David R. Henderson  

Obama's Baby Step on Free Trade

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Finally, I have something positive to say about Obama's economic policy. Last Thursday the U.S. government lifted a number of restrictions on trade with Cuba. The Treasury Department lifted most restrictions on family travel to Cuba and also lifted limits on how much money families can send to relatives in Cuba. Treasury also eased regulations that had prohibited U.S. telecomm and satellite linkages between the U.S. and Cuba.

As I said, these are baby steps. By lifting the restrictions only on those here who have families in Cuba, the government has created (or, more exactly, added to) a caste society here. If you don't have relatives in Cuba, it's still illegal for you to travel to Cuba, except under narrow exemptions, or to send money to someone there. But it's still a move to freer trade. It's better to let some people have more freedom than others than to have all less free, but equally less free.

There's a strong case for ending the embargo completely. Here are excerpts from a piece I wrote after Raul took over from Fidel:

The case for ending the embargo has little to do with making Americans better off and lots to do with spreading American values - the good ones, not the bad ones - to make Cubans better off, both in their degree of freedom and in their economic well-being. And now that Fidel Castro is officially out of commission, ending the embargo would be easier because the U.S. government would not have to worry so much about saving face.
Let's step back and consider the proponents' case for the embargo. They make two arguments. The first is a straight moral argument: Castro (we need not quibble with whether it's Raúl or Fidel) is an evil man who heads an evil regime. The Castros have murdered many innocent people, stolen a lot of property, and put many innocent people, including homosexuals, in prison. So far, I agree with the argument. But here's the non sequitur: because of all this, the U.S. government should forcibly prevent Americans from trading with Cuba. Why is it a non sequitur? Because for the trade embargo to be a logical response to the vicious facts about the Cuban government, one would have to show that the embargo would speed the end of the Cuban government. No one has done that.

H/T to Doug Bandow.


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CATEGORIES: International Trade



COMMENTS (1 to date)
Boonton writes:

I'm wondering what the economic incentive is for Cuban-Americans to be so gung-ho against the modest loosening of restrictions. After all, they are the ones with relatives in Cuba. If they think visiting them or sending them money indirectly helps Castro why don't they just not do either? Why do they need the US gov't to stop them from helping their own sworn enemy?


Then putting on my economist hat, I think I detected the answer in David's post:

By lifting the restrictions only on those here who have families in Cuba, the government has created (or, more exactly, added to) a caste society here. If you don't have relatives in Cuba, it's still illegal for you to travel to Cuba, except under narrow exemptions, or to send money to someone there.

Cubans with relatives in the US will potentially have more political power when Castro finally dies since they have funds that come from relatively wealthy American relatives. I wonder if the restrictions are functioning like a cartel. The potential price of political power in Cuba is capped, otherwise cuban-Americans may find themselves in a bidding war. Factions that send thousands to their relatives will be able to carry more weight than factions that can only send hundreds. The restrictions then act as a price cap to make buying political influence cheaper for everyone provided everyone more or less stays on point and abides by the rules of the game.

Of course cheating would give an advantage. I'm sure when relatives do make visits to Cuba under the current restrictions they give their Cuban-bound relatives as much cash 'off the books' as possible.

This motive assumes that Cuban Americans are confident once Castro goes the monopoly the Communist party has will break. That Cuba will not be like the USSR which went through two or three generations of communist rule after Stalin died.

Either way the restrictions are counter productive because they help the communist party retain a monopoly on income. I find it perplexing that people who hate Castro seem to think the way to overturn his rule is to ensure that the only way to be rich in Cuba is to climb the ranks of the Party there.

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