econlife - Why Valentine’s Roses Bloom in Colombia by Elaine Schwartz

What do you get when you combine a sunny mountain with thousands of workers who earn $300 a month?

200 million roses.

A Rose Supply Chain

Our story begins with the U.S. government. Hoping to disrupt Colombia’s cocaine cartel, in 1991, they said no more import taxes on flowers from Colombia, Peru, Ecuador and Bolivia. Legitimate Colombian flower farms responded. At 24 cents, their wholesale price was 11 cents lower than the 35 cents charged by U.S. growers.

You can see why U.S. rose production fell right after the ATPA (Andean Trade Preference Act):

And it kept falling:

Meanwhile, we have a supply side with thousands of pickers in the mountains near Bogotá. Their job is to do a two second snip 25 inches from the stem. Then, bunches of the roses are wrapped in clear plastic and rushed to a nearby airport. As Valentine’s Day approaches, each of 30 cargo planes carries a million roses to Miami daily. There, refrigerated trucks pick them up and take them to warehouses for repackaging.

And that’s it. They are ready to go anywhere in the U.S.

One likely destination? Walmart buys 24 million Colombian roses.

Our Bottom Line: Comparative Advantage

Our rose story connects Adam Smith, David Ricardo, the U.S. and Colombia. In his Wealth of Nations, Adam Smith explains the virtues of mass production and the need for “distant sale” that requires a transport infrastructure and many buyers. Colombia had the transport infrastructure connecting it to the U.S. where many buyers awaited its roses. But, the last crucial piece is comparative advantage. Through globalization, Colombia was able to benefit from the comparative advantage that 19th century economist David Ricardo described.

As Ricardo might have explained, Colombia was able to grow roses at a lower opportunity cost than the United States. Combined with a supply chain that facilitated “distant sale,” Colombia could optimize its comparative advantage as a rose grower.

My sources and more: Thanks to the Washington Post for its wonderfully detailed article on the rose supply chain. Then, if you want more, do look here at the environmental benefits of not using local growers. And finally, for a fast statistical read, the National Retail Federation has all you could want to know about what we buy on Valentine’s Day.

Please note that a similar version of Our Bottom Line was previously published at econlife.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Can a Hurricane Help an Economy? by Elaine Schwartz

First as a hurricane and then a tropical storm, Harvey is sure to affect more than the local Gulf Coast economy. With a path near almost one-third of U.S. refining capacity and one-fifth of its crude production, the storm already has shut down a hefty proportion of the industry.

Where are we going? To why hurricanes do not help an economy.

Step 1: A Supply Summary

First we should look at the supply chain that Harvey is hitting. Below, you can see the location of the Gulf’s refineries and where they send oil along the U.S. East Coast:

Step 2: Shipping

When Hurricane Harvey approached the Texas coast on Friday, immediately, some links in the gasoline shipping supply chain were eliminated.

You can see the dive to zero for departing vessels and maybe 1 for arrivals in Corpus Christi, Texas:

Step 3: Markets

Meanwhile, before the storm’s landfall, markets also had something to say. Because less gasoline could mean higher prices, we just needed to look at futures markets to see the weather prediction.

On the New York Mercantile Exchange (NYMEX), last Friday’s ups and downs of futures for a gallon of unleaded gasoline corresponded to changes in the storm’s intensity. At first futures moved upward. But then they reversed when the weather prediction changed:

Now, with the storm’s impact spreading, we can ask about the aftermath.

Our Bottom Line:  The Broken Window Fallacy

Nineteenth century economist Frederic Bastiat (1801-1850) said “destruction is not profitable” because disaster recovery replaces what was lost. So, although a clean-up could make the GDP surge, the spike reflects an increase in spending, not national wealth.

Bastiat questions the assumption that a broken window can be an economic blessing. He agrees that a glazier would receive, for example, six francs to fix it. However, he then says, “…if…you conclude…that it is good to break windows, that it helps to circulate money…I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.”

Bastiat wants us to recognize that the money given to the glazier would otherwise have been spent on new shoes or a book. Having been able to spend the six francs on a new pair of shoes, their owner would have had new shoes and the old, unbroken window.

So, whether looking at Corpus Christi’s port activity, gasoline futures, or the GDP, we can see the downside of hurricane economics.

My sources and more: Always excellent for unexpected detail, Vox had the economic perspective for Harvey. But if you want a firsthand look, do go to Corpus Christi port information. In addition,  EIA is a solid source as is this Marketwatch analysis of gasoline prices. Finally, econlib is always handy for bios and economic background information.

Please note that my description of the Broken Window Fallacy was published in a previous econlife post.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.