Obama wants to rescue Puerto Rico; Republicans should call his bluff and demand some real reforms.
Earlier this week, the Obama administration doubled down on efforts to aid Puerto Rico. The administration proposed to change American law to allow the territory and its municipalities to seek bankruptcy protection. The “Roadmap for Congressional Action” on Puerto Rico seems more calculated to embarrass Republicans than to find an actual solution to the deeply indebted island’s problems. Republicans had serious concerns about previous Puerto Rico bailout proposals. Rather than addressing these concerns, Obama simply cast the issue as a “humanitarian crisis.” The implication? Rejection of his plan would be heartless. But instead of dismissing it, Republicans should demand more substantial concessions on union-friendly federal policies that have helped deep-six Puerto Rico’s economy. Then we’ll see how serious Obama is about this “humanitarian crisis.”
Earlier this year, in a report commissioned by Puerto Rico’s government, three international economists authored a described the territory’s woes. While the report scored the territory for its lack of fiscal controls in the face of a struggling economy, the economists also argued that Puerto Rico suffered because it was forced to adhere to federal laws that have “gnawed at growth.” The “single most telling statistic in Puerto Rico,” they wrote, is that only 40 percent of the working-age population is employed. The biggest obstacle to jobs, the report argued, is that the territory must observe federal minimum-wage law, even though incomes in general are far lower on the island than in U.S. states. A full-time worker in Puerto Rico making minimum wage earns 77 percent of the average wage on the island, compared with just 28 percent in U.S. states. The cost of paying even an unskilled worker is so high that “employers are disinclined to hire.” Even more foolishly, welfare benefits on the island—including food stamps, Medicaid, and subsidies for utility bills—approach mainland levels. Recipients can garner benefits equal to $1,743 a month, more than the average wage on the island. “The result,” the report notes, “is massive underutilization of labor, foregone output, and waning competitiveness.”
Puerto Rico also suffers from the ill-effects of the union-friendly Jones Act—a 1920 law that drives up the cost of goods by forcing ships traveling between U.S. ports to be built and manned by Americans. The restrictions have a particularly devastating effect on the cost of transporting goods to and from U.S. island territories or states, such as Puerto Rico and Hawaii. ...
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