The Greece of the Caribbean
Published on March 12, 2012
Recently, Cate Long, a reporter at Reuters stirred-up a hornet’s nest by writing that Puerto Rico is America’s Greece. Although any comparison between a sovereign country and a crumbling colonial backwater like Puerto Rico needs to be taken with a grain of salt, in general, Ms. Long’s post is on point.
There are, of course, some differences between Puerto Rico and Greece, but the similarities are simply overwhelming. Both have been running primary deficits for years; both have high debt ratios, Puerto Rico’s debt to GNP ratio is close to 100%, and that is excluding unfunded pension liabilities, (in Puerto Rico GNP is a better yardstick of economic activity); and both suffer high unemployment, widespread corruption, and massive tax evasion.
At a more fundamental level, neither country has control of monetary policy, so neither can devalue its currency to jumpstart the economy; neither has a strong productive base it can bootstrap to ignite growth; and perhaps more important of all, both economies are economic mirages based on consumption that has been sustained by a monetary illusion, that is, by having access to a stronger currency than their fundamentals warrant. So, in my view, the fundamental similarities outweigh any superficial differences between both countries.
Ms. Long is also correct in that the U.S. will not bail us out. It didn’t do it for New York City in the 1970 or for California in 2008/09.
Be that as it may, perhaps the best comparison is with Detroit. Puerto Rico is well on its way to becoming the Detroit of the Caribbean, a desolate, post-industrial wasteland, with massive poverty and a rapidly aging population.