Puerto Rico’s Keynesian Recovery
Published on April 20, 2012
The Puerto Rican economy is beginning to show signs of life after a six-year contraction. According to official government statistics Puerto Rico should finish fiscal year 2012 (which ends on June 30) with positive growth of 0.9%. Nothing to brag about really, but after six-years of economic bloodletting this anemic growth rate can be truthfully described as good news.
The recent forecast, however, begs the question of what is driving this apparent turnaround. According to the official story put out by the administration, the recovery in Puerto Rico is the result of the fiscal consolidation measures implemented during 2009 and 2010, including budget cuts and the reduction of government payroll by some 17,044 workers, or approximately 10% of the central government workforce. The theory behind these policies is that they would increase “investor confidence”, which in turn would lead to higher private investment, increased employment, and higher income levels.
Unfortunately for modern-day die-hard Reaganites in Puerto Rico, the economic data tells a different story. According to the Puerto Rico Planning Board, construction spending by the public sector, at current prices, grew by 11% during fiscal year 2011, and is forecast to increase by 16.8% and a whopping 22% during fiscal years 2012 and 2013, respectively. On the other hand, private construction spending, also at current prices, declined by 1.6% during fiscal year 2011, and is expected to decrease by a further 1.1% during fiscal 2012, before increasing by a meager 0.9% during fiscal year 2013.
Furthermore, according to data released by the Bureau of Labor Statistics today (April 20, 2012) total payroll employment in the island declined from 921,400 in March 2011 to 917,500 in March 2012, a decline of 3,900 jobs, or 0.4%. Private sector employment also registered a decline, from 662,900 to 650,800, a decrease of 12,100 jobs, or 1.8%. Government employment, however, increased from 258,500 to 266,700, an increase of 8,200 jobs, or 3.2%, during the same period.
Well, I don’t know about you folks, but all this looks rather suspiciously like Keynesian stimulus spending to me. And there is absolutely nothing wrong with that. As Paul Krugman and others have shown, the world has recently caught a bad case of austerity fever, when in fact what the global economy needs to come out of the doldrums is to put people back to work, not out of work.
Unfortunately, bad habits die hard. The modern day infatuation with government austerity as a means to restore investor confidence was called the “Treasury view” in England during the Great Depression. Back then the recipe included not only running a budget surplus, no matter what happened to the real economy, but also holding steadfast to the gold standard, because, or so it was believed, that was the only way to bring back investor confidence. Well, it didn’t work back then and it is not working now, either. Frankly, the logic behind these policies escapes me. How is it, exactly, that deepening the recession, while increasing unemployment, defaults, foreclosures, and bankruptcy filings, generates investor confidence?
Meanwhile, back in Puerto Rico I encourage all those Keynesians hiding in the government to come out of the intellectual closet and accept that the recovery, to the extent we have one, is the result of good old public investment and spending.
Este artículo fue publicado originalmente en El Nuevo Día el 20 de abril de 2012.