On Saturday, August 1, Puerto Rico’s debt payments become due. The US territory has to deliver $58 million in so-called “moral obligation” bond payments. It can’t. And it probably won’t. For those who liken Puerto Rico’s situation to that of Greece, here is a basic fact:
Puerto Rico is NOT the Greece of North America.
- Puerto Rico’s residents have been American citizens for 98 years; Greeks have been members of the Eurozone (the single currency) for only 14 years
- Greece’s debt (as a share of its economy) is more than double Puerto Rico’s
- Puerto Rico’s main economic problems are caused by factors not found in Greece. These include: an unrealistically high minimum wage; overly generous welfare benefits from the mainland; a US law (the Jones Act of 1920) that requires cargo travelling between Puerto Rico and American ports to go in a costly fashion on American rather than cheaper foreign vessels and new American duty-free import agreements with other countries, which are able to undercut the price of Puerto Rican exports
Of course, there are some similarities. These are:
- Both Greece and Puerto Rico ache for debt relief
- As with Greece, some of Puerto Rico’s biggest problems are caused by its association with a large union of states. Like Greece, Puerto Rico has mainly got into trouble because it failed to capitalize on the benefits it has from the US.
But unlike Greece, Puerto Rico’s generous safety net benefits are like a Rolls Royce ride along the world’s bumpy economic highways. They make it uneconomic to work, or at least to labour overly hard. As Robert Samuelson puts it in The Washington Post, the benefits are as follows:
- food stamps
- Medicaid (government health insurance for the poor)
- some utility subsidies
In fact, the safety-net benefits far outweigh the sweaty exercise of working. Mr Samuelson quotes an estimate that found “a three-person household can receive $1,743 in monthly benefits compared with $1,159 in take-home pay for a minimum-wage worker”.
Puerto Rico is definitely not Greece. Q.E.D.