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PUERTO RICO: THE ECONOMY AND POLITICAL STATUS Why are Things So Bad and How Can the Situation Be Improved?

Author

Listed:
  • J. Tomas Hexner

    (President of Hex, Inc. Founder and Director, Science Initiative Group at the Institute for Advanced Study at Princeton, New Jersey)

  • Arthur MacEwan

    (Professor Emeritus at the University of Massachusetts Boston)

Abstract
This manuscript examines the condition of the Puerto Rican economy, arguing that poor economic performance is intimately connected to the island’s political status. The combination of uncertainty and dependence inherent in Puerto Rico’s status as a territory of the United States has undermined private sector actions and government policies that could generate long-term sustained economic growth. In terms of economic progress, statehood could provide the most favorable option. The argument is developed by an examination of the economy over the past several decades and then by a focus on the long recession that emerged early in the 21st century. Attention is given to the set of myths that have been used to justify poor government policies in Puerto Rico, particularly the myth that tax incentives and an emphasis on manufacturing have provided and can provide in the future a basis for progress. The buildup of Puerto Rico’s public debt is examined, and a critique is undertaken of the resulting takeover of Puerto Rico’s financial affairs by the Financial Oversight and Management Board appointed by the federal government. Consideration is also given to the implications of Puerto Rico’s dependence in terms of poverty, economic inequality, and out-migration. Finally, the manuscript presents actions that could revive the island’s economy, giving emphasis to a major program of public infrastructure investment, obtaining reasonable support from the federal government, and reforms affecting the regulatory system, education, and tax collection.

Suggested Citation

  • J. Tomas Hexner & Arthur MacEwan, 2021. "PUERTO RICO: THE ECONOMY AND POLITICAL STATUS Why are Things So Bad and How Can the Situation Be Improved?," Development Discussion Papers 2021-03, JDI Executive Programs.
    • Handle: RePEc:qed:dpaper:4568
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    More about this item

    Keywords

    Puerto Rico status; dependence; Puerto Rico debt; level playing field; emigration; Hurricane Maria; Puerto Rican statehood; poverty; inequality; austerity. Financial Oversight and Management Board;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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