Folks:
Puerto Rico is embroiled in a debt “crisis” that seems to have stretched out for several years. Here’s a plea for help from a Puerto Rican who has chosen to live and work in New York: ” I’m not a politician or an economist. I’m a storyteller. [shades of Team America!] … Puerto Rico’s $72 billion debt, which is equal to about 68 percent of the island’s gross domestic product, thwarts efforts for economic development.”
As noted in a June 2015 posting (see below), the U.S. as a whole has debt that is over 100 percent of GDP, according to the Federal Reserve Bank. Puerto Ricans don’t pay federal income tax so they aren’t responsible for that debt. Nor are Puerto Ricans responsible for debt run up by the 50 states. Finally Puerto Rico seems to have recorded a lot of debt that would be private in other parts of the U.S., e.g., for utilities, as public debt. Thus it would seem that Puerto Ricans are actually less indebted than typical Americans (albeit they don’t have a printing press for dollars the way that the federal government does).
Why has this level of debt supposedly resulted in a crisis? Readers last time said that it was high interest rates. If Puerto Rico could borrow at the same rates as the U.S. Treasury then they would be fine. Suppose that the Federales paid off the creditors (bailout for Hillary’s friends on Wall Street and the future payers of Obama speaking fees!) and lent the island’s government money at the same rates being paid by the Treasury. Would Puerto Rico then be in good shape? If not, why is the debate primarily around debt? Shouldn’t it be about “Why do people want to invest in other states and countries around the world but not in Puerto Rico?”
Related:
- Can Puerto Rico be a laboratory for the future of the rest of the U.S.?
- If Puerto Rico owes 70% of GDP, why is that a crisis? (from June 2015; the good thing about the “news” is that it is the same every year)
Maybe Puerto Ricans as a whole are less indebted than Americans, it’s the Puerto Rican government that’s up the creek. Like the several States, it can’t just print it way out of the situtation, and nobody wants to lend it more money. It boils down to an inability to re-pay the debt (for various reasons, not just irresponsible government spending).
There are some unique factor involved. For example, the government owned utility does not charge public facilities (schools, hospitals, municipal offices, etc.) for electricity and these form a substantial part of their customer base. Giving out a lot of your product for free is not a good recipe for financial viability.
There is also a brain-drain factor. Once a place become unattractive to investors, it’s easy for it to go into a death spiral (Detroit, Flint, Greece, West Virginia, etc.) where everyone with brains gets out of town and the people left behind are both less productive and more in need of social services.
‘Crisis’ really means somebody wants some resources (usually money).
Jackie – It seems more efficient for a government service to not bill the government for its services, no?
Sam, no not at all. For example if you are a school and you get free electricity that doesn’t impact your budget, why not leave the lights and air conditioning on 24/7?
Jackie – who pays the electric bill at public schools? The government. If the utility company is a government service, then billing public schools for utilities would be the government sending a bill to the government. Then the government would pay the bill to itself. How is that productive other than creating more administrative government jobs?
Since the government controls the schools, they could turn the AC and lights off whenever they want. If they notice energy expenditures are high and tax income isn’t covering the cost of energy, they should just spend less energy. Are you questioning the ability of the government to run things efficiently?
Sam, most amusing.
It reminds me of one of the fallacies of government belief: that it is run by a better, nearly angelic, class of people who are not prone to the usual problems. This often tacitly declines into quasi-religious belief that Government shall benevolently, omnisciently and omnipotently solve all our problems, if only we let it into our hearts.
Sam – I think you need to take an economics class. Even in the Soviet Union they had to invent transfer prices for when the state owned steel factory sold steel to the state owned car factory (they would usually use Western market prices as a guide). Without some system of pricing it’s impossible to allocate resources efficiently. It’s like trying to figure out who won a baseball game without keeping score.