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Talking with Humberto Barreto

Talking with Humberto Barreto

January 23, 2015

Humberto Barreto, the Elizabeth P. Allen Distinguished University Professor and professor of economics and management at DePauw University, traveled to Cuba in mid-January to speak at Universidad de Oriente in Santiago. In a far-ranging conversation, Barreto shares his personal connections and observations about a Cuba that is experiencing changes. He also talks about his passion for combining the study of economics with sports, as well as his thoughts about the Super Bowl.

What is your experience as a native of Cuba? How many times, and how recently, have you returned to Cuba? Did recent developments in relations between the United States and Cuba lead to this visit opportunity?

I am a native of Cuba, but I grew up in Miami. I learned to read and write in Spanish, and I didn't speak a word of English until first grade. I became a U.S. citizen on Oct. 19, 1984. I returned to Cuba in 2010 for 10 days as part of a teacher’s education tour. We were mostly in Havana and traveled to Viñales, in rural Pinar del Río.

ABOVE: BARRETO POSES WITH one of cuba's many vintage cars, A PRODUCT OF THE American EMBARGO

As for my trip to Santiago, recent developments did not influence my decision very much. I planned the January trip since last summer, when I renewed my Cuban passport, which enables me to travel to Cuba anytime without a visa.

From Cuba to the USA

Dates that shaped the Barreto family's emigration from Cuba

Jan. 1, 1959
Fidel Castro topples Fulgencio Batista and assumes power.

Sept. 18, 1960
Humberto is born in Camagüey, Cuba, the sixth and last child in his family.

Oct. 19, 1960
U.S. imposes embargo on Cuba in retaliation for nationalization of oil refineries in Cuba (which the government said was triggered by the refineries’ refusal to process Soviet petroleum).

April 17, 1961
Failed U.S. invasion at the Bay of Pigs.

October 1961
Humberto’s three oldest siblings (ages 9, 11 and 12) leave Cuba as part of Operation Peter Pan and live in New Mexico with foster parents.

Dec. 2, 1961
Castro declares he is a Marxist-Leninist.

July 8, 1962
Humberto and the rest of his immediate family leave Cuba. They are all reunited in Miami a short time later. Many Cuban exiles thought they would return to Cuba in a few months.

October 1962
Cuban Missile Crisis. This seals the separation between the U.S. and Cuba.


What was your experience during your visit, in light of recent changes in United States relations with Cuba? What did you observe about that island nation and its people?

I spent a lot of time talking to Cubans about the future. I am optimistic, but I found many Cubans wary of the future. There have been signs of relaxation in the past, but then things tighten again. For example, private taxis were allowed for awhile, then eliminated; now they are back again.

Cubans have had to be incredibly resourceful and make do with whatever they’ve got. While visiting my family in Manzanillo, I heard a lot about the “special period” (after the Soviet Union collapsed) and how they ate boiled plantain skins to stay alive. It sounded really, really bad, but they survived.

During the past 50 years, what has been the economic situation in Cuba and its economic relationships with other countries? What do you see now for the future of Cuba?

In my opinion, Castro was never a true believer (unlike Che) in communism. Castro imposed a centrally planned economy, built on Soviet principles, when he aligned Cuba with the U.S.S.R. as a means to protect himself from the United States. While clearly a successful strategy from Castro’s personal point of view, given that he maintained power for more than 50 years, this was devastating to the Cuban economy and people.

The Cuban economy, like the housing stock, is in total ruin. Unlike China and Vietnam, which abandoned central planning and adopted private markets (including a stock market), Cuba maintains a rigid, bureaucratic system that is inefficient and inflexible. For example, until 2012 Cubans could not own or sell real estate. If you wanted to move, you had to barter, finding someone to trade their residence with yours. You might put up a sign that said “se permuta” and hope that someone saw it, but the trade had to be comparable. If your house or apartment was much better or worse than the other one, there would be no trade. Moving to another city was even more difficult.

Paladares, restaurants in private homes, have been legal for awhile. You can hire a few people and pay them a salary to work in your home. Everyone knows that paladares offer much better food and value than state-run restaurants. Transportation is also becoming increasingly privatized.

The Cuban government blamed the U.S. embargo for its poor economic performance, but the real explanation, as was true of the Soviet Union, is that centrally planned economies do not innovate and do a poor job of allocating resources. Without subsidies from the U.S.S.R., and now Venezuela, along with remittances from Cuban-Americans (more than $3.5 billion last year), Cuba could not survive.

In fact, the collapse in oil prices leading to the inability of Venezuela to continue to subsidize Cuba is surely a primary reason for the recent changes in U.S.-Cuba relations. The U.S. is actually a top-5 trading partner with Cuba, but Cubans must pay for all imports in cash. When the embargo is lifted, Cuba will be able to borrow from the U.S. to pay for imports. This is an absolutely critical aspect of the new deal from Cuba’s perspective. Of course, the ability to sell sugar, rum and tobacco in the U.S. is also a welcome source of revenue for Cuba.

ABOVE: CUBAN food and drink, the main rivals of classic cars in barreto's trip album

As for the future, with the passing of the Castros and their generation, I am optimistic that Cuba will emerge and begin the gradual process of modernizing and growing, just like China and Vietnam. I tell my students that any country is free to call itself whatever it wants, but there’s no way China and Vietnam are communist countries today. It’s hard to know what will happen, but a probable outcome for Cuba is a gradual dismantling of state-owned enterprises (the “libreta” or rationing system has already been greatly narrowed) and increasing scope for private markets. The political side seems harder to reform, but my take is it, too, will eventually evolve.

What steered you toward the study of and career in economics?

I didn’t know much about economics until I went to college. I was a good student, and I liked math and science. I was drawn to economics because of its practical application, but in graduate school I was attracted to the philosophical side of economics. I specialized in the history of economic thought. Curiously, this part of economics has withered away as economics has become much more technical and quantitative. I am one of the last people to receive a Ph.D. degree in the history of economic thought in the United States.

You are pioneering ways to use Excel software in teaching economics, which is what you spoke about in Cuba. How are you using Excel, and what is your goal?

I thought I was going to speak for an hour, but they were really interested, and I ended up going for about three hours. The topic was Monte Carlo simulation. In essence, random processes can be implemented in Excel, and by resampling, the results can be directly observed. The example I start with is free throw shooting. Say you claim to be a 90 percent free throw shooter, but when I ask you to shoot 100 free throws, you make only 75. “Darn it,” you say, “That was really bad luck. I’m actually a 90 percent shooter, but because of bad luck, I only made 75 this time.” What do you think? Is that a reasonable explanation? There’s a way to answer this question with a formula, but Monte Carlo simulation offers a much simpler strategy. Create a virtual 90 percent shooter, shoot 100 free throws, count how many are made, and – this is key – repeat the 100 free throw experiment many times (say 10,000) and check how often 75 comes up. The answer? Usually, never. It’s very, very unlikely that a truly 90 percent free throw shooter makes only 75 out of a 100.

ABOVE: Barreto in his element

I then did more complicated chance processes, including what’s called the Classical Linear Model for regression. My goal was to show how Excel can be used to study sampling and other chance processes. I also wanted to explain how this can be used for teaching, which is my true passion. It was well received, and the faculty wanted much more. I am considering taking students down there next year for an Extended Studies trip.

What led to your combining an interest in economics with sports and the economics of sports? For example, was your interest spurred while growing up in Miami in the 1970s when the Dolphins won two Super Bowls?

I guess my last answer reveals the connection between economics and sports – you can model a game as a chance process and then study it. I do think even as a child I had a heightened understanding of luck. I knew, for example, that the undefeated 1972 Miami Dolphins were actually a weaker team than the 1973 Dolphins, who went 12-2 and also won the Super Bowl. The undefeated team was just luckier.

I was also a huge baseball fan and ran my neighborhood’s Strat-o-matic league. I kept elaborate stats on graph paper. My parents thought I was insane. I’d compute averages and percentages for individual players and teams. I wish I had Excel back then; it would have made calculations much easier!

As a professor of economics and management, do you think people generally understand how economics and statistics can be applied to sports, and particularly the development of fantasy sports leagues in recent years?

Side Notes

Black or Gold: "Perfect tie."

Favorite Course: "Wow, that’s really hard. I suppose it’s Regression and Simulation because seeing students understand complicated ideas is really enjoyable."

Favorite Spot on Campus: "Any classroom with my students because I love to teach."

If I studied anything else, it would be: Computer Science

No, I think people think economics is about money, financial stuff, unemployment rates and GDP. That is wrong. Economics is actually a way of thinking. It’s a method of analysis. I tell my students that I want to teach them how to put on special glasses that let them see the world through the lens of optimization, comparative statics and elasticity. Yes, economics can be applied to consumers and firms, but it can also be used to understand marriage, war, crime and sports. The list is endless because economics is the study of choice.

By the way, I’m talking about economics now, not statistics. The latter is obviously applicable to sports because of the inherent randomness in games. But I like game design, so to give you an idea what I’m talking about, I was fascinated by Australian rules football when I spent my last sabbatical in Melbourne. It is a mix of rugby, basketball and soccer played on a cricket pitch. There are some big, violent players, but an NFL lineman could never play the sport because you have to run too much. So I see the rules of the game as incentivizing types of players and producing optimal strategies – that’s applying economics to sports.

The Super Bowl is one of the biggest, most watched and most lucrative sports events in the world. How do you analyze the Super Bowl from an economic standpoint? What role does economics play in the Super Bowl, and what is the event’s economic impact – on the host city and otherwise?

There are many ways to answer this. Here’s one I bet you haven’t ever thought about. It turns out that the crowd in the Super Bowl is quite different from the usual football game. The people in the stands are quite rich and also mostly white. The NFL doesn’t like that, but they are swimming against a tremendous tide. The Coase Theorem (for which Ronald Coase won a Nobel Prize in Economics) can be applied here. It says that if you sell the tickets to the highest bidder, the stands will be full of rich people. Fair enough, but what if you distribute the tickets in some kind of lottery so poorer people get tickets? Somewhat surprisingly (although maybe not if you think about it for a minute), you will get no difference in the crowd. Those who get tickets will sell them to others who are willing to pay ridiculous amounts to see the game in the stadium. What if we concoct complicated systems designed to stifle exchange? Forget it, the Coase Theorem says those tickets will flow to those willing to pay the most. Individual optimizing agents will figure out how to make mutually beneficial trades. The rich person willing to pay $5,000 for a seat is better off after buying the ticket, and so is the poorer person because he or she didn’t value the seat as much.

As for the economic impact question, I know Indianapolis had an incredibly successful Super Bowl. But like most economists, I am not convinced that mega-sports events are, economically speaking, all that great. That’s not to say, however, that exposure and brand don’t matter. From what can actually be counted, I have not seen a study that supports public spending on stadiums and such. The Olympics is pretty much a money pit.

Humberto Barreto joined DePauw in 2008 as the Elizabeth P. Allen Distinguished University Professor and professor of economics and management. The endowed chair provided funds that have allowed him to conduct workshops for DePauw faculty members to learn how to teach using Excel, as well as for Barreto to travel and give talks. Allen funds supported his two trips to Cuba and are funding a workshop he will give at the University of Edinburgh in England in May 2015.