Puerto Rico is stuck with billions of dollars of unpayable debt and has been mired in a recession for a decade. The island’s unemployment rate is in double digits and nearly half of its population is reliant on government aid. The remainder is migrating to the mainland by the millions.
And as if the U.S. territory didn’t have enough to worry about, this week Senator Harry Reid proposed a Senate task force to come to Puerto Rico’s rescue. The senator, like many of his colleagues on both sides of the isle who are concerned with the island’s plight, is well intentioned. But recall that the definition of a camel is a racehorse designed by a congressional committee.
The last thing Puerto Rico needs is more government from Washington and in San Juan. As Congress contemplates what action to take on its behalf, and the island’s creditors discuss restructuring its debt, Puerto Rico should serve as a cautionary lesson for the federal and state capitals and local municipalities.
The statistics are staggering: Puerto Rico is $72 billion in debt. Its credit rating is junk. Its unemployment rate is over 12 percent. Its poverty rate is 45 percent. Its workforce participation rate is 40 percent. The only positive piece of news in recent years, that the island’s high crime rate has receded, is mitigated by the fact that it cannot even afford to pay its police officers. Or its firefighters and teachers.
So how did it happen? In large part because of misguided government policies.
Prior to 1974, given that the island’s economy lagged behind that of the mainland, Congress held Puerto Rico’s minimum wage below that of the U.S. national average. This was altered by the early 1980’s when the two rates were equalized, setting off mass unemployment and migration as Puerto Ricans left home to find work.
One place closer to home where the island’s residents have been able to find work is in state government, which is the territory’s largest employer. Those jobs carry with them massively underfunded pensions that are contributing to Puerto Rico’s debt crisis.
And for years Puerto Rico’s economy was propped up by federal tax breaks and incentives aimed at luring industry to the island. This artificially propelled the economy, but when the code was altered in 2005, companies were exposed to the island’s high corporate tax rates. They promptly packed up and moved elsewhere, bursting the bubble burst and pushing Puerto Rico into a depression from which it has yet to emerge.
Since it is not a state, Puerto Rico is not able to file for bankruptcy, though President Obama has proposed allowing it to do so. Congress has thus far resisted and seems intent on remedying the island’s woes through centralized bureaucracy and micromanagement.
But Puerto Rico’s plight should be a lesson for not only Washington, but Springfield, Sacramento, Hartford and any other government still convinced that more spending, entitlements, and higher taxes equal prosperity, and a higher minimum wage and more regulation equals more employment.
Instead of bailouts, more government, and Washington, DC solutions, Puerto Rico needs more free markets, less government, and more local autonomy. Hopefully Congress will keep all this in mind if and when it convenes its task force and our elected officials will do the same when contemplating their budget priorities and tax policies. Otherwise, we may end up with yet another camel courtesy of Congress and more economic crises thanks to the states and municipalities.
served as the 38th Director of the United States Mint from 2006-2011. Moy is the chief strategist for Fortress Gold Group, a provider of gold IRA rollovers and physical U.S. gold and silver bullion coins for direct delivery. Read more from Ed Moy — Click Here Now.
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