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Economist's Contemplation of Cappuccino Is Complicated

December 17, 2010

Economics is a complicated field of study as it is, but when you are less than subjective because you enjoy the subject being analyzed, it becomes more so.

David Kestenbaum recently reported on the dilemma faced by Tim Harford, the Undercover Economist. Harford explained an interesting economic truth that can be exemplified by cappuccino. In describing the free market, a product such as a cappuccino appears fairly simple, as in its basic form, it only requires water, coffee and milk.

However, on closer examination, he points out that nowhere can one produce a cappuccino from scratch. Such a person would have to have his own cow for the milk source and grow his own coffee, which he’d have to roast himself. Therefore, even such a simple product relies on a market economy with several different producers, all able to sell the final product maker - the barista - the milk and the beans. The bean source - the roaster - has to have a good source of green beans as well. So behind every cup of cappuccino there is a coffee farmer and a dairy farmer, a coffee roaster and the barista. (The roaster and barista can be the same person, of course.) Then there is the sugar farmer and the sugar refiner. All of these rely on transport companies who can take their products to the market and to the final seller, the barista.

Harford used to think the fact that all of these persons cooperated together, based on their self-interests, was amazing. Now after the recent financial crisis with the banking industry, he sees things as more complicated. In considering a carbon tax as one possible solution, it looks much better to him until he goes to the kitchen or favorite coffee shop to enjoy his cappuccino. Then he is forced to reconsider his position.

Which all goes to say: problems are much easier to figure out if one is totally uninvolved with any of the elements of the problem. But who can separate himself from coffee? How many of us need that morning cup to face the challenges of the day? Have you ever sat down to figure out life without a cup of brew in one hand? When you have a problem with a friend, do you sit down over coffee to work things out?

For coffee lovers, coffee is a close companion. It’s doubtful we ever stop to think of how many people are behind this “simple” part of life. It’s amazing to think that if you wanted to produce your own cappuccino independently you’d have to move to a tropical or semi-tropical part of the world, maintain a dairy animal or two along with the coffee plants, and learn how to roast and grind your own beans.

This is definitely something to contemplate over your next cup of cappuccino.



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