1 - INTRODUCTION
Cuba officially blames America’s trade embargo for the difficulties it has in advancing its economy and the wellbeing of its people. Cuba has publically repeated its official position several times, and it has done this using the world’s most recognised forum, the United Nations.
In a 2006 report to the UN, Cuba’s First Deputy Foreign Minister Bruno Rodríguez-Parrilla proclaimed that,
“The economic, trade and financial embargo, imposed by the government of the United States against Cuba, continues being the prime obstacle to the economic and social growth of the country.” [i]
The UN has received similar reports every year since 1992, and each one has gained the General Assembly’s overwhelming approval. [ii]
It may seem obvious that America’s embargo against Cuba has had far reaching and serious impact on the island’s economy, but nobody has explained exactly why it is obvious. No one has yet quantified the aggregate effect of the embargo on Cuba’s economy.
The US government intended its embargo to act upon the Cuban populace by instilling general discontent and destabilizing political sentiments. Starting with the cancellation of American contracts to purchase Cuba’s primary export commodity, sugar, the embargo soon extended to a prohibition on all bilateral trade and eventually to any Cuban related transaction involving American firms and other countries’ firms operating in America (food, medicine, and humanitarian aid were excluded from these provisions to varying degrees over time). This act was supposed to result in one of two ultimate outcomes: a fundamental change in the regime’s policies, or its complete overthrow. Although regime change never figured prominently in the early US record on the embargo, a continuing string of direct actions including the failed Bay of Pigs invasion provides evidence of the goal. The Cuban Democracy Act of 1992 finally codified the intended regime change into law, requiring free elections as one of several conditions for ending the embargo. [iii]
Being a trade measure, the embargo’s path to regime change should run straight through the economy, so the regime’s survival with its policy structure intact can have one of two implications. Either the economy will have been little affected, or the Cuban people will have sided with their leaders and tacitly agreed to persevere in economic hardship.
Many observers adopt the latter position. That is, they take it to be obvious that the embargo has gravely damaged Cuba’s economy, and that the government’s vaunted policy of providing free education and health care sufficiently satisfies its people’s sense of justice that their support of the leadership remains assured. This view may be encouraged by the abundant information describing the embargo’s economic impact on specific sectors of the Cuban economy, and on specific instances of suffering. There is little dispute that such impacts exist, but they do not amount to a macro level or aggregate view.
Cuba’s original revolutionary government has in fact maintained its ruling presence and communist structure under the US embargo for fifty years. Its policy behaviour has not changed, so it may seem reasonable to conclude that the Cuban people remain satisfied. After all, they have not risen against their leaders. But focusing solely on whether or not the regime’s behaviour has changed misses the crucial step of assessing the real extent of economic impact. Did the people grant their loyalty to the regime even in the face of extraordinary economic suffering? Or did the presumed economic devastation never materialise?
The Cuban government’s unwavering policy resolve over five decades could also suggest that the economy has not been critically upset. In other words, it is just as reasonable to conclude that the embargo has not had the significant macroeconomic effect intended by US sanctions. Observers may assume that the embargo has negatively affected Cuba’s macro economy because the sanctions’ scale and persistence make it seem reasonable to believe. Nevertheless, the fact remains that any such impact has never been directly or independently quantified.
An initial hint of the extent to which the embargo would polarise observers may be taken from the two countries’ diametrically opposed views on the first trade measure, the 1960 US sugar import ban. A government sanctioned website presents Cuba’s damning view of President Eisenhower’s action:
“That [Eisenhower] Administration carried out a vast number of threatening actions, including economic coercion and attacks against Cuba’s principal economic targets. The suspension of the Cuban sugar quota in the American market stands out among these acts of aggression.” [iv]
A US State Department assessment demonstrates its reservation toward the early trade sanction under consideration in 1959 (December 14):
“Any economic sanctions which are feasible would not have a very serious impact, but would be an irritant and probably counterproductive. A partial reduction of the Cuban sugar quota would be annoying to the Castro government but would have only a slight injurious effect on the Cuban economy. Even the total exclusion of Cuban sugar from the U.S. market—not considered feasible—would reduce Cuban national income by only about 5 per cent.“ [v]
Resolving these divergent views requires an independent economic appraisal.
America’s 50 year trade embargo against Cuba, officially part of the US Foreign Assistance Act, is widely known to Cubans as el Bloqueo (the blockade). The terminology is not insignificant. The US refers to its sanctions against Cuba as an embargo. This means that trade restrictions or outright bans are imposed on either imports or exports according to the evolving legislation. Cuba refers to the sanctions in much broader terms, as a blockade, meaning that the US not only restricts its own trade with Cuba, but that it also interferes with the transactions of third party nations. Cuba takes these sanctions as being an illegal act of undeclared warfare directly targeting the Cuban people, intended to deprive them of their free choice in domestic political affairs by making life difficult. Here the people’s free choice refers to their right to support the revolutionary government unimpeded by foreign coercion.
From the American perspective, the embargo remains a justifiable action primarily on the grounds that the Cuban government confiscated US commercial possessions without compensation, allied itself with a foreign power hostile to the US and installed nuclear missiles capable of striking the US mainland. Furthermore, Cuba has supported other governments around the world in cases where the opportunity for revolution exists or where anti-American factions operate. The restraint of trade is intended by the US to pressure the Cuban people to urge an end to their one party government and restore confiscated property.
Trade is said to be the lifeblood of small economies and in this respect, it seems straightforward for economists and critics to view the embargo as the key destructive force in Cuba. With limited resources, small countries are forced to import several classes of goods. With limited scale, these small economies must specialise in a narrow range of activities for export. Restraint of trade should produce severe consequences.
Cuba, however, is not alone in claiming losses due to the embargo. Along with Cuba’s claim of large scale losses, US firms point to their own forgone annual export revenue in the range of one billion dollars as a result of the embargo.
Even though the embargo was aimed in part at exacting compensation for confiscated US property in Cuba, one unintended consequence was that some US industrial sectors and several individual firms sustained ongoing losses in a bid to recoup past losses. American detractors of the embargo point to this doubling of losses as a negative consequence of a futile policy. Nevertheless, there need not be a net loss in global trade. Foreign firms could simply take over America’s prohibited exports to Cuba and at least partially mitigate the macroeconomic impact on the island.
The ongoing US loss of Cuba’s trade does not suggest that any balancing effect exists in the conflict between the two countries. In other words, it is not the case that US losses justify or offset Cuban losses. Rather it indicates the possibility that Cuba’s trade merely shifts to other countries and mitigates US sanctions. Only an independent macro level analysis can verify the net effect.
Scores of books and journals present a social, cultural, or political analysis of the embargo, clearly showing that Cuba is of great interest. So, one would expect a body of economic literature to have developed over the decades, both from the embargo’s supporters and detractors. At the national level, studies of trade flows and their contribution to GDP could easily be compiled by international agencies or universities. Well regarded trade models such as the Gravity Theory could be used to compare Cuba’s external sector with its neighbours in order to verify Cuba’s claims. Or more crucially, the government could use its own records and archives to analyse the country’s macroeconomic performance before and after the embargo. The embargo carries the blame for wrecking the island’s economy as well as forfeiting opportunities for a wide range of US business sectors, and yet a macroeconomic analysis of its impact remains virtually nonexistent.
While verbal commentary on Cuba’s economic devastation abounds, it is never comprehensively quantified by government agencies, think tanks, academics, or journalists. Any existing analyses focus on partial time periods or specific industries. For example, the US embargo has been characterised as “the equivalent of economic warfare” and “a major destabilizing shock for the Cuban economy” by Tufts University professor Eliana Cardoso [vi]. The period presented as evidence for this shock was 1966 - 1989, which excludes two central events in Cuba’s modern history, namely the start of the embargo and the collapse of the Soviet Union. The briefness of the period is not a criticism of the author, though. The original data was in itself reconstructed from official fragments by trade economist Jorge F. Pérez-López, published in Measuring Cuban Economic Performance. The need for such reconstruction is typical of Cuban government data, which is widely distrusted due to historic inconsistency and secrecy. Cuba has variously used its own unique system of national accounts, revised its economic measures, suspended reporting, joined and left international agencies. University of Pittsburgh economist Carmelo Mesa-Lago provides some typical details in The Economy of Socialist Cuba. [vii]
In any case, the data presented by Cardoso show that growth was negative for a mere three of the 24 years listed[viii], and paradoxically, only one of those depressed years was in the 1960s, soon after the supposed shock was administered. Moreover, Cuba’s growth performance through most of the 1970s would be the envy of most advanced economies.
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1 - INTRODUCTION
This is one of the shortest books on saving money that you are ever likely to find. It was kept short in order to focus on one key point in the field of personal finance: feeding the incentive to save. With so many books, websites and discussion groups on the tedious business of saving money there is no need to repeat the hundreds of details and tactics that people already know. But there is a need to clearly show why those tactics don’t work very well. And this book does exactly that. It also explains why saving money can be easy and highly enjoyable instead of tedious.
There is also a need to distinguish a tactic like coupon clipping from saving money. They are not the same thing. For example, coupons may help to stretch your spending but they will not help you save your money. Just think, have you ever used a coupon, say for a $2 ‘saving’ and then put $2 into a jar or a bank in order to actually save it? No.
Have you found a discount on last year’s car model? Perfect, go ahead and buy one. Choosing a lower priced item is rational, and clearly the better option. But if you don’t put that discount money in the bank and leave it alone, then this bargain not will result in saving money. So while there is nothing wrong with stretching your spending, and in fact it helps you to live better, it simply has very little to do with saving.
Bargain hunting and coupon clipping also distract you from saving money, because saving ends up as a side-effect. You might say that, “If I find a discount then I will save some money”. In other words, saving is the result of some other action instead of something that you set out to do. But, more importantly, the focus on bargain hunting means that saving becomes a lower priority than spending. That is the common trap that prevents people from growing their wealth and improving their financial life. This book shows why people fall into the trap and why it’s so easy to avoid.
- Why It Usually Goes Wrong
‘Save your money’. Who said that? Was it your father, or an actor on a TV bank ad? It was both, but that’s not all. Your financial advisor said it, the head of the central bank said it, and the wealthy barber said it. And the reason is clear and practical. You should do it because it’s good for you.
You always do what’s good for you. You only have one alcoholic drink a day. You never smoke. You keep to the speed limit and drink lots of water. All because it’s good for you. Most importantly, you don’t procrastinate. That’s the big one because it involves doing the things that you hate doing. Who wants to cut the grass or organize their desk? It’s a drag but you sacrifice the time and do it.
Of course nobody always does what is good for them. That’s mostly because there are no immediate consequences. It’s easy to put off doing chores and being disciplined if the results don’t appear until later.
Saving money, you are told, is in the same category as cutting the grass. You know you should do it. But it’s also a drag. So you procrastinate, putting it off until you feel like doing it which, of course, is never. It doesn’t help that saving is intensely discouraged because of the way it’s presented, as a chore or a duty, like flossing your teeth. You might eventually get around to it but it’s no joy. Or is it?
It’s easy to see that the joy in cutting grass is not in the doing, but in the result. You actually enjoy looking at it, and you might have one or two beers on the deck after it’s done. Organizing your desk goes the same way, and is even better. You may enjoy its appearance after it’s done and it makes your work day easier. There is less annoyance each time you need to find something. Eventually though, the grass and your desk revert to their original mess, and you have to start all over again.
The news is that saving your money is different. Saving is fun. There it is, there is the Missing Link. First you need to change your mind about what saving money does for you, but it is fun. And not only will you enjoy it, but unlike the grass that grows back or the desk that gets messy again, saving is permanent and the enjoyment keeps growing. It’s easy to start, easy to keep it going, good for you, and fun. Hard to believe, and yet it’s true. Read on and see how it works.
- 3 Easy Pieces
How can saving money possibly be easy and enjoyable when everyone says it takes years of discipline? First, change your mind. Next, open a separate account for saving. Last, keep adding to it. Is that all there is? Yes, that’s basically it, although the first part is the hardest because we are continuously trained to dislike saving. Changing your mind may also take a couple of steps, but in fact you already know what those are.
As much as your parents tell you to save, they never tell you why you will like it. You hear about the unavoidable pain of saving but never about the joy. You hear about making sacrifices to save, but not about the new choices that saving brings. You hear about the discipline required, but never about the relief from daily stress. Pain, sacrifice and discipline. Groan.
Even professional advocates of saving money turn you off. The banker in the TV ad says that the big banks are going to pinch you with excessive fees, but you can save a bit of money if you switch to his bank. The head of the central bank says that saving money will prevent national economic trouble. Financial planners say you will retire in poverty if you don’t save. Getting pinched? Economic trouble? Poverty? So much negativity naturally leads to a big turn off and it’s easy to see the effects. National savings levels are low, personal debt is high and people who advocate saving are somehow confused about why this happens.
The only thing that drives people is desire, so they simply ignore the sour messages and instead focus on their immediate wants. That would be shopping, dining or travel. Everyone wants love, security, a full belly and a full closet. A beautiful house or a major renovation would also be nice, along with a new car. Oh, and some new shoes. Saving money and new shoes don’t go together (at least according to scrimpers, budgeters and coupon clippers) so people will just ignore the