One of the wonderful things about economic science is that it is the science of incentives. It analyzes how humans respond to incentives and, despite evidence from other social sciences, how these responses tend to be rational. There is a lot of well documented circumstantial evidence that illustrates this rational behavior. Perhaps the best known collections of references are the books Freakonomics and Super Freakonomics and their associated blog, which present everyday life situations where people act according to incentives and behave rationally.

Not surprisingly, Bolivia is no exception. Bolivians have also proven themselves to be economically rational beings who act according to the incentives they face. A friend of mine, Mario Duran, recently wrote an article about the synthetic grass courts that Bolivia’s President, Evo Morales, is giving throughout the country as part of the “Evo Cumple” program. Interestingly, the article pointed out that even though these courts are given and built by the government, most of them have become private property. Throughout Bolivia, Neighborhood Councils, Sportive Leagues and other kinds of social organization now charge between 100 to 250 Bolivianos per game for the use of the fields.

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The following situation has occurred to almost everybody: You are on holiday and want to get money from an ATM cashier; the machine swallows your credit or debit card. This is worse if it happens during night when all banks are closed and even worse if it happens in a foreign country. Last year, at the LACEA-LAMES meeting held in Santiago of Chile, Sendil Mullainathan[1] used this example to explain how budget constraints could affect consumption decisions, which is not surprising, but most important how they could affect the behavior of people regarding their labor supply.

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After the hyperinflation of year 1985, Bolivia started a new economic cycle characterized by an economic stability but with a slow growth. This cycle has not ended yet although important transformations took place, in particular in year 2003 where a profound social and political crisis ended with the upcoming of the actual president and the implementation of a new economic vision based on the State intervention in the economic activity.

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During the last few years a new economic setting has emerged in the Bolivian economy lead by the fiscal sector that can be summarized by three facts: i) For the first time in history the Bolivian economy has recorded fiscal surpluses several years in a row; ii) there is a social policy to attack poverty based on transfers from the government to the households (conditional transfers like the Bono Juancito Pinto, Renta Dignidad and Bono Juana Azurduy); and iii) the aim of the government is to use fiscal policy and in particular public investment as the foremost instrument to promote growth and welfare.

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Two years ago, I wrote an article entitled “Economics from the Internet to Reality” which showed first how the Internet had changed the study of economics by facilitating and universalizing it and second how the real world shows us situations where the economics is fully carried out. I cited the example of the 16th of July Fair in El Alto as the leading exponent of what is a market and how it functions in allocating resources. There is no doubt that in these years the economy has become even more universalized, for example, today anyone can hear and see real-time conferences through the Internet; and for sure the market remains the main institution of the economic science.

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Every 1st of May the day of the worker is celebrated in many parts of the world, and in Bolivia it has become a custom for the government to give certain benefits to the workers on that day. This year was not the exception and the government promulgated 5 Supreme Decrees benefiting workers. The highlight of these 5 Decrees is Decree 1107 because it recognizes the labor rights for the provisional workers of the companies. That is to say, those workers that are under short-term contract will be able to receive social benefits.

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A longstanding question in economics is why some countries are much wealthier than others. Recent studies show that one part of the answer has much to do with differences in productivity levels among countries. Since the seminal work of Solow (1), an important concern in economic literature has been how to measure productivity. If productivity has a strong influence on growth and welfare in the long run, having a good productivity measure is a crucial element.

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Nowadays everybody in Bolivia talks about revolution and the first thing that anyone can imagine, and has seen in the last days, is people fighting and killing each other. I do not want to talk about that kind of revolutions, instead I will talk about another revolution that Bolivia should achieve: A productive revolution in the agricultural sector.

A longstanding question in economics is why some countries are so much richer than others. GDP per capita in Asia grew during the last four decades at 5.2 percent, in the OECD at 3.3 percent and in Latin America at 1.2 percent. In fact the performance in Latin America has been very poor(see table).

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Economists play an important role in the implementation of economic policies and thus in the construction of societies. So, it is logical to think that a good design and implementation of economic policies require good economists. These economists should be solidly formed not only in the handling of analytical tools but also in the understanding of the economic, social and institutional realities of their countries. The formation of this analytical, observant and practical economist does not finish in the university, but usually it begins there.

Together with two co-authors, I have just finished a paper on economics training in Bolivia and Chile (1). A better understanding of how new economists are formed in these countries would help to understand how economic analysis and political decisions are made in these countries.

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