Where You Live Matters - How Geography Contributes to Wealth
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is episode 507. It's titled, Where You Live Matters, How Geography Contributes to Wealth. Over the break, Lapril and I spent about a month in Costa Rica. We spent time with our family,

Costa Rica is a beautiful country with high mountain peaks, rivers, beaches, the wildlife, flowers, absolutely gorgeous. I typically, when I travel outside of the U.S. or travel anywhere, I don't do a ton of research before I arrive. I find that once I'm there, then I have all kinds of questions in terms of how things operate, why things are happening.

as they are. I knew Costa Rica tourism was a leading sector in the economy, as was agriculture, bananas, coffee, pineapple, palm oil. I didn't know about palm oil, but down in the South where we spent a portion of our time, there were a lot of palm oil plantations. I didn't realize until later that Costa Rica also manufactures medical, electrical, and aerospace devices.

My friend warned me as we plotted out an itinerary for Costa Rica that it is the land of second gear, that it takes a long time to drive to places. When we picked up our rental car for a month, the Avis rental car agent warned me, never move your car if you get into an accident. He was emphatic about that. And so when Lepro and I first got there, she and I were there initially before our kids and their spouses arrived.

We drove out on what was labeled a national highway, Route 27, a toll road. It was primarily two lanes. You

You'd get behind a very slow truck or other vehicle. When there was an accident, and there was, there typically wasn't a shoulder. And so the lane coming at you was blocked due to the accident. And then they'd have to go around into the oncoming lane in order to get around the accident. And so we'd get these huge delays. Now, there were some passing lanes, especially where there was an exit. But then later, we were on Route 1, which is part of the Inter-American Highway.

Traffic there was even worse in spots, except for one stretch south of Liberia, where they actually had two lanes in each direction. But I was questioning, here's a country where tourism is a big driver of the economy, yet it's incredibly difficult to get anywhere. The Inter-American Highway was partially funded by...

by the United States. The aim was to connect the countries of Central America where there were a few roads, and this was around World War II, and the U.S. felt there was a strategic advantage to having these countries connected all the way from the U.S. down to

to the Panama Canal. Norman Wood was an engineer working on this project, and he spent time in Costa Rica. He said, and this was in 1940, there was only a narrow-gauge railroad from the capital of San Jose

to the port of Limon on the Caribbean or the Pacific port of Punta Arenas. And there weren't that many highways, none between the capital city of San Jose and the seaport. Very little land transportation in the 40s, mostly ox cart trails down to Panama or up to Nicaragua. And there were several local stations

small airplane services. So here we are in 2025. There are roads, but when I think of a national highway, they weren't there. And as I explored it more, I realized it's the geography. It's the mountains, the narrow valleys, the huge amount of rain that Costa Rica gets. And it's also priorities. Economic growth. GDP measures the monetary value of output. The

the goods and services produced. It's a function of the number of workers and how productive they are. And in comparing Costa Rica and seeing the transportation challenges, there just hasn't been the investment in the infrastructure. And then as we flew back and comparing it to Dallas and just the sheer amount of warehouses, highways, and the advantage of flat terrain for building a

It contributes to economic growth. The ability to transport physical goods efficiently drives economic growth. And Costa Rica is held back by its geography, as are other countries.

Texas is 13 and a half times the size of Costa Rica. Now, 30 million people live in Texas, 5 million in Costa Rica. And if we consider Costa Rica with 5 million people, that's 100 people per square kilometer compared to 35 people in the U.S. per square kilometer with 335 million people or so. So U.S., much more expansive, as we know, much more dispersed.

Life expectancy in Costa Rica, though, is the same for the U.S., about 75 for men, 80 for females. But the amount of roads in Costa Rica, one kilometer per thousand individuals versus 20 kilometers per thousand individuals in the U.S. Now, partly it's the U.S. is more widely dispersed, but its geography favors roadways. And the choice of national governments over decades was to invest in

But even in the U.S., there is almost one kilometer of rail per thousand individuals, 0.05 kilometers of rail in Costa Rica. Again, the geography, the mountains makes it incredibly difficult to build railways, but also the choice.

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Now, when we look at the economy of Costa Rica, it's cheaper to live there. The cost of living is 67% of what it costs in the U.S., but the average income is less. $14,260 in Costa Rica, about 17% of the average income of $80,450 for the United States.

And then talking to friends there, when you look at Costa Rica and other developing countries, they're participating in a global economy. Food prices are, in many cases, globally determined. Certainly oil prices. Gasoline in Costa Rica is $4.24 per gallon compared to $3.06 in the US. So more expensive gasoline. Now in Costa Rica, and the Avis agent said this, first time I've ever had

rented a car, and they said the gas price here, if you bring it back empty, is going to be the same anywhere else because the gas price per liter in Costa Rica is the same everywhere because the prices are set by the government and they factor in global oil prices, exchange rate, transportation costs. But if you live far from the capital, out in the countryside, you're paying the same price for gasoline as you do close to a

refinery and so there's some subsidies there but it is more expensive to drive and we found food prices were about the same and because the price of gasoline oil food are

are determined by the productivity of global agriculture. And because of the hindrance of the physical infrastructure, the roads, the lack of rail in Costa Rica, it's still relatively expensive to live there. It's about two-thirds expensive.

of what it costs to live in the U.S., but the incomes are much lower because the economy is less productive, and partly it's just due to the geography itself, the physical constraints, the lack of scale because there's only 5 million people there, and to build out those roads is incredibly expensive for the government, the tax revenues, and the Costa Rican government and people have made decisions to invest in other areas such as healthcare.

Just one reason life expectancy in Costa Rica is as high as developed nations. So I realized in that month in Costa Rica that geography matters. It very much was reinforced. And I realized don't move your car if you get in an accident. So Pearl and I went to a mall. We came out and there was an accident right there.

in front of our parked vehicle where our car wasn't hit, but another car had hit the car that was parked next to us. And like good Costa Rican visitors, we just waited for the police to come where they had already come and did their entire investigation about 15, 20 minutes. And finally, they moved the car so we could get out. Now, one of the other challenges with Costa Rica and Joshua Sheets in the episode Laidback

last week talked about one advantage of living in the U.S. or other developed countries is Amazon. The ability to order and receive packages quickly and have it arrive at your house. Costa Rica doesn't have street addresses or house numbers. The address of a house

house is based on the distance from a local landmark or a physical characteristic such as its color. And I don't know how the post office delivers mail. And certainly Amazon isn't there trying to deliver packages. People use Waze, the navigation app. They use GPS pins. But the

In developed nations, the road system, the air, shipping facilitates the ability to order products inexpensively from Amazon and others. We looked at Amazon.

Amazon in episode 151, Amazon Impacts Everything. I purchased my first book from Amazon in 1998, and then Amazon started selling other things besides books. In 2002, I purchased my first non-book from Amazon, a Nintendo game for my son for Christmas. Amazon introduced

Prime in 2005, where you could get free two-day shipping. I joined Prime in 2006, and that year I placed 15 orders, including a very heavy and bulky clothes steamer shipped for free.

Amazon introduced Kindle, its e-book, in 2007. I pre-ordered it, knowing because they bought so many books that this would be a real advantage to me. 17 years later, I'm still locked into Amazon's e-book system, having bought over 1,200 books on Amazon.

I've made big purchases on Amazon. 2009, I bought my first television off Amazon. We purchased another large screen TV in 2020. 2020, during the pandemic, that was our biggest year of ordering from Amazon. 128 orders. And what we saw followed the trends. In 2024, U.S. e-commerce sales were 1.2 trillion, five times more than in 2013. 16% of

Total retail sales are expected to be e-commerce sales when the final numbers of 2024 are tallied. That's up from 6% in 2013. People are ordering more online. And the physical geography impacts that. The ability to travel.

transport and deliver those goods. I thought about this when we returned because we're in Tucson. Amazon has delivery trucks here that were built by Rivian. They're EVs. And as I'm out walking, I can see the Amazon driver stopping every few houses.

There's a warehouse, brand new Amazon distribution center in Tucson. They have several up in Phoenix. And so when you order on Amazon, the product typically is already very close.

But I became disgruntled with Amazon in 2023 because even though I've been a Prime member since 2006 and they include Prime Video as part of that service, they decided if you wanted to avoid commercials when streaming on Prime Video that you would have to pay more. I didn't like that. And I was also heavily influenced by episode 413, which we released in May.

December 2022, What If the World Stopped Shopping? And in that episode, I referred to the physicist Robert Ayers, who mentioned that the economic system, GDP, is essentially a system for extracting, processing, and transforming energy as resources into energy embodied in product and services. It's the use of fossil fuels or lubricants,

Asphalt, fertilizer, plastic, electricity generation, steel, cement. It's a huge endeavor, this energy transformation. In that episode, I also quoted researcher Vaclav Smil, who wrote,

high level of per capita consumption and the concomitant level of waste can take some impressive and relatively rapid decarbonization steps. But that's not the case with the more than 5 billion people whose energy consumption is a fraction of

of those of the affluent levels who need much more ammonia to raise their crop yields, to feed their increasing population, and much more steel and cement and plastics to build their essential infrastructures.

That got me thinking, am I overconsuming with my 128 Amazon orders in 2020? And so I tried to cut back and did cut the number of Amazon orders in half to 57 in 2023. And last year, I ordered five things from Amazon, two personal care products, two physical books, and some concentrated weed killer.

I only order stuff from Amazon that I actually know what it is that I've used in the past because of the proliferation of fake reviews, poor quality in some cases, you're never actually sure what you're going to get. The site's more difficult to navigate sometimes. We ordered, as a family, 22 orders, including 50 digital books. But my view on Amazon has become more nuanced. I've tried to reduce my personal consumption by fewer items.

new things. But I'm not necessarily anti-Amazon because I see the advantage in the efficiencies, including the environmental efficiencies of that network, because the stuff is so close and Amazon is delivering via their EV, stopping at every few houses.

Now, in Idaho, we definitely try not to order on Amazon because I hate to tick off the delivery driver that has to drive miles out of its way to deliver a package to our cabin. There, it's incredibly inefficient for the delivery system because...

It's a dirt road. It's hills. It's like delivering in Costa Rica to some extent. But we see that the physical geography increases efficiency, the ability to order products cheaply because they can be delivered in other places where that's not available. It costs more to live because of that inability and the cost of delivery and the cost of even finding the house in Costa Rica.

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Now, given Vaclav Smil's comment, the overconsumption, one of the rules of thumb that I've tried to follow is only buy new clothes in stores. I mostly buy used and vintage clothes, but I like fashion. I like clothes and accessories.

And as e-commerce has grown as a percentage of total retail sales, physical stores have become even more important. There's an article I'll link to in Bloomberg by Amanda Mall titled The Era of Financios Running Retailers is Over. And she writes, the problem with trimming a retailer's operation down to the bone is that the company still has to give people a reason to keep shopping with it.

When the online competition offers rock-bottom prices, infinite selection, and fast shipping, enticing shoppers with human customer service and intriguing displays to help them discover new stuff can give the old guard an edge. And that's what I found. I like to shop in a physical store for the experience, to touch the merchandise, to feel the fabric, to see how it's constructed, to see if the quality is there.

One of the things that we can do because of the potential consumption catastrophe, if everyone just stopped shopping, either at Amazon and other places, is just to slow down the hedonic treadmill. We get a boost. It feels good to buy something new and the anticipation of getting it.

Even as we order online, we're tracking where the package is. Oh, it's out for delivery. Oh, it's delivered. But instead of increasing the volume of deliveries, if we slow the process down, do research, reflect, learn about the items, maybe visit them in the physical store, but buy fewer better quality things, relishing the process, the economic impact is just as great.

Because GDP is a measure of the value, the monetary value of what's being produced, not the number of things. So we can slow down that buying process and consume less, but still allow the economy to grow.

My view on Amazon is more nuanced now. We've cut back what we've ordered. We've not rejoined Prime. What we paid in shipping last year was less than what Amazon Prime would have cost. But that's another example where geography matters, the ability to get Amazon products.

The final area, as I thought about over the holidays, was AI. It's been two years since OpenAI released ChatGPT. I use it every day. I use it as a complement to my work. But I can also see the flaws in large language models, and I've experienced them. To me, using ChatGPT or another large language model

It's like talking to a friend, running ideas past them, getting their perspective, but not believing everything they've said.

This past summer, I went back and forth with ChatGPT because, and I think I mentioned this in an earlier episode, we were talking about what was more high scoring, hockey or soccer. And ChatGPT made the case over and over again why soccer is higher scoring than hockey. And it was very convincing, but it's wrong.

Earlier this week, I wanted to chat GPT was creating a table of the food I had eaten and the calorie count. And I wanted to add something. It wouldn't add it. And I asked again and it's all I added it and still wasn't there. Three times I asked to just add the line item to the table.

Finally, it kept apologizing and it added it, but it did it by dropping one of the items. Somehow it got into a loop where it could only have six items in the table. And finally, I had it reconstruct the table. But my point, and I said this to the bot,

This is the latest model. We're paying 20 bucks a month for the latest model, and it has glitches like this. There's another article I'll link to from The Economist that asks, what happened to the artificial intelligence revolution? The idea that AI is going to make us more productive and the

Big tech companies are building out data centers. There's an arm race of data centers. Sam Alton, founder and CEO of OpenAI, said, We still don't appreciate the energy needs of this technology. There's no way to get there without a breakthrough. We need fusion or we need radically cheaper solar plus storage or something.

And Veris, an energy consultancy, predicts that there will be 80 new gas-fired power plants built in the U.S. by 2030. 46 gigawatts of capacity just for data centers.

That's the size of the entire electricity system in Norway. In order for these large language models to work, they need training data, and the size of the data centers are absolutely massive. Michael Liebrich, a senior contributor for Bloomberg NEF, said,

said these new data centers will be as complex and expensive as aircraft carriers or nuclear submarines, costing $12 billion for a data center with one gigawatt capacity. That includes the vibration-proof construction, the power supply, cooling, 100,000 GPU chips, the machines in the data center, $4 billion.

and so much money and resources and energy, and the latest model can't even figure out what's higher scoring, hockey or soccer. And it can't add a line item to a table, simple six-line table.

Now, I get incredible value out of AI, but it's not going to replace my job. In fact, when you look at the writing that AI does, you can almost tell now. Now, models can tell what's AI written, but just get on eBay and look at listings. You can tell the AI written listings because they're too flowery. Nobody talks like that. And even personal finance articles can be like that.

I'm hoping to finish my second book this year. I use AI to correct some grammar, but I wouldn't trust it to write a paragraph because that doesn't sound like me. The sentences are too long, too perfect, lacks humanity.

And so we're still very much in the early days of AI. But it reminds me of the huge physical build out of infrastructure of data cables and other infrastructure during the Internet bubble in the early 2000s. It was overbuilt, which is why growth stocks underperformed for 13 years. We may be getting to that same point in terms of the hype and price.

promise an investment in tech and AI looking at the valuations. We did a couple episodes late last year on that. I sold my AI-related stocks

stocks in December and rebalance to non-US small cap. Because while I find AI useful, I believe it's overhyped. These models can't think. They're great for predicting words based on having sucked up and digested the internet, but there needs to be more breakthroughs. And what we don't know is given this demand for electricity, where will it come from?

We've talked about new nuclear build-out, geothermal, or maybe it's just going to be more natural gas and more carbon emissions from that. But clearly, the data centers are being located based on geography. It matters. The ability to access clean power, any power, to connect to the grid. That geography is contributing to the wealth of those areas that is attracting that, or they're contributing to the cost.

As a data center moves in and overwhelming the power grid, pushing up costs for retail customers. So geography matters. Geography can hinder or contribute to productivity increases. Geography matters when it comes to the impact of climate change, as we've seen the horrific effects.

in Los Angeles. We looked at this back in episode 423 in August 2023, whether natural disasters and wildfires were increasing. And we found that wildfires were not actually increasing. They were in the West of the United States, but around the world they were not because more land is being used for agriculture. But overall, natural disasters are increasing, particularly water-related events. And it's now, as we've done episodes, showing up in Indiana

insurance rates. You have no idea how and to what extent homeowners in the LA area were underinsured. Many had seen their insurance canceled as major insurers stopped insuring in higher risk areas in the foothills. But we'll see how these things play out in the coming years. But the overall theme, where you live, and there's many other risks we could do on where

where you live in terms of education system, health system, political system. But this episode, geography matters. The physical plant matters. It can impede economic growth or it can enhance economic growth. Share your thoughts with me. What are other examples you've seen where geography makes a difference? This is episode 507. Thanks for listening.

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