Sunday, December 18, 2016

Another Socialist Economic Innovation - Cuba Reinvents Barter With Rum For Czech Republic

Another Socialist Economic Innovation - Cuba Reinvents Barter With Rum
For Czech Republic

Tim Worstall , CONTRIBUTOR
I have opinions about economics, finance and public policy.
Opinions expressed by Forbes Contributors are their own.

One of the things which truly puzzles about the general enthusiasm for
socialism in certain quarters is quite why people keep claiming that
it's a successful economic system. Given that places which are socialist
never have any money and thus the living standards of the people are
pretty foul the claim just seems to run contrary to basic logic. Indeed,
the system seems to be regressive, not progressive, as here with Cuba
trying to reinvent barter. You know, barter, that system we all
abandoned once we worked out the value of the greater division and
specialisation of labour, with more people, available through the use of
money and free markets?

But this is what is happening, Cuba is offering a barter deal to the
Czech Republic:

Cuba has come up with an unusual way to repay its multimillion dollar
debt to the Czech Republic - bottles of its famous rum, officials in
Prague say.
The Czech finance ministry said Havana had raised this possibility
during recent negotiations on the issue.
Cuba owes the Czech authorities $276m (£222m), and if the offer is
accepted the Czechs would have enough Cuban rum for more than a century.

As someone currently sitting in the Czech Republic I would say that that
claim of a century's supply is not correct. As someone who works in
journalism and thus someone who is no stranger to the iniquities of the
demon rum I would say that it is definitely not true. It is not true to
say that the Czechs are a sodden nation but alcohol does play its part
in the social system here. A meeting for a couple of beers of an evening
might well be enlivened by a round or two of shots ("panaki") for
example. And the idea of more Cuban rum floating around does
appeal--there is a local rum-like concoction which is really potato
vodka flavoured and coloured with caramel. The bottled sweat and tears
of the Cuban students sent out to cut the sugar cane would be an
improvement upon that.

The AP quoted data from the Czech Statistics Office, which showed that
the Czechs imported $2m worth of rum from Cuba in 2015.

Definitely not true then. For any greater imports of Cuban rum would
lead to substitution effects. Less rum imported from other nations, less
of the home grown fire waters consumed and so on. Well, actually,
knowing the Czech sense of humour we might just see the introduction of
the Cuban round of shots. Come on lads, drink up, we've got to help Cuba
pay its debts (Good Soldier Svejk does come from these parts after
all--bloke comes back late from the pub and tells his wife there was
money off shots that night. So he stayed to maximise the amount of money
they saved. Next evening he tells her he's off to spend the money he had

However, it's the Washington Post that manages to get this completely wrong:

Cuba, a communist isle stifled for decades by a U.S. embargo, is saddled
by tremendous external debt — measured at the end of 2014 to be about
$24.7 billion, or 31 percent of the country's gross domestic product. In
the 1970s and 1980s, Cuba took out development loans from private
non-U.S. banks and then defaulted in 1986.

How is that stifling embargo consistent with being able to take out
massive foreign debts? If you are cut off from the global economy then
you're cut off--if you've substantial debt to that global economy then
you're not cut off from it, are you? You have obviously been interacting
with it to run up the debt in the first place.

It's also a misnomer to call 31% of GDP in external debt "tremendous."
Luxembourg is not impoverished by having external debt of 3,443 % of
GDP, the UK of 569 % nor the US with 114 %. It's entirely true that such
levels, even one of 31 %, can be problematic. But the problem is not the
level of debt, it's what was done with the money owed plus the ability
of the economy owing it to produce something to service it. And that's
what Cuba's problem is. The island produces very little of value. This
is why the people there are poor of course--producing little of value
will mean that little of value can be consumed.

And thus this regression back to older forms of commerce, the retreat
from free markets and money into barter. We are all very much richer
because we live in economies with those two things, markets and the
money that make them work. And the foolishness of Cuban economic
management is what both means they desire to use barter and also why the
island and its people are poor.

Sitting at this end of the trade in Bohemia of course they can send all
the rum they want to. But that that's all they have to send is entirely
the fault of that Cuban socialism of the past 55 years.

Source: Another Socialist Economic Innovation - Cuba Reinvents Barter
With Rum For Czech Republic -

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