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The headlines may be focused on the Greek debt crisis, but there is another, similar debt crisis coming to a head closer to home. The island of Puerto Rico has seen its bond market collapse, it is unable to raise the revenue to meet its debt obligations, and the whole economy on the island is teetering on the brink of collapse. “Congress should immediately extend bankruptcy protection to Puerto Rico,” said Eric LeCompte, executive director of JubileeUSA, a faith-based organization that focuses on issues of debt reduction. The island should have the same protections as any US city or state. Bankruptcy law protects both investors and debtors from crises just like this.”
The crisis in Puerto Rico is akin to that in Greece or, to use a more proximate analogy, Detroit. For years, governments kicked the can down the road, the amount of debt accumulated over the years, and the ambient socio-economic forces were averse. The reckoning has come. On one side are the creditors, often vulture fund managers, who demand full repayment for bonds they knew were junk bonds when they bought them. On the other side is the government which in Puerto Rico, as in Greece, has other obligations than its debt obligations. It must provide for its citizens. It must, morally, provide for the common good.
Some of the practices of even reputable banks are receiving scrutiny. Several lawsuits have been brought against investment banks that put entire portfolios, even the portfolios of those at or near retirement, into the bond market, a stupid strategy at anytime, and one that was especially risky when it became obvious the bond market was heading for a collapse. It can’t be stated often enough: These hedge funds and vulture funds are no different than drug dealers in their method of operations. They get a client hooked on debt, and then string them along until they are strung out. Puerto Rico is now strung out.
Puerto Rico is not like Detroit in one significant regard. There is no legal mechanism for the island’s government to enter into bankruptcy proceedings with a goal of restructuring its debt. This is one of a variety of ways that the island’s legal status is anomalistic. The proper name of the island is the “Free Associated State of Puerto Rico,” but the island is not free and it is not a state. It is subject to some U.S. laws and not others. It sends a non-voting member to Congress, and has no presidential electors. Its citizens can be drafted and many Puerto Ricans serve in the all-volunteer U.S. military. The residents pay some federal taxes but not others. And, critically, there is no provision for the government of the Commonwealth to declare bankruptcy.
Some of my conservative friends have focused their blame for the crisis on one particular law that does apply to the island, the federal minimum wage. They note that the laws of the market, which are always treated as if they came down from Sinai, do not support the wages the law demands. They note, correctly, that Puerto Rico must compete with other jurisdictions in the Caribbean which have lower wage rates. This is especially problematic in the labor-intensive tourism industry. The answer cannot be to lower the minimum wage in Puerto Rico, but to wage raises throughout the Caribbean – and the world. The global labor market has led wages in one direction: Down. It is time to regulate them, at the very least by our consumer choices, so that they move in the other direction.
I raise the issue of our consumer choices because its points to the kind of thinking about the economy that Pope Francis is calling us in the wealthy nations to undertake. We want our nice vacations. Who doesn’t like time spent on a beautiful beach in the Caribbean? But, when we go to Expedia or Travelocity, are we looking only for the lowest price? Do we take the time to see if the hotels we will be staying in are union? Do we reward countries that pay substandard wages by giving them our entertainment dollars? Or do we care more about whether or not the kids will like the hotel pool pictured in the glossy advertisements? To put these issues in Pope Francis-y terms: Is Puerto Rico to become a throwaway because we gringos like cheaper vacations? The idea that the U.S. government might try and get the Dominican Republic or Aruba to raise wages is an idea which, if mentioned out loud, would only garner a chuckle or questions about one’s sanity. How easily we simply accept the economic mantras of our time.
The people of Puerto Rico have one thing going for them at this moment in time. One million Puerto Ricans live along the I-4 corridor in Florida. As citizens, they can vote the second they establish residency. And, their numbers are now large enough that no presidential candidate can hope to win that state’s electoral votes if they ignore the Puerto Rican vote. This is why former Gov. Jeb Bush and former Secretary of State Hillary Clinton have both urged Congress to pass legislation that would permit Puerto Rico to enter into bankruptcy proceedings. Regrettably, according to Politico, Congress seems disinclined to do very much. Bailout became a bad word in 2008, even though those of us with longer memories will recall that the federal government conducted a successful bailout of New York City and Chrysler in the 1970s, and that the government’s intervention in the U.S. auto industry in the wake of the 2008 meltdown also worked out pretty well for everyone, creditors included.
If the debt crisis is averted, Puerto Rico will still suffer from other problems. The island is currently undergoing a drought. The workforce participation rate is only 40%. The median income is lower than that of any U.S. state. Drugs are smuggled into the U.S. through the islands many inlets. But, Puerto Rico is a part of these United States even if it is not a state, and our nation cannot turn its back on the people of that island or the government they elected. As a matter of morality, we have an obligation to help, in justice not merely in charity. Choosing a slightly more expensive vacation in Puerto Rico is not enough. The U.S. Congress and the Obama administration should come together to help the island the same way we helped New York City or Detroit. And all of us have to keep asking ourselves: Why do we view the “laws of the market” as virtually unquestionable realities, when those laws keep creating crises like this?
