Will Puerto Rico’s Debt Be the First ‘Jubilee’?
So yeah, default on the bonds. Because if you don’t, you’re absolutely putting an albatross – it’s an anvil, actually – around the neck of the productive part of that economy to pay off those bonds. But that’s just one reason to default. Another is that all that debt guarantees that future generations of Puerto Rican residents will be turned into indentured servants to pay it off. A third reason is that it should ruin the Puerto Rican government’s credit rating for a while, which will preclude them from borrowing again. That’s a good thing. Government spending is almost all consumption – it siphons capital from the productive private sector, dissipates capital, and lowers the standard of living. Justin: And a default would be in Puerto Rico’s best interest? DOUG: Yes, for the reasons I mentioned. The moral and economically intelligent thing to do is to default on the bonds. There should be no aid from the U.S. to Puerto Rico. It would mostly go to putting in new infrastructure. Which means the electricity and water would work again, and favored contractors would get rich. But that wouldn’t solve any of the island’s real problems – bureaucracy, corruption, high taxes, and a socialist mentality. Tourists will come back to the waterlogged and mildewed hotels at some point, I suppose. But the island isn’t cheap even in good times, since everything is imported. The only reason to be there is to take advantage of those provisions in their tax code – Acts 20 and 22, that may let an American live there tax-free.
There’s no real economic activity on the island besides tourism. Even the drug companies – which were quite big employers for many years – are leaving. So, there are going to be scores of unemployed waiters, maids, and taxi drivers for quite a while. Justin: But Doug, Puerto Rico is a U.S. territory. Shouldn’t the federal government have its back? DOUG: No. Puerto Rico should actually be an independent country. Historically, that’s what Puerto Ricans have always wanted, since we took the island from the Spaniards as a spoil of war in 1898. Although in recent years, Puerto Ricans have gotten so used to the welfare benefits and convenience of being part of the U.S. that few want independence anymore. Half of them now live in the continental U.S. A pity. It could become the most prosperous country in the Western Hemisphere if they pursued the right policies. It could turn itself into the next Hong Kong or Singapore. But that won’t happen. That’s because the island’s ethos is very welfare-oriented. It’s been totally corrupted by being owned and treated as a U.S. colony for the last 100 years. At least as far back as West Side Story , which was done in the 1950s, the place was a laughing stock. I love that song that Maria’s friend sings. She says, “Puerto Rico, my heart’s devotion, let it sink back in the ocean.” Most of the smart and entrepreneurial Puerto Ricans have long since hightailed it to New York or Miami.
34 | November 2017
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