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17 Posts authored by: Thomas Digiano Employee

Well, sort of. Eric Chiang and I arrived in Dubai from South Africa late last night for our final and briefest stop on the Around the World tour. One of the first things I noticed when we arrived was this bottled water with the slogan, "water is life." Makes sense, I thought. Dubai is one of the United Arab Emirates on the Persian Gulf just East of Saudi Arabia, so got really salty water on one side and then one of the driest deserts in the world there, so a certain amount of reverence for fresh water is logical.

 

One thing you need to know about Dubai is that everything is over the top. It's like Vegas meets New York City. The United Arab Emirates are of course extremely rich in oil (the federation is an OPEC country), and Dubai, recognizing that eventually the wells will dry up, has been in the process of reinventing itself as a cultural and banking hub in the middle east. Excess is everywhere, but it was still a bit surprising to find myself staring at a giant aquarium (complete with sharks) in the middle of the Dubai mall:

 

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If that wasn't enough, they've got a man made lake (with boats of course) and fountain shows every hour that put the Bellagio in Vegas to shame.

 

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For what a country with what I figured had a cultural reverence for fresh water, they seemed to be flaunting the water they did had, and that's the point. The reason we were there was to talk about factors of production. I mentioned this in my last post with the lions: basically the three main factors that go into producing anything are land, labor, and capital. Like South Africa, Dubai wanted to solve an economic problem and restructure its economy to not be as reliant on oil.

 

So how did they do that with the production factors they had? Well they don't have much labor since the country's population is so small. In terms of land, they have a ton of oil which in turn generates lots of capital, but they don't have resources like fresh water to allow their city to grow, and they don't have a decent natural port to facilitate trade. Now there's kind of a 4th factor that's often lumped in with capital, and that's innovation or entrepreneurship, and Dubai has that in spades. Basically, they've done a lot of things right; one of first things the UAE did after its incorporation was to develop a comprehensive education system, including universities. They've also provided incentives for foreign schools like NYU, American University, and even the Sorbonne to set up campuses there. They used their investment capital to develop their intellectual capital (innovation).

 

Need fresh water? Use both your capital and innovation to build desalinization plants. Need labor? Use your capital to provide incentives for labor forces from India, Pakistan, and Russia to work there (85% of Dubai's population is expats). Want to draw attention to your city as world hub? Use your innovation, capital, and new found labor to build the tallest building in the world (Burj Khalifa):

 

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If you've got enough capital and labor you can even build a port from scratch.

 

 

The point is, if you use the production factors that you do have wisely, you can overcome deficits in factors you don't have. With a population of 2.5 million and a bustling tourist trade enjoying world class shopping and even an ice rink and man-made ski mountain in the middle of the desert, Dubai is a success story in that regard.

 

 

Up next, planes, trains, automobiles, and the conclusion of this blog.

You might remember a short time ago there was somewhat of a controversy over a dentist from the US "mistakenly" killing a famed and beloved lion, Cecil, for sport. It was illegal both in Zimbabwe, where it occurred, and you can't import trophy animals into the US. The controversy stems from the fact that there's a strong economic argument for limited legalization of both these things.

 

Ok, Econ 101. The three main factors of producing anything are land, labor, and capital. You can think of land as any natural resource, i.e. Lions (sorry, Cecil). If you're Zimbabwe or say, South Africa, and you have a major income inequality problem, and you're rich in both natural resources and labor, but have issues with the 3rd factor, how do you best use the resources that you have to solve the problem? One solution, favored by Kenya, is to sell a limited number of lion permits to hunters for a very high price. This revenue goes straight back to game parks to conserve the rest of lion population, the permits are ONLY for specific lions (these particular lions are chosen because they would have to removed from the population for biological reasons, anyway), and finally hunters of that wealth spend a lot of money on guides, etc. that goes directly to the local economy. They key is that this lion population has to be managed responsibly and the country needs to have solid institutions to make his work; Kenya has this, Zimbabwe does not. Of course, this is controversial even from an economics standpoint, and you can listen to the con argument on this great episode of Radio Lab.

 

Of course, there's an alternative to utilizing your "lion resource" this way, and that's to rely on relatively low impact eco tourism as South Africa does. Eric Chiang and I actually didn't think we'd have enough time to explore the Johannesburg Lion Park, but Elias, being awesome, just said, "YAH! We can make that happen." So we went on "safari."

 

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It was an amazing experience. We saw springbok (South African national animal), zebras, water buffalo, cheetahs, wild dogs, and of course, lots of lions. I'll try to post as many photos as I can buy I want to point out two things. First, it wasn't a zoo, it was a game park; meaning that the animals had hundreds of acres of free range. Second, it seems to be run well and it was generating lots of income for the local economy both through admissions, photos, and souvenirs. Thomas Acox, get ready for your new Zulu fly swatter.

 

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Your adventures Eric Chiang and Thomas Digiano. By the way, the rumors are not true. Eric was not attacked by this lion cub, he was merely nibbled upon.

 

Up next, we travel all the up through Africa to Dubai!

Johannesburg is a city of extremes. Within less than a mile of each other there are areas of affluence and areas of abject poverty. Without mincing words, it's a dangerous city. To be on the safe side, Eric Chiang and I stayed in one of the nicer areas, Sandton. Due to the generous exchange rate (15 rand = $1) we were able to stay at a pretty swanky hotel for less than $200. Why not just a normal Hilton? In order to visit the not-so-nice places like downtown Johannesburg, you need a hotel with a good concierge service to find you a driver/guide to take you there (they're supposedly that dangerous). I promised my fiancee I'd be back in one piece and I also promised my new bosses I'd bring Eric Chiang back in one piece, so we opted for a nice option and we got Elias, so good call there. Here's a picture of Mandela Square, which was right next to the hotel:

 

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Sandton has the look and feel of Beverly Hills, so we wanted get out and see what downtown Johannesburg was like. Typically highest crime and poverty rates are on the outskirts of townships, ironically called "suburbs", where truly low income individual were forced from government housing. Elias told us that the downtown of Joburg was actually a pretty nice place up until about 15 years ago, but when wealthy people flocked to areas like Sandton, where newer, bigger, and more luxurious housing could be had, it developed a serious case of urban blight. There are a few remnants of the former affluent culture: a heavily barred BMW dealership, but for the most part it's a lot of urban blight:

 

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Elias wouldn't let us out of the car here, but honestly I've seen areas of the Bronx and Brooklyn that looked just as rough if not rougher. Still, we didn't want to risk it, and after we got an impression of the place, we continued on to Soweto.

 

As I've mentioned, Soweto is the area of Joburg where both Bishop Desmond Tutu and Nelson Mandela are from (the same street actually):

 

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Like some of the area names in New York (ie, SoHo), Soweto actually simply stands for Southwest Township. It's actually a collection of neighborhoods that were formally incorporated when the apartheid government decided to build tracts of ramshackle housing in order to relocate Bantu people from more desirable area. It's the largest township and was the seat of the anti-apartheid movement for almost 40 years.

 

if the 2 mile or so distance between Sandton and downtown seemed like a case study for income inequality, then Soweto is a thesis in itself. The houses at the top of Soweto's sloping streets, are decent brick affairs that you might see in Southern California, except for the fact that they are all walled in and most have either razor wire or cameras on their exterior. Mandela's house is towards the bottom part of this neighborhood and it's interesting to see how a restaurants and shops have sprung up around it from the tourist dollars it draws in (the house is a museum).

 

As you move down the hill, the houses turn to more regimented government-built affairs. Minimal electricity and running water, and to me at least, they look a bit like German POW camps from WWII:

 

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Finally, beyond these houses are the "suburbs" where the poorest of the poor have been relegated. These are the types of shanty towns you see in National Geographic: tin shacks, burning trash, goals and livestock roaming around, and one spigot to provide water for the whole village.

 

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I struggled with writing this post. We were being driven through these scenes in a new silver Mercedes with a driver who came from a similar area (the hotel owned the car). Part of me still feels guilt over this, but then the reason why we were there in the first place was to help educate people about terrible economic problems like this. Mandela's fame is obviously the big tourist draw for the area, but I know that we weren't the only tourists Elias drove through these other parts of Soweto, and I really think he does so for the harshness of the economic reality to hit home. I could hear it in his voice when he spoke about the place.

 

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The last I want to mention about Soweto is that the Chris Hani hospital is located there. This is the hospital I mentioned in my first Africa post - it's the third largest in the world. Like much of Africa, Johannesburg is suffering from an HIV epidemic, and the Hani hospital treats literally thousands of patients suffering from AIDS. Elias mentioned this as we drove by, and pointed out that it was visiting hours. On the bright side, we did see evidence of a pretty substantial government campaign promoting safe sex, and there were other clues as to the government's efforts to Reduce poverty and lessen the income gap.

 

Next up, a lighter post: LIONS !

I recognize this is supposed to be a live blog, but I have to be honest and let you know that I'm actually writing this while flying over the African continent on the way to Dubai.

 

I'm letting you know this because the following posts are out of chronological order. Even though it wasn't the very first thing Eric Chiang and I did when we arrived in Johannesburg this morning, I need to start with our visit to the Apartheid Museum because apartheid really sets the stage for any discussion of economics in South Africa.

 

First things first, this is our guide, Elias:

 

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Elias is amazing. He speaks 7 languages fluently, and is unfailingly polite, upbeat, and savvy. He knows the history of South Africa as someone who lived through some of its most tumultuous periods. He was born in 1976 in Alexandra, probably Johannesburg's second most famous township for reasons I'll get to in just a minute. On the way to the museum he told us about his own experiences with apartheid when he was at a government-run school: corporal punishment, cops shooting tear gas canisters in to classrooms - all really grim stuff. He basically told us that we'd feel terrible when we left the museum, and he was right.

 

Here's an outside shot of the apartheid museum:

 

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The museum seeks to make an impact before you've even entered the doors... which are segregated. Here's my admission ticket (Eric Chiang's was for whites):

 

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In a lot of ways the museum is overwhelming, so let me try to distill it down to a few key points:

 

1.    Economics was a big part of apartheid. First, some of its roots start with the Boer War in the late 19th century, where the British colonial force came in and basically tried to wipe out the Zulu tribes and Boer (Dutch) settlers in the area. Why? They found diamonds in the Northern part of the country. This shattered any independence the Zulu kingdoms had and forced them into an uneasy colonial state with the Dutch settlers and the English. Second, gold was later discovered around Johannesburg. South Africa’s capital isn’t a port or on a trade route, it’s a mining town, and gold mines still dot its landscape. Here's one right beyond the soccer stadium built for the 2010 World Cup (the yellow mound):

 

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From here, you can probably piece it together. The white mine owners needed massive amounts of cheap labor to work the mines, which was in turn supplied by the Bantu (term for any native African), because they could no longer farm or support themselves independently under colonial rule.

 

2.    Apartheid was a codified set of laws: So wealthy [powerful] white mine owners really needed cheap Bantu labor to support the growth the mining industry, but they were concerned about being overrun since population-wise they were in a minority and were forcing deplorable conditions on the labor force. This is a common theme you hear in the interviews of the people who drafted the apartheid laws. As the industry grew, they drafted more and more laws to keep the Bantu population in check (most of which were aimed at keeping them from obtaining economic independence). Here’s a picture of a museum wall depicting all the laws:

 

 

Side note: I felt inclined to draw comparisons with Jim Crow laws in the US, but most of these apartheid laws were drafted in the second half of the 20th century. It's all so very recent. Additionally, Jim Crow laws just weren't nearly as extensive or instituted on a national level to specifically keep industry going.

 

3.    Apartheid was about displacement: Make no mistake, racism was of course the driving force behind apartheid. Wealthy whites did not want to live amongst their Bantu labor force, and as whites grew wealthier and the population grew, they continually forced large segments of the Bantu populations to townships like Elias’ Alexandra and Soweto, where Nelson Mandela was from. Not coincidentally, there were massive housing shortages, and the apartheid government built what were essentially slums to exercise further control over the population.

 

So those are my takeaways from the museum. I'm definitely oversimplifying things, and I’m not any sort of an expert, but I hope I’ve gotten across just intertwined economics is in all of this.

 

Up next, we got to the most famous Johannesburg township, home of Mandela and Bishop Desmond Tutu, Soweto.

"I bless the rains down in Africa / Gonna take some time to do the things we never had..." Aside from Toto making almost zero grammatical sense in their  famous 80's hit, I always thought they were singing that they missed the rains down in Africa. Makes me think of lush, verdant jungles or a soft rain on the Serengeti. I get that. What's with the beatitudes? Also, Hakuna Matata is a Swahili expression, and originates from somewhere around Kenya rather than way down in South Africa. They've got Zulus (warriors) down here, and I don't think those guys have too many delightful little quips that Disney is going to adopt any time soon.

 

So if you forgive my little aside there (these posts are probably going to get weirder the more sleep deprived I become), I brought those things up because they're both misconceptions about Africa. More to the point, I think the average [American]  just doesn't know too much about Africa or South Africa in particular. At least I didn't. The other reason I wanted to start off with some levity is that we came to South Africa to examine the economic concept of income inequality here. That, in and of itself, can be a very difficult topic for many people to write about (myself included), and it's made even more difficult by just how incredibly stark the disparities in income are in South Africa.

 

The economics behind  income inequality here in South Africa might not actually be that complex, but the socio/political history of course is. Take South African currency, the rand, for example. Who's the most famous South African you can think of? Former President and Nobel Peace Prize winner, Nelson Mandela, right? Well, all the paper money here has his face on one side, and only his face:

 

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The other side of the bills features different native wildlife - safe, non-political animals.

 

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Why the focus on Mandela? He certainly wasn't the only activist leader fighting apartheid; the Johannesburg airport is named after his partner in his law practice, O.R. Tambo. The largest hospital in Johannesburg (3rd largest in the world!) is named after assassinated SACP leader, Chris Hani. Mandela was undoubtedly a great man and did a great deal to end apartheid, but I think in some ways he's become a safe figurehead. South African history is bloody, complex, and many of its wounds are not too far in the past. I think it might be difficult to so prominently feature other leaders without aggravating some of these wounds.

 

We had another whirlwind day in Johannesburg, so coming up I'll try to focus on the three major parts of our day here; the apartheid museum, a look at Soweto Township, and LIONS.

Before I leave our adventures in Brazil and turn to South Africa, I wanted to round back to on a point I made earlier about what effect the slow down of the Chinese economy might have on the Brazilian economy. Also, we just saw a guy literally jump off a bridge (he's ok):

 

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Eric Chiang being the consummate world traveler, actually researched how much the taxi ride from the airport would cost us: about 100 Brazilan reals or about $27. The cost ended up being 120 reals, and in fact we found that most prices were about 20% more than expected due to inflation.

 

Historically, Brazil has had lots of problems with inflation. In fact, as recent as the early 1990's, they had hyperinflation, where average goods would costs millions of reals and the price would radically fluctuate to the point where consumers couldn't effectively shop. In short, they lost confidence in the stability of their currency (remember the ongoing theme about the importance of stable institutions) and the economy suffered. In 1994 the government decided to do something radical, and effectively "jump off a bridge" with its currency. They just up and invented a new kind of money that was strictly regulated and [initially] pegged to the US dollar. I'm oversimplifying, what's now a classic macroeconomic case study, but there's a great This American Life episode on it, that really brings it to life.

 

Ok, but what does that have to do with China and paying more for a cab ride? Well, Brazil mainly exports things like transportation equipment, iron ore, soy beans, all of which are typically in heavy demand by their #1 trade partner, China (17% of exports). Unless you've been spending a lot of time in your bunker lately, you've probably heard that the Chinese economy has started to slow from its breakneck growth rate (check out Robert Feenstra's virtual EconED talk on 4/1 to hear why). As their economy slows, they buy less goods from Brazil, which in turn decreases the amount of revenue the government takes in through taxes. There are a lot of reasons why inflation can occur, and I won't pretend to know exactly why, but a couple of likely culprits are several tax hikes the Brazilian government instituted last year, as well as simply printing more currency to make up for the deficit. Paul Krugman talks about something similar with his  "stagnation" talk given at EconED 2014.

 

Brazil's highest inflation in 12 years:

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Enough about inflation, one weird side note before I go: Volkswagen is the best known car brand in Brazil. They have 4 factories here and stopped manufacturing classics like the original "Beetle" and the "Microbus" 10 years after the rest of the world had stopped making them. You still see them all over the place and they seem to be the vehicle of choice for roadside vendors. Between the crazy street art and all the VW busses, Brazil might be the place for you if you're an aging hippie:

 

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Ok, on to a new continent. See you in 'Joburg.

I'm a bit behind because Brazil was such a fast paced tour. We've got a bit more time in South Africa now, so hopefully I can catch up (technically I'm still writing about Brazil while I'm in Africa).

 

Sao Paulo is certainly not Rio, we didn't see any "City of God" type slums, but that isn't to say it's a completely rosie picture. With cities its size, there's always going to be nice areas and some not so nice areas. One of the unique things about Sao Paulo is its graffiti, or a better term would perhaps be "street art." I think it's fair to say that it's a common form of expression in the lower income areas of the city we visited; some of it was satirical, some overtly political, some of it was simply "tagging" (just a publicly spray painted symbol or word denoting the tagger), but much of it was absolutely beautiful.

 

One of the reasons we visited Sao Paulo is "Beco do Batman." or, Batman alley. One of the things the municipal government there has done is to commission accomplished street artists to paint the walls of this particular alley. This is so the alley will draw tourists, tourists will spend money in that area of the city, which in turn will spur economic growth and raise the living conditions for those living in that area of the city. It's a classic example of aggregate expenditure and the multiplier effect, and it will appear as an example of such in Eric Chiang's new upcoming 4th edition of Economics: Principles for a Changing World. 

 

Bruce Wayne lives here:

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Just a few examples of the graffiti. I'll post the rest later:

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This is from Space Invader, a world-famous street artist who works in mosaics:

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Finally, the government spending might have worked too well: evidence of gentrification in this developers' notice:

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As I've mentioned the main reason why Eric Chiang and I are on this adventure is to turn much of the material and experiences we're gathering into a new feature (Around the World) for his upcoming book, Economics: Principles for a Changing World 4e. At this point, I want to turn to turn to some economic issues that we've already planned on including in the book (I can say this with authority now that I'm the editor ).

 

Bet you didn't know that Brazil has the largest population of people of Japanese descent outside of Japan - approximately 1.5 million. Just a weird fact? 'Course not. We're all about economics here. The reason why has everything to do with labor and our old pal, coffee.

 

Check out this Japanese daruma doll our cab driver from the airport had on his dashboard:

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Back in the early 1900's, Brazil's main export was, you guessed it- coffee. At that time coffee was just starting to become extremely popular and its demand was increasing exponentially. Brazil needed labor to work its coffee plantations. This is around the same time that fuedalism in Japan formally ended, and all of the sudden a major labor force was looking for work. In 1907 Brazil and Japan signed a formal immigration treaty, and when both World Wars curtailed any european labor available for the coffee plantations, the Japanese immigration numbers boomed:

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That's just part of the story though, notice how immigration numbers fall off in the 60's. This is because Japan's economy took off after the US occupation ended and there was no longer an incentive for the Japanese labor force to emigrate.

 

One of the unique things about the Japanese population in Japan is the depth to which they've been assimilated into the culture here (some would argue forceably). Much of the population is 4th or 5th generation by this point, no longer speaks Japanese, and identifies as Brazilian (though as you'll see, there are still many cultural markers of their heritage. Today, we trekked out to the Liberdade area of São Paulo, where much of this group is concentrated, to witness the first hand effects of a shift in the labor market:

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Up next, graffiti, inflation, and then South Africa!

You'll have noticed that there was a bit more time than typical since my last post. That's because Eric Chiang and I have been hoofing it around the city.

 

First off, it couldn't be more different than Bogota. At a population of 20 million in its metro area, it's the largest city in South America. Bigger than New York, bigger than even Mexico City as of last year. It feels big too, part of our adventure was navigating Sao Paulo's extensive subway system. Here are some shots:

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Clean and efficient subways (better than New York's), bike lanes everywhere; they even have bicycle crossing guards! The people here are extremely diverse in background in every sense of the word. The city really does epitomize a trade center.

 

Turning back to economics for a minute, you'll recall I used the military police in Bogota as a jumping off point to talk about the importance of stable institutions. Contrast that image with the MP's here in Brazil:

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First off we saw half as many as we did in Bogota and Sao Paulo is 3x its size. Second, they don't carry firearms (let alone automatic weapons), and they're generally much more low key. Brazil has historical had a much more stable government than Colombia so they simply don't need as much of a police presence as their citizens have much more confidence in its institutions.

 

More to come...

Hello, Brazil!

 

Notice how that was in English? My Spanish is pretty terrible, my Portuguese is well, nonexistent. Luckily, Eric Chiang, the eminent polyglot, knows how to say "hello" and "thank you", so yeah, we'll be negotiating book deals here in no time.

 

Bogota was the capital of Colombia and Sao Paolo is more like the "New York" of Brazil; their trade center. We're heading out in just a bit to get an impression of the state of things now that the Chinese economy has downturned (more on that later). After sleeping for about 4 hours on the plane  we just needed to shower and stash our bags in this luxury accommodation. Makes me feel like I'm back in my NYC apartment!

 

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So it's late. Eric Chiang and I are in the Avianca lounge waiting for our flight to the next stop on our adventure, Sao Paolo. There's no air conditioning...

 

I thought I'd share some scenes from today as a way of saying goodbye to Bogota.

 

"Makin' it rain!" This is like $15:

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I can't escape Starbucks!

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This city is at 8300' but still surrounded by huge mountains:

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This one's for you Thomas Acox. I was going to make a point about how cheap frozen pizza is here:

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Finally, for all you fellow comic book nerds:

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Goodnight! Brazil, here we come!

When I told my parents that I was traveling to Colombia, they immediately got concerned. "What about the drug cartels down there?" "What if you get kidnapped for ransom?"

 

I obviously can't give you the final judgement on safety issues in Bogota, or even that much of an authoritative one given we were only here for 8 hours, but I can give you an impression based on my time here with Eric Chiang. First off, we did see some rough areas in Bogota (just as any other city about its size has), but overall the really surprising thing is just how nice the areas we traveled in were. There's Audi and Maserati dealerships, even a Cartier store:

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But it's not just luxury boutiques that show just how far the city has come, it's scenes like this playground:

 

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Even just 10 years ago this country was essentially ruled by drug cartels and rated one of the most dangerous in the world for travelers. WHAT HAPPENED?? This was the other economic problem we wanted to look at.

 

This particular problem isn't quite as straightforward as the coffee one; it's complicated and political in nature as well as economic. Here's what is known: Colombia's increased stability has coincided with a 60% reduction in its coca crop (chief ingredient of cocaine), over the past 10 years. We still saw economic clues nonetheless. This guy was out in front of a bank ATM:

 

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Ok, seems obvious; post a bunch of armed soldiers throughout a city and they'll keep the peace, right? What does that have to do with economics? The key is in the organization that ordered him there.

 

One of the key principles that shows up in almost every, well, principles of economics text is that stable institutions are essential to a functioning economy. Ten years ago, the army wouldn't have ordered the soldier there due to lack of resources, corruption, or another symptom of its instability. If individuals don't feel confident in their own safety or the ability to access their resources, they don't invest these resources, purchase goods, or in sum, grow the economy.

 

So what brought increased stability to Colombian institutions like the army and government as a whole? Well, that's the complicated part. Some of it is certainly due to the US investing millions of dollars through their "Plan Colombia" as the front line of the war on drugs. Some of it could be due to internal political pressure. Finally, some of it could be due to countries like Peru and Mexico having less stable institutions that offered a more hospitable market place for the drug cartels.

 

The bottom line is you don't get Cartier and happy playgrounds if you're worried you'll get jumped when withdrawing your paycheck.

 

Side note: It's not all roses. Like any economics issue, there are externalities that arose from "Plan Colombia". For instance, a spike in numbers of the leftist FARC guerillas in many of the cocaine growing areas of the country. This American Life did a fantastic podcast on propaganda efforts to counter this recruitment surge.

Ok, let's talk economics. More specifically, let's talk coffee and drugs.

 

You may have noticed in my last post that Eric Chiang was holding a cup of "Juan Valdez Cafe" coffee and yet, leading up to this trip I mentioned that they ironically don't really have coffee shops in Colombia. Well they don't, really. At least not independent ones. Since Bogota is rather cosmopolitan compared to the rest of the country, what they have is several international coffee chains. You can get Starbucks, the aforementioned Juan Valdez, or even Dunkin Donuts here. So why aren't there cute independent coffee shops in the capital city of the country whose main export is...(drum roll) coffee?

 

One reason is that coffee is a tough crop to grow. Colombia has an excellent climate to do so, but their coffee crop is still highly effected by storms, drought, pests, etc. Consequently, that makes the price of coffee pretty volatile and puts Colombia in a tough spot with their chief export. How do they deal with this problem? They export as much of their crop as possible to wealthy countries that don't have climates suitable for coffee growing.

 

So why the chains? Most of their retail is based in the aforementioned wealthy countries that pay top dollar for coffee imports and they can afford to purchase large quantities of the Colombian coffee crop at high prices just due to their scale. Thus, the little independent shop is edged out. Some clues we've seen as to the economics behind it:

 

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Ok, the photo's hard to see but this is the menu at a Bogota Starbucks. A tall (12 oz) caramel macchiato is 8,600 Colombian pesos. That's about $2.73 versus the $4.91 gouging that I suffer in NYC. Pretty cheap, right? Well, sort of. You need to take exchange rates into account and particularly that the US dollar has recently become very strong against the peso (Y = pesos to US dollar):

 

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Whereas $1 equals 3,155 pesos now, just a little over a year ago $1 equaled 1,848 pesos. That caramel macchiato would have been $4.65! Since Starbucks is a US company, they don't alter their prices much to account for the exchange rate, and given the purchase power of the average Colombian is still lower than the average New Yorker, that makes Colombian coffee [typically] super expensive for Colombians! How's a little guy to compete?

 

Next up, a [former] major export of Colombia...

As much fun as it is to globe trot at the pace we are, you may ask yourself, "why are they doing this?"

 

Aside from being the Worth author with the most tendered McDonald's receipts, one of the most unique things about Eric Chiang is his philosophy on travel. Essentially, get in, get out, and try to gain as many impressions of world locales as you can. Why? People around the world are faced with many of the same economic problems and yet they solve them in surprisingly different ways.

 

The goal of this trip is to explore just how Colombia, Brazil, South Africa, and Dubai solve their economic problems differently. It's essential to try to comprehend these things in order to begin to understand economics in our rapidly changing world. The general experiences, videos, and photos we take on this trip are going to comprise a new and key feature, "Around the World,"  in the upcoming edition of Eric's book, Economics: Principles for a Changing World.

 

Up next, I'll get in to our exploration of Colombia's economic issues. First though, some photos of Eric indulging his McDonald's craving and sampling some of the local coffee.

 

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Not really a full blown post, but I have to remark that I managed to find a craft beer bar in Bogota within an hour of arriving. What can I say? It's a gift.image.jpeg