Blog Archives

… Economic Development, a Reflection

The preceding article was posted at 1:14 AM EST, the time that my flight was scheduled to take off from Nicaragua. This article was posted at 5:43 AM EST, the estimated landing time in Ft. Lauderdale.

Originally I had envisioned a grand follow-up to the preceding article. I wanted to reflect on a year’s more experience in Nicaragua, present some economic research, and pontificate about Capital in the 21st Century. Unfortunately, time got away from me and I have not had sufficient time to formulate, research, or write the article. I still very much intend to (I have a brand new Lenovo X1 Carbon awaiting me at home in NY and I know exactly what the first assignment I complete on it will be), but for now I can present a few brief points and observations:

  • First, I think it is clear from the article that I disliked much about the Sandinistas. This is still the case. However, I no longer think that removing them from power is the ideal solution. The opposition in Nicaragua is very disorganized and arguably more corrupt than the Sandinistas. Nicaraguans themselves need to band together, from the left to the right, and denounce corruption in all of its forms, in both parties. I was extremely pleased that Guatemala was able to peacefully do just that last year, and I see no reason why a popular movement cannot improve the state of politics in Nicaragua as well.
  • I still believe that the Trees of Life are an exaggeration. Furthermore, it is wrong to use public funds for propaganda in the absence of a thoroughly democratic budgeting process. Even more so, I found out that the trees are built by Ortega’s son’s metallurgy firm. I haven’t bothered to check, but any guesses as to whether the fabrication went to a competitive bid? All of that being said, the trees are not ugly and making Managua (or León for that matter – Chayo gave us our first one as a Christmas present in December) a worse place to live. They have been an integral part of the revitalization of Old Managua which is certainly a boom for the city’s economy and quality of life standards. What the Trees of Life need is a balance – democratic budgeting that balances urban beautification and aesthetics with other needs of the city and the country.


  • One of the main points of my article was the idea of “Group Based Development.” I now realize that that is nothing new. It has been around for decade, especially in the form of gender based development. Development organizations and governments have been working with women since the 1970’s. I suppose I did not recognize this at first because of how disillusioned I am with the current state of gender based development. My main complaint is that it can be extremely gender normative. Organizations and governments tend to develop the skills of women only in fields that we traditionally associate with women, such as textiles, jewelry, and food preparation. What they should be doing is helping women access the most productive industries in society. Furthermore, development organizations and governments should be working with men to give women access to these more productive fields. Lastly, organizations and governments should be working with men to have them more highly value traditional women’s work so that wages go up and men begin to work in these fields as well.

However, I still think that group based development can be further emphasized in development. Poverty may be entrenched in society because of the structures and institutions of society. Without directly addressing the structures of society development organizations are not going to make much progress. However, if we work with underprivileged groups within this system we may make more progress. Women are not the only marginalized group in society. If government and society are effectuating the marginalization then external support is important to accelerate change (I certainly don’t want to say that a marginalized group can’t help itself – it has certainly happened before, but external support can be helpful as well).

  • Lastly, my opinions on the charter cities has turned very negative, especially after having traveled to Honduras and read more about the state of politics in that country. The extractive institutions in a country may very well be the corporate class, so ceding them power over municipalities is not likely to change anything. I am currently writing an article on my trip to Honduras and will write more about this in the next few weeks.

… Economic Development

… Gender Equality in Nicaragua

This article is being cross posted on my other blog, Incidents of Travel. Incidents of Travel chronicles my life as a Peace Corps Volunteer in Nicaragua and my thoughts on culture and life in general. Please check it out if you are interested. The article was also submitted to the Peace Corps Nicaragua Gender & Development Committee for publishing on their blog, but they declined to respond.

A book that I read recently that influenced me greatly was Why Nations Fail. The thesis of the book is that the main differentiator between the development path of nations is neither geography nor culture, but instead the institutions of the country, and how inclusive they are of the population. The more politically and economically inclusive, the more development potential, past and present.

I am very compelled to the thesis, and I tend to agree with the theory that culture does not have a strong effect. For the very most part I believe, scientifically, that all humans have equal capacities for intelligence and that characterizing a culture as “lazy” or “hard working” can be an inaccurate generalizing claim based in racist tendencies. The authors instead demonstrate that what may superficially look like a lack of economic motivation on the part of citizens may instead be a response to the lack of economic stimulus and opportunity that exists in the country due to poor societal institutions. For instance, a farmer may not exploit her land to its fullest potential because agricultural price policies lead to over-supply in the market. Or rather, laborers may not seek full employment because of strict government wage schedules across all industries that keep wages artificially low and working is literally not worth the bother.

Nevertheless, the idea that culture may inform economic divergence between nations nags at me. Rugged individualism, the importance of hard work, and the Protestant work ethic are well engrained in my American psyche. In addition, I routinely hear from Nicaraguans that they are an haragán (lazy) people, don’t like to work, and that their labor doesn’t size up to other countries’.

So how do I reconcile the theory with my conditioning and what I hear here in Nicaragua? First of all, folk-theories about rugged individualism, the importance of hard work, and the Protestant work ethic are probably just artifacts of a colonial world riveted by racism. I’m sure there are thousands of essays, papers, and books on Max Weber and his virtues and follies. I won’t delve further into that. As for the self-characterizations of the Nicaraguans as lazy and not hard working, I think that they may have internalized their own oppression and poverty. The imperialism, tyranny, and their derivative poverty that they have lived under for hundreds of years have become to such an extent part of the Nicaraguan psyche that they legitimately start to believe it and express it in their actions. I have seen multiple times teachers, who are poor people themselves subject to the same oppressive institutions as their students, lecture their students telling them that they are poor, come from a lazy culture, and are inferior to other countries. The result of this conditioning is that the students will begin to act accordingly. And these attitudes and behaviors will last for the rest of their lives. In effect, even though culture does not have a direct impact on development, cultural norms and beliefs can become entrenched in the institutions of a country itself, and institutions do affect development.

“The oppressed, having internalized the image of the oppressor and adopted his guidelines, are fearful of freedom.”
― Paulo FreirePedagogy of the Oppressed

Another profound aspect of the Nicaraguan culture that has become more deeply entrenched and truly institutionalized is machismo. Machismo is a cultural system that values qualities traditionally considered to be masculine over qualities traditionally considered to be feminine. It manifests itself in many aspects of life. At its most innocuous machismo dictates the games and activities that parents play with their children, and at its most destructive it leads to domestic and psychological violence against women and even femicide. Economically, machismo manifests itself through gender roles: jobs that are assumed to be for women and others that are presumed to be more suitable for men. For instance, in Nicaragua employers typically search for women only for positions such as clothing store attendant, house maid, secretaries, childcare, nursing, and chefs/waitresses (often the same person) at small eateries. Men are deemed more suitable for management, transportation, medicine (especially surgery), physical labor, finance, and engineering. From what I’ve seen, secondary education is more equitable, but primary education is more of the feminine realm (and yes, primary school teachers make a little bit less money than their secondary counterparts, which I find asinine given the importance of primary education and how challenging the work is).


The results of this culture are numerous and deleterious. First, women on average earn less money than men, so they often find themselves financially dependent on men even when they would be better off single. This leads to health and emotional consequences, such as being coerced into having unwanted children. Furthermore, seeing less potential for financial attainment after school, women will seek less education. This leaves women with fewer opportunities, especially well-paying opportunities, so they turn to the informal sector, which constitutes 80% of Nicaraguan employment, and is overwhelmingly feminine (men are more likely to immigrate out of Nicaragua, especially to Costa Rica or Panama).

I work with a cooperative that has 12 male members and one female member. The cooperative is acquiring a small restaurant to feed their guests, and they let me know that the female member would be placed in charge of the restaurant since that is naturally a feminine task. The woman immediately interjected, stating her reluctance and her lack of knowledge about cooking and restaurant management. Nevertheless, she remains in this capacity. This decision winds up hurting the whole cooperative. Maybe she is better at guest relations or accounting, and maybe a male member of the cooperative has skills suited for cooking and restaurant management. If their roles were re-arranged the cooperative would be operating more optimally and probably obtain more profits for its associates, but a machismo culture prevents this from panning out.

The informal sector in Nicaragua is hard work for a pittance. It usually involves waking up early to buy basic food ingredients, then making snacks to sell on the streets or in the bus terminals. Competition ensures that margins are thin to non-existent. In addition, being self-employed, these women have no benefits. They literally cannot afford to get sick and miss a day or work, and they are not paying into the Nicaraguan social security system to hopefully one day retire with even a modest pension that the system provides.

This is the institutionalization of machismo, and it pervades the public sector as well. In Nicaragua, the law states that for high ranking officials, there needs to be equality. For instance, if a mayor is a woman, then the vice-mayor must be a man, and vice versa (curiously, the President and Vice-President are both men). But this mandatory equality is only at the highest levels of government. The bureaucratic ranks are male-dominated.

Apparently only women are suitable for retail

Apparently only women are suitable for retail

Basically, I am describing the institutionalization of culture. Insofar as an exclusive culture (such as machismo) becomes institutionalized, culture very much can have an effect on the development of a country, and I believe it is having that profound effect on Nicaragua.

Despite what I have observed about the pervasiveness of institutionalized machismo, I have seen some conflicting reports in the news. The Economist reported last year that the World Economic Forum’s Gender-Gap Index ranked Nicaragua sixth-place globally for gender equality. Based on what I have observed and described here, I find this very hard to believe. And a deeper dive into the WEF’s data seems to corroborate my doubt.

The score each country receives in the index is an average score of four sub-categories:

  • Economic Participation and Opportunity (0.635)
  • Educational Attainment (1.000)
  • Health and Survival (0.980)
  • Political Empowerment (0.544)

Nicaragua’s 0.789 was sufficient to rank sixth place worldwide.

Nicaragua receives low marks for female participation in the work force, wage equality, and participation in civic life. On the other hand, it gets high marks for education and health. And it is true, as I mentioned, Nicaragua has a high number of female government leaders – statutorily. Nicaragua even had a female President, elected in 1990. Doña Violeta was the first in the line of three non-Sandinista interregnum presidents. Overall though, Nicaragua’s marks for economic participation and political empowerment were mediocre. Nicaragua’s relative strength in the ranking comes from educational attainment (theoretically perfect, according to the WEF’s methods) and health outcomes.

WEF’s data for educational attainment come from UNESCO. However, UNESCO compiles its reports from figures sent in from the Nicaraguan government, which recent investigative reports have exposed as being highly suspect. UNESCO’s last submission from Nicaragua was for the 2010 school year. Publically released information in Nicaragua has been self-contradictory with regards to enrollment levels, and over a ten year period prior to the numbers released for 2014, publically released data actually registered a decrease in the number of students (despite population growth and a large youth population), and then an enormous increase in 2014. In addition, there is evidence that the numbers are being smoothed by selectively including tertiary education, technical education, and adult literacy courses. In addition, there is no comparison in public data between students in conventional daily classes vs. secondary school students in weekend classes. Taken all together, the WEF’s educational attainment score is not reliable, even though it is the largest contributor to Nicaragua’s impressive ranking.

Nicaragua’s score for “Health and Survival” is almost startling. It ranks first place worldwide, which is an amazing accomplishment, especially for the second poorest country in the hemisphere. But again, on closer inspection, I doubt the conclusion. Health and Survival only takes into account two statistics: sex ratio at birth, and healthy life expectancy. Worldwide, women have a longer life expectancy than men. The index attempts to correct for that. However, I think the effect may be particularly strong in Nicaragua, which may account for some of Nicaragua’s strength in the area. Men, on average, have riskier lifestyles. Many more men than women are alcoholics, and men, due to their prevalence in heavy labor jobs, face many more occupational hazards. Fishing and logging are the two most dangerous jobs in the United States; imagine the risk in a country where OSHA does not exist and most fishing, logging, agriculture, and small industry is nearly completely unregulated. In one town alone, Chichigalpa, there is a neighborhood known as the Island of Widows because so many men (an estimated 20,000) have died from kidney failure related to sugar cane harvesting.

In addition, “Health and Survival” does not take into account other indicators of feminine health, such as domestic violence and abuse and teenage pregnancy. This is a methodological choice on the part of the index creators. They want to capture gaps between the sexes, and these factors are not subject to gaps – men simply cannot get pregnant, and there are no data collected on domestic violence and abuse against men in Nicaragua (or most countries). Nevertheless, Nicaragua has the highest rates of teenage pregnancy in Central America. One in four new mothers are under 18 years old. This leads to health complications for the young women, plus lower educational attainment and lifelong economic dependency on providers, who very well may be the abusive men who got them pregnant in the first place. Domestic violence and abuse is also prevalent in Nicaragua due to the machismo culture. The psychological element of this abuse leads directly to political disenfranchisement.

Overall, I would take the index results with a grain of salt. Methodologically, the index omits a number of important variables to capture the type of data it is selectively looking for. In addition, by averaging the four categories evenly, the index implicitly assumes that economics, health, educations, and political participation are all ends in and of themselves, but many would consider economic participation and health as the ends, with educations and political participation being the means. And lastly, the unreliable nature of data collection and dissemination in Nicaragua makes me suspect of the statistics and results compiled for the index in the first place.

So culture can in fact affect the development path of a nation, if an exclusive culture (such as machismo) becomes institutionalized.


… Spirit Airlines

SpiritI just flew Spirit Airlines roundtrip from Managua to Ft. Lauderdale. I’ll spare you all my personal review of the airline, but the general public’s opinion is undeniable. They like the prices and hate the service. On the occasion of my return, it was late at night, there was a massive storm barreling across the country, and a Delta flight had earlier in the day skidded off the runway at La Guardia, shuttering the airport for hours. A lot of people were in air travel purgatory that night, and I overheard on more than one occasion “I am never taking Spirit again.”

Airlines, like most companies that offer services, not goods, have high fixed cost. They have to pay their staff and buy and fuel airplanes, whether they are full or not. And any time an airplane is not flying, it is unused capital. Spirit has done an excellent job managing this challenge. By positioning themselves in a South Florida hub, Ft. Lauderdale, they can easily access Central America, the Caribbean, and parts of Central America. Many airlines leave their regional planes at the gate overnight. But Spirit gets them to Ft. Lauderdale, and then sends them on return red-eyes to the Caribbean, Central America, and Colombia. By 6:00 AM planes-full of passengers arrive in Ft. Lauderdale, and either stay in South Florida, or continue on other Spirit flights to their final destinations, whether they be Chicago, New York, Dallas, or elsewhere. Spirit simultaneously tapped what was an under-served market and increased the utilization of their 65 airplanes strong fleet (as of the end of 2014).

Spirit Airlines Route Map

Spirit Airlines Route Map

The downside of this is that they have no buffer in their schedule. On the occasion on my flight from Managua, we were nearly an hour delayed. The plane had been getting more and more late throughout the day, having already made a few trips between Ft. Lauderdale and La Guardia before heading to Nicaragua. Then, as soon as we got to Ft. Lauderdale (late) the plane was scheduled to immediately head out to another domestic destination. It certainly departed late, starting off its next day of work on a bad note, and probably continuing late for the foreseeable future. This gives the airline absolutely no buffer in its schedule. Many airlines leave their regional jets idle overnight. So if an airplane scheduled to arrive at its final destination of the day at 10:00 PM doesn’t get there until 11:30 PM, that’s not a problem for its next departure, at 6:00 AM. However, Spirit does not have this luxury with its fleet.

The result: the worst on-time performance among American airlines. 67% of flights land on-time (within 15 minutes of their scheduled arrival time) in 2013. That’s dead last in the United States, Mexico, and Canada, according to Bloomberg.

Many people complain about how Spirit “nickles and dimes” its passengers. But truly, travelers who are honest about their baggage and pay ahead of time will find themselves paying less for flights than on other major carriers. The true cost comes in late arrivals. For someone with a tight itinerary, Spirit may not be the right choice.


… the Inter-Oceanic Canal

Ometepe Island, in Lake Nicaragua

Ometepe Island, in Lake Nicaragua

Today marks the day that Nicaragua and her Chinese backers are breaking ground on the grand inter-oceanic canal that in five years will bisect the Central American isthmus and allow super-tankers too large for the Panama Canal to make the Pacific-Atlantic journey with ease.

Except it is never going to happen.

The history of Nicaragua is basically the history of failed canal attempts, and the foreign manipulation and betrayal, as well as the domestic anguish and languish that this brings. This is no less than the 72nd official proposal for a Nicaraguan canal. This won’t even be the first time that construction has begun. The first plans for a canal across Nicaragua were hatched by the conquistadors way back in the 1500’s, and Cornelius Vanderbilt nearly secured the financing he needed to construct the canal before the Civil War scuttled his attempts. But he did manage to incite a war and build a railroad through Nicaragua in the meantime.

Anyone who looks at a map of Central America may be puzzled by the proposal for a canal through Nicaragua. Costa Rica and Panama are far less wide. Nicaragua is the largest country, by area, in Central America. However, Nicaragua also has the largest lake in the region, Lake Nicaragua. At its closest, it is only 17 km from the Pacific Ocean. And Lake Nicaragua drains all the way to to the Caribbean Sea by way of the Rio San Juan (San Juan, or Saint John River). The vast majority of Nicaragua is an Atlantic, not a Pacific watershed. The Rio San Juan is rocky, shallow, and fraught with rapids at spots, but that has not stopped pirates from sneaking all the way up the river, as well as steam ships from being towed up the river. It is the most logical path for a successful canal through Central America.

As treacherous as the terrain of the river, the geopolitics of the river are far more rocky. The Rio San Juan is the border between Nicaragua and Costa Rica. However, it is the only riparian border in the world that is wholly owned by one country – in this case Nicaragua. And that has created endless problems and disputes with Costa Rica. So many, in fact, that the proposed route of the canal is completely bypassing the river and being cut straight through the interior of Nicaragua (and even so Costa Rica still has watershed issues that they claim Nicaragua is not responding to, in regards to the canal).

I don’t see why this time around should be any different from the 71 other attempts.

The main, insurmountable obstacle this time is the estimated price of the canal. Panama started with a good ‘ole American-made canal. Let’s say a Ford. And they have made a series of upgrades through the years. Let’s say right now they have a nice BMW model. To compete with Panama, Nicaragua is trying to acquire a Buggati. A $50 billion Bugatti, super-wide, super-deep, complete with access roads and highways, two deep-water ports, an airport, electric generation, pipelines, free-trade zones, a railroad, and a number of other necessary supply and infrastructure projects! They estimate it will take 50,000 workers and only take five years to complete.

So how is Nicaragua going to secure investors willing to provide nearly 4.5x its annual GDP ($11.26 billion, 2013 estimate, according to the World Bank)? I’ve put together a small list of possible backers and will go through my thoughts on each:

  • China
  • Nordic Sovereign Wealth Funds
  • Middle Eastern Sovereign Wealth Funds
  • Malaysian Sovereign Wealth Fund
  • Big Banks, the Backers of the Many Engineering Marvels of the Past
  • Venezuela and ALBA


If you ask a Nicaraguan where the money is going to come from they always say “China.” I don’t think so. Sure, the main investor at this point is a Chinese telecom mogul. And he is a multi-billionaire. But no one in the world has $50 billion to throw around, and our man in China is quick to point out that he has absolutely no backing from the Chinese government with regards to the canal. No one believes him, but it makes it very unlikely that he can muster $50 billion from his own domestic sources. Besides, between 2010 and 2012 China invested $101 billion, in total, in the entire continent of Africa (source: Business Insider). To think that they would even put half of that into one small country is irrational.

Nordic Sovereign Wealth Funds

I’ll make this one easy. Nordic countries, primarily Norway, have a lot of oil money that they are saving. But they are not going to invest it in Nicaragua. These countries have already pulled back on diplomatic channels and foreign aid to Nicaragua because of transparency concerns. They’re not going to pull a 180 and start pumping billions into a project fraught with questions and uncertainty.

Malaysian Sovereign Wealth Fund

Same story as Norway. They’re saving their oil money, and they’re not going to give it to Nicaragua. Unfortunately, this year, Malaysian Airlines, owned partially by the fund, had a rough one, losing two 777’s in their tragic entirety. The fund had to bail out the airline.  The price of oil is tumbling, which is probably helping to prop up Malaysian Airlines, on the one hand, but it is stunting the funds cash flow, on the other hand. I doubt they will be announcing a non-stop to Managua from KL anytime soon.

Middle East Sovereign Wealth Funds

And that leaves the Arabs. This is where I see the miracle coming from, if it comes from anywhere. Everyone knows that the Arabs have lots of oil wealth. And they’re known for the audacious. For one, Dubai. For seconds, it was the Arabs who bailed out some of the banks and hedge funds in the early days of the Sub-Prime Mortgage Crisis, long before Lehman Brothers became all too well known. So maybe, just maybe, a jet-setting Chinese man and Ortega’s outdated mustache can convince the right mix of petrocrats to throw in a good chunk of the $50 billion and really get the show on the road.

The Big Banks

No way Josue. Big banks in America, Europe, and elsewhere, are under immense pressure to demonstrate the viability of their investments. American regulators would pounce on any bankers working on this less-than transparent project, and European banks are already very bearish on shipping, since Northern European banks with shipping exposure were under extra scrutiny during the recently completed European banking stress tests, since global shipping has been very weak since the global recession.

Venezuela and ALBA

For years Hugo Chávez’s Venezuela was the standard-bearer for Latin-American Leftist opposition to America. When Chavez died last year his followers all started pounding their chest to become his heir. This included Correa in Ecuador, Ortega here in Nicaragua, Evo Morales in Bolivia, and of course Maduro in Venezuela. For years Venezuela, and its leftist sphere of influence, the Bolivarian Alliance of the Americas (ALBA in Spanish), have been financing cheap oil for member states as well as other social development projects. However, this all comes from Venezuelan stability and a steady stream of oil dollars into her state coffers. But with oil prices tumbling and Venezuela simmering in social unrest, it’s another no way Josue.

It is serenely ironic that the same trends, the rise of US oil and gas production, are giving rise to the need for an American super-canal, while at the same time driving the nail into the coffin of possible financing options, by driving down the price of oil.

The Sovereign Wealth Fund Institute has a nice map showing the size of sovereign wealth funds around the world. Click on the map for the link:

Red circles represent oil wealth, and blue circles represent other wealth (often mineral)

Red circles represent oil wealth, and blue circles represent other wealth (often mineral)

So it is never going to happen. But that does not mean I do not want it to happen. No one doubts that Nicaragua is starved for development. It is tied for being the second-poorest country in the Americas. Haiti takes the unfortunate crown, with Bolivia tied for second with Nicaragua.

The largest concern, after the obvious financing issues, is environmental. First and foremost, there is a 20-foot tide differential between the east and west coasts. And plans for the canal have not addressed this engineering obstacle yet. But furthermore, the canal will drive through protected wetlands, productive agricultural communities, and protected indigenous communities on the Caribbean coast. This is all not to mention that the route will go straight through and require the dredging of Lake Nicaragua, which is the largest source of freshwater in Central America. It is already an extremely fragile freshwater ecosystem due to agricultural and other pollutants streaming into the lake. Everyone from locals to parties interested in the fledgling tourism industry are in extreme opposition to the canal.

But lastly, I doubt that Nicaraguans will reap the benefits of the canal, which is how Ortega is selling the whole scheme to his people. The Chinese development corporation has a 50-year concession on profits, with another 50-year option to extend. Ortega is promising 250,000 jobs that will be born as a result of the canal, plus the need for 50,000 laborers on the construction. But of course I have my doubts. The canal will drive through some of the most sparsely populated and least developed departments of the country. Hundreds of thousands of people will have to relocate in order to realize those 250,000 jobs, which will lead to a lot of social strains on the country. Plus, given the under-education of the Nicaraguan people, the best-paying of the 50,000 construction jobs will mostly go to foreigners, not Nicaraguans. And I think it also bears mentioning that the highest HIV rates in Nicaragua are often in mobile populations, much like the worker camps will be. Has anyone put any thought into the epidemiological and public health effects of this project?

Nicaragua and the Chinese development company hired McKinsey to conduct a feasibility study. Officials refuse to release the results, but they are quick to point out the stellar economic projections. In 2013 GDP growth paced along at 4.6%. Official projections for the canal show that in the first year of construction GDP growth will skyrocket to above 14% and stay there for the foreseeable future. I just finished reading Confessions of an Economic Hitman. I hated the book. It was poorly written and not believable. But I can’t fail to mention that the author emphasized that the main tool of an economic hitman is inflated growth projections. It is guaranteed that the construction of a canal would attract a ton of foreign direct investment in Nicaragua, but sustained rates above 10% are preposterous and only part of the Chinese boondoggle to attract investment in the first place.

If the project ever truly gets off the drawing board (the groundbreaking today is ceremonial, nothing more) I will be in opposition. I fear that Nicaragua will bear many negative externalities while reaping few benefits.

… El Niño

El Niño has been gathering some attention in the United States and in Nicaragua, where I am currently living and serving as a US Peace Corps Volunteer. Basically, El Niño is when a wide band of surface water in the Pacific Ocean off northwestern South America heats up, altering weather patterns worldwide. I guess at this point I want to emphasize that whether or not this is a good or bad thing is completely subjective. It depends on your stake in the climate. For house insurers in coastal areas, it is definitely a good thing. For farmers in Nicaragua, not so much. However, from an economic point-of-view, the effects of El Niño, I believe, can be objectively discussed and predicted.

First of all, we’re not in El Niño yet. The National Oceanic and Atmospheric Association (NOAA) has to declare an El Niño based on observed conditions, and they haven’t been observed yet. However, many climatologists are predicting an El Niño to be declared later this year, and the effects of the oceanic temperatures are already being felt. Last week the federal Climate Prediction Center released a monthly report giving an El Niño event a two-in-three chance of developing.

If you live in a hurricane zone, you can breathe a sigh of relief. The weather patterns sparked by El Niño typically subdue hurricane forces in the Atlantic, leading to a below average hurricane season. The polar vortex probably won’t be back this winter. And California may have some wet months ahead to quench its drought (but with storms come mudslides in California). However, unless this El Niño is intense, which is looking increasingly unlikely, it probably will not bring enough rain to completely alleviate the drought conditions.

Two hurricanes! In Hawaii?

Two hurricanes! In Hawaii?

On the other hand, if you’re in the Pacific hurricane zone (Mexico and Central America – which means me, in Nicaragua) get your go-bag ready. El Niño can make for more and stronger Pacific storms. The Midwest also better dust the cobwebs out its storm cellars. There is a correlation between tornadic activity and El Niño.

Parched California

Parched California

So what does this all mean for economic activity in the latter part of this year and 2015?

Crop yields and livestock production will probably drop in 2015 as a result of the changes in weather patterns, which will drive up prices and put a minor dent in GDP. Adverse effects on crops in Southeast Asia could also drive up prices on foodstuffs like palm oil, which is already feeling the pinch from Ebola. However, more significantly, the warmer weather through the winter could be a boon for consumer spending (no one goes out and does stuff or buys stuff when it’s snowing, as we saw this last winter, but during mild winters GDP usually gets a healthy boost). Ironically, Japan is monitoring for the opposite effect. The coming seasons could be unseasonably mild and wet, dampening consumer spending.

Agricultural production is a relatively small portion of the US economic output, so the effects of El Niño could be quite muted in America (of course the wildcard is freak storms, severe droughts, or other unanticipated effects that have dynamic effects of the economy). However, in many countries around the world – in fact, in most countries around the world, agriculture is a much larger component of economic output. Nicaraguan farmers are already struggling with a slow rainy season, and hot weather in the mountains could be contributing to the spread of “coffee rust,” a disease that affects coffee plants and is spreading through Nicaragua and other parts of Central America. Since agriculture is such a large part of the Nicaraguan economy, the impacts of El Niño could be far more serious down here. Plus, American farmers have crop insurance at their disposal to insulate themselves from the effects of a poor harvest. Most Nicaraguan farmers have no such recourses and their personal well-being and that of their families’ could be seriously harmed by adverse El Niño effects.

Coffee rust

Coffee rust

%d bloggers like this: