Don't "Block" Macroeconomic Logic

According to the Brownfield Ag Network:

"Former Illinois and U.S. Agriculture Secretary John Block says legalizing travel with Cuba will boost U.S. food sales. The Center for Democracy in the Americas held a conference call with Block on Wednesday in Illinois. Block says he supports legislation in Congress seeking to allow all Americans to travel to Cuba because it would increase tourism in Cuba and its demand for food."

From a macroeconomic perspective, Secretary Block's rationale is faulty at best, as it simply makes the Cuban regime an unnecessary middle man.

Let me explain.

Joe American (a U.S. tourist) would have bought a cob of corn in the U.S. at $1 say. Now he goes to Cuba and he pays $1.50. Of this, the Cuban regime pays $1 to U.S. farmers, which makes farmers equally well off as selling it at home: they still get $1 for their produce.

However, the 50c extra is the Cuban regime's mark up.

From the U.S. side, those 50c represent an import of services by the U.S. and adds to the U.S.'s current account deficit. These are 50c Joe American would have otherwise spent in the U.S. (or saved). From the Cuban side, those 50c represent export revenues to the Cuban regime. Such moneys may be used to buy U.S. goods, but also goods from other countries. They may also end up financing the Castro regime's state security and military apparatus, in order to continue exerting power by force and repressing the Cuban people.

Farmers would be better off if, in addition to U.S. tourists, Cubans themselves were to buy U.S. corn. However, the Cuban regime is essentially bankrupt and does not have the money to pay for it. Therefore, the Cuban regime needs to generate export revenue to earn US$ with which to pay for imports. Yet ample evidence from the last half century shows that to accomplish the latter, Cuba needs to develop a competitive market economy -- something the Castro regime refuses to do.

But let's be honest, should farmers be worried about exchanging corn for Cuban IOUs? Not really.

If Cuba undertakes reforms, they will eventually be able to exchange the IOUs for U.S. IOUs (e.g. dollars). If it doesn't, sooner or later the U.S. government will bail them (and simultaneously the Cuban regime) out. For farmers, the great thing about this plan is that it is essentially a farm support system that (1) would not appear to contravene World Trade Organization rules and (2) would not be seen as such by taxpayers, thus making for an easier pitch to Congress.

For U.S. businessmen, taxpayers and national security, on the other hand, this is terrible news. Taxpayers will likely foot the final bill, businesses with Latin American operations will face a better financed foe, and national security will continue to be undermined by Castro's anti-American activities and persistent network of spies in the U.S.

By the way, did somebody mention narrow self interests?