That is highly misleading, and yes I have been to both countries.  (Other countries at that level don’t have so many hungry people or so many women selling their bodies to tourists.)  In any case I expect Cuban reforms, along with a good bit of additional deindustrialization from U.S. competition, to bring a short-run gdp dip, with an eventual climb into a D.R.-like economy, albeit with big bumps along the way.

Here are a few additional points:

1. The Caribbean in general has done very poorly since the economic crisis of 2008.  Most of it does not show signs of bouncing back.

2. The short-run trends for foodstuffs are not so great.  The major agricultural exports are sugar, citrus, fish, cigars, and coffee.  Sugar is by far the most important of those, and right now the sugar price is well below half of its 2011 level.

3. Cuban industrial production is below half of its 1989 level (pdf, p.8).

4. National savings and investment rates are at about ten percent, well below Latin American averages (pdf, p.8).

5. I don’t in general buy “brain drain” arguments, but they do sometimes apply to islands and for historical reasons they are especially likely to apply to Cuba.  Many of the most talented Cubans were encouraged to leave, or managed to leave, and staying in Miami will be better than going back for a long time to come.

6. Cuba has some of the best beaches in the Caribbean, but I expect most of those returns to accrue to land and capital, not labor.

7. Cuba already imports 30% of its food from America.  Note that sum has been falling lately, as Cuba seeks cheaper alternatives, such as food from Vietnam.  Post-liberalization, trade with America will go up a good deal but we are not starting from zero under the status quo.

8. Cuba is inheriting some very serious problems with institutions, and that is assuming they manage to move away from communism.  In my admittedly limited experience, a fair number of Cubans still believe in communism, while also thinking the revolution somehow went astray.  Emmanuel Todd has argued that Cuban family structures make the country susceptible to authoritarian rule.  I consider that speculative, but still communism has had a long shelf life there, well past the fall of the Soviet Union, so let’s not dismiss it out of hand.  The country also had a notable history of instability well before the Castro revolution.  It is hard to be optimistic on this front.

9. Cuba seems to depend a good deal upon…Venezuela.  Is that an asset you wish to hold in your portfolio?

10. Foreign investors can hire Cuban labor only through a state employment agency, and no this has not led to a form of efficient offsetting power, rather it has kept productivity low.  More generally, this long Brookings study of FDI in Cuba (pdf) shows how difficult the environment is for foreign capital.

11. Costa Rica has far, far better institutions than Cuba and still it is relying on agriculture and tourism.

On the bright side:

12. The island has significant reserves of nickel and cobalt, top five in the world for nickel by many estimates.

13. Literacy is high, probably higher than in the United States, and there is a functioning social health infrastructure which reaches a high percentage of Cubans.

14. Circa 1959, the book value of U.S. capital in Cuba was three times higher than in the rest of Latin America combined (pdf).

15. The Cuban diaspora may nonetheless kick in as a source of talent and investment.

I’m not a super pessimist on Cuba, I just think they will need a long time to get to the point the Dominican Republic is at today.  Being “the next Costa Rica” seems for them impossibly far off.

Smuggling Cubans

This post isn’t about smuggling Cuban cigars it’s an incredible story about smuggling Cuban baseball players.

The average wage in Cuba is about $20 per month so a typical Cuban might earn 50 times more in the United States but a star Cuban baseball player (who also earns about $20 per month in Cuba) might earn 10,000 times more in the United States. Markets abhor a price differential so there is an active market in smuggled Cubans.

Yasiel Puig, now a star player for the Los Angeles Dodgers, was smuggled out of Cuba in 2012. The smuggling operation was paid for by a group of Miami businessmen:

Investigators and court documents say Suarez was one of the Miami-based financiers of the 2012 smuggling venture in which Puig was taken by boat from Cuba to a fishing village near Cancun, Mexico, eventually crossing into the U.S. at Brownsville, Texas, on July 3 of that year. In return, the financiers were getting a percentage of the seven-year, $42 million contract Puig signed with the Dodgers.

The story is not unique

The plea is the second in Miami federal court this year involving the smuggling of a Cuban baseball player into the U.S. Last month, 41-year-old Eliezer Lazo was sentenced to 14 years in federal prison for conspiring to smuggle 1,000 Cubans, including baseball players such as Texas Rangers outfielder Leonys Martin.

Puig did in fact pay Suarez $2.5 million. A high price for a relatively simple operation–the going rate to smuggle an ordinary Cuban is about $10,000–but, as we will see, more than smuggling was involved. It took five attempts before Puig reached the shores of Mexico. On one of the earlier attempts Puig was captured by the US Coast guard who sent him back–after some of the crew asked for his autograph!

On the fifth attempt, Puig, along with “a boxer, a pinup girl, and a Santeria priest, the latter of whom blessed their expedition with a splash of rum and a sprinkle of chicken blood” managed to escape Cuba guided by the smugglers and their accomplices—“The Chinaman” and “The Hungarian”. Once in Mexico, however, the operation got messy because Mexico’s Zetas gang were acting as intermediaries and with Puig in hand they demanded a greater share of the proceeds.

“If they didn’t receive the money, they were saying that at any moment they might give him a machetazo”—a whack with a machete—“chop off an arm, a finger, whatever, and he would never play baseball again, not for anyone.” 

The case has lots of interesting asides: Why flee to Mexico first and only then to the United States? It’s all about the money and the weird rules of MLB:

A foreign-born player who immigrates without a contract is treated as an amateur by MLB; he can negotiate only with the team that drafts him. By declaring himself a free agent before arriving, that player can entertain all comers; the difference is worth millions. Federal law, of course, bars Americans from paying money to Cubans—or “trading with the enemy”—so a ballplayer like Puig needs not only to defect but also to establish legal residency in a country that he does not actually intend to live in.

Now back to the Zetas and the hostage negotiations.

As the standoff entered its third week, the smugglers began looking elsewhere to recoup their costs. The idea occurred to them that they could auction Puig off.

Eventually a rescue operation was staged by the Miami businessmen (details are unclear) and Puig escapes to Mexico City where in essence an auction is held in which the Dodgers win with a bid of $42 million over seven years. 

Puig, however, continued to be threatened by the Zetas, hence, it seems, the aforementioned $2.5 million dollar payment to the Miami businessman who in turn paid off the Zetas (a murder also appears to be related).

As if all of this isn’t astounding enough these details have come to light only because of a US civil case against Puig. Puig had been approached a few years earlier when he was just 19 by another would be smuggler. Fearing the state police who monitored him constantly, Puig alerted the sports ministry to the offer and they notified state security. The alleged smuggler was arrested by the Cuban police, jailed, and perhaps tortured. Now here is where it gets really strange. The alleged smuggler, still in jail in Cuba, and his mother are suing Puig in American court for $12 million dollars for turning the smuggler over to the Cuban authorities and thus potentially violating the Torture Victim Protection Act.

There are many lessons here about open(ing) borders, rent seeking, the law, and how making some trades illegal creates black markets often ruled by violence. Thankfully an opening of relations with Cuba may cause this market to wither away. Next up, college athletes.

Cuba claims that plain tobacco packaging is anti-capitalist

Cuba has waded into the debate over plain tobacco packaging and has complained to the World Trade Organisation (WTO) over the UK’s plans.

According to a report in the Daily Telegraph, Cuba claimed that the law would be “anti-capitalist” and would threaten free trade. The Communist country added that plain packaging would lead to an increase in counterfeit cigarettes, leading to health risks to people smoking black market cigarettes.

Cuba’s letter to the WTO’s Committee to Technical Barriers on Trade concluded: “Cuba expresses great concern over the UK Parliament’s decision to move ahead with the process of implementation of plain packaging of tobacco products, without waiting for a settlement of the complaint against Australia before the WTO Dispute Settlement Body.”

That is not the silliest statement they have issued.  There is more here, and for the pointer I thank R.

Why did Cuba become healthier during the economic meltdown of the 1990s?

One should interpret anything about Cuba, or coming out of Cuban data, with extreme caution.  Nonetheless I thought this was interesting enough to pass along:

The economic meltdown should logically have been a public health disaster. But a new study conducted jointly by university researchers in Spain, Cuba, and the U.S. and published in the latest issue of BMJ says that the health of Cubans actually improved dramatically during the years of austerity. These surprising findings are based on nationwide statistics from the Cuban Ministry of Public Health, together with surveys conducted with about 6,000 participants in the city of Cienfuegos, on the southern coast of Cuba, between 1991 and 2011. The data showed that, during the period of the economic crisis, deaths from cardiovascular disease and adult-onset type 2 diabetes fell by a third and a half, respectively. Strokes declined more modestly, and overall mortality rates went down.

This “abrupt downward trend” in illness does not appear to be because of Cuba’s barefoot doctors and vaunted public health system, which is rated amongst the best in Latin America. The researchers say that it has more to do with simple weight loss. Cubans, who were walking and bicycling more after their public transportation system collapsed, and eating less (energy intake plunged from about 3,000 calories per day to anywhere between 1,400 and 2,400, and protein consumption dropped by 40 percent). They lost an average of 12 pounds.

It wasn’t only the amount of food that Cubans ate that changed, but also what they ate. They became virtual vegans overnight, as meat and dairy products all but vanished from the marketplace. People were forced to depend on what they could grow, catch, and pick for themselves– including lots of high-fiber fresh produce, and fruits, added to the increasingly hard-to-come-by staples of beans, corn, and rice. Moreover, with petroleum and petroleum-based agro-chemicals unavailable, Cuba “went green,” becoming the first nation to successfully experiment on a large scale with low-input sustainable agriculture techniques. Farmers returned to the machetes and oxen-drawn plows of their ancestors, and hundreds of urban community gardens (the latest rage in America’s cities) flourished.

And this:

During the special period, expensive habits like smoking and most likely also alcohol consumption were reduced, albeit briefly. This enforced fitness regime lasted only until the Cuban economy began to recover in the second half of the 1990s. At that point, physical activity levels began to fall off, and calorie intake surged. Eventually people in Cuba were eating even more than they had before the crash. The researchers report that “by 2011, the Cuban population has regained enough weight to almost triple the obesity rates of 1995.”

That is by Richard Schiffman, the full article is here, and for the pointer I thank Jim Oliver.

How poor does Cuba look?

The question is why anyone might think Cuba is doing OK, relative to northern Mexico.  Megan McArdle offers (more than) two points:

3) Deep poverty is much more picturesque than moderate poverty. Poor
countries have their old colonial buildings still standing, because no
one had the money (or the reason) to tear them down and put up
something bigger. The countryside is dotted with adorable houses made
out of natural materials and natives wearing colorful traditional garb.
Animals graze in verdant fields, besides teams of sowers and reapers.
Middle income countries are smoggy, and almost everything looks like a
cheaper, shabbier version of what you get in the US. Scenic landscapes
are despoiled by cinderblock buildings with hideous tin roofs, or
trailers; cities are choked with boxy modern buildings that look
something like our housing projects. The genteel decay that looks
gothic and intriguing on an old Victorian mansion just looks seedy when
it’s eating away at badly poured concrete. Affluent Americans
underestimate the utility value of things like having personal space,
or an automobile.

4) Cuba was relatively wealthy in 1959; it therefore has more
of the markers, like old majestic buildings, that we associate with
wealth.

I found the most evident signs of Cuban poverty to be the unceasing supply of articulate and sometimes weakly sobbing mendicants, none of whom sounded like con men, all of whom needed money to buy food and clothes for their families.  The most shocking part is what small sums of money they would ask for or be made happy by.  Or the numerous women — and I mean ordinary women in the streets — who would offer their bodies to a stranger (handsome though I am) for a mere pittance.  Yes in Cuba there is good access to doctors but anesthesia is in short supply and the health care system stopped improving long ago.

If you want to understand northern Mexico, get out of the Tijuana tourist strip and visit Hermosillo.  Count the number of new housing developments, and then count how many of them are inhabited by fairly dark-skinned, previously dirt poor, Mexican mestizos.  Put that number over the number of buildings in Havana that do not have serious maintenance problems and see if you can divide by zero.

It’s quite possible that a lower middle class Mexican eats better food than you do, but there is no chance of that for anyone in Cuba except the top elite.  Powdered milk is a luxury there

I’ve long thought that Prague looks much richer than it is, and that the ugly northern Virginia or Houston looks poorer than it is.  Where else looks deceivingly rich or poor?

The Cuban Cigar Mystery

Why are Cuban cigars good?  It’s not as if communist economies are known for producing quality goods so why the exception for Cuban cigars?  I have a few hypotheses:

  1. Cuban cigars are not good.  The contrary impression is due to rememberances of things past and the sex appeal of the forbidden fruit.  (Testable hypothesis: Are Cuban cigars as highly prized in countries where they are not banned?)
  2. The Cuban "terroir," the soil, climate and environment are unique.   (Maybe but Communists destroy good terroir – see Zimbabwe, the Ukraine etc. – all the time.)
  3. Castro puts a huge amount of resources and incentives into producing cigars because a) he likes to smoke and b) exporting cigars and doctors is good for the brand image.  Cuban cigars are like Soviet chess.
  4. Castro has basically privatized the cigar industry allowing for significant market incentives.

Comments are open for those who know more about cigars and the Cuban cigar industry.