Puerto Rico’s One Path to Economic Independence
The Social Security Administration has announced the government will run out of money to pay disability benefits by the end of 2016. This will occur unless the US Congress takes action. To save the system, the federal government would have to cut monthly benefits by 19 percent, which amounts to about US$200 per month per $1,000 dollars in benefits.
I’ve long warned that this was coming.
The United States is $210 trillion in debt. As default fears loom ahead, Puerto Rico doesn’t stand alone: its paltry $73 billion debt is a drop in the bucket when compared to the official US debt, which has just passed the $18 trillion mark.
Further, bailing out Puerto Rico would invite more demands for congressional handouts. Consequently, the United States would have to face the financial burden of having to bail out other states and municipalities in the union.
At present, over a million people in Puerto Rico receive some kind of taxpayer-funded assistance. That includes section 8 housing, reduced utility bills (or full relief depending on your income), food stamps, social security, and disability, among others.
With the closure of Roosevelt Roads, the repeal of section 936 tax breaks, and an anti-business legislative policy, the survival of the commonwealth economy depends almost exclusively on the spending of those receiving benefits. And that’s the problem.
As roughly 1,000 to 2,000 families depart Puerto Rico for the US mainland each month, the archipelago loses its economic pillars. But that’s not all: the number of employed Puerto Ricans also dropped by 0.7 percent per month between May and June of 2015. The annual employment decline averages 10 percent.
Foreclosure and homelessness rates are also growing.
Meanshile, 27 percent of the population are on welfare while about 12 percent (May 2015) are unemployed. As unemployment grows, more residents either become dependent on welfare or end up finding work within the government. It’s fair to say Puerto Rico’s economic model is simply unsustainable, since only half a million to 600,000 residents are actually producing.
These are the cold hard truths we must discuss when debating current Puerto Rican economy.
Statehood could offer a temporary improvement, but it wouldn’t answer the debt question. Free association or even socialist independence wouldn’t do the trick either.
There is only one pathway to economic independence: the free-market system. That would allow Puerto Rico to focus on wealth creation and not wealth redistribution.
What the future holds for Puerto Rico in the next few years will be very interesting, since her government might have to default on its debts. The island may well be in for a rough ride, as municipal bonds and hedge-fund markets begin to absorb the losses, and the United States struggles to keep its own head above water.
As the mayor of San Juan and “sovereignty” supporter Carmen Yulin spends her first vacation in Cuba, I wonder why she felt so compelled to visit the purported socialist workers’ paradise in the Caribbean. Despite her intentions, independence is coming to Puerto Rico, one way or another, and it will be up to the people to choose which kind.