Recently, Mike Hutchison presented his experiences and perceptions to an economics class. My thoughts continue in this post. For pictures of El Salvador communities, click here.
My father used to say, "Everyone has to eat. If you get a job in the food industry, you'll always have a job." When looking at El Salvador, one finds a country rich in natural resources. A country so robust in natural resources should be able to supply so much food to its country that they could have all they want at a low price. So why does food have a relatively high price?
Ag products like corn and wheat tend to be a normal good. But these goods are also income inelastic. This means that as incomes increase, people increase their demand for ag products but not noticeably.
Ag markets are notoriously vulnerable to supply changes because of weather and technology. El Salvador lies along the Pacific ring of fire, and is thus subject to significant tectonic activity, including frequent earthquakes and volcanic activity. El Salvador's position on the Pacific Ocean also makes it subject to severe weather conditions, including heavy rainstorms and severe droughts, both of which may be made more extreme by the El Niño and La Niña effects. These natural disasters can dramatically change the price of domestically grown product.
Technology continually pushes the supply of ag products to the right lowering the price. Advancing technology, uncertain weather climate, and an income inelastic demand for ag products make producing corn, wheat, and soybeans a poverty choice. A worker who chooses to work as a farmer is choosing to live on a subsistence income. Perhaps this is why now more Salvadorians are now working in the service sector such as tourism. El Salvador's tourism industry has grown dynamically over recent years as the Salvadoran government focuses on developing this sector. Last year tourism accounted for 4.6% of GDP.
On the beaches where you can see the San Miguel volcano and perhaps hear Reggae musicians play percussion instruments heralding the revolution, economics is playing a different tune--provide the goods and services that maximizes profits in the tourist industry then trade for those goods that can be produced at a low opportunity cost---like food. Economics is the study of the way people behave. Economics is an invisible hand that guides in decision making. It's a sad irony that economics guides the Salvadorians to make decisions that the guriellas gave their lives to make.