Friday, January 29, 2016

Bankruptcy and Bailouts: Where Puerto Rico Went Wrong

Bankruptcy and Bailouts: Where Puerto Rico Went Wrong - Reason.com
Stop me if you've heard this one before:
A government, run by a succession of politicians, spent frivolously for decades and repeatedly ignored all the warning signs of looming fiscal disaster, and now that it has arrived, is begging for a bailout. 
No, I'm not talking about Greece. 
This time, it's Puerto Rico. 
And the Republican-controlled Congress is seriously considering a bailout.
Even Washington's out-of-touch cronies recognize that a simple cash bailout would be too politically toxic.
But they've come up with an alternative that may have some appeal but also has very problematic features: bankruptcy.
It's not hard to see where Puerto Rico went wrong. 

  • About one-third of its working population works for the government. 
  • Its bloated workforce accounts for more than two-thirds of the budget, while onerous labor laws and regulations strangle the economy and prevent it from keeping pace with the growth of government. Compared to the island's lower standard of living, generous federal welfare benefits also contribute to an extremely low 50 percent participation rate in the labor force. 
  • That, along with the high shipping costs imposed by the Jones Act, are problems that Congress can help solve, but the rest is up to Puerto Rico itself.

The appeal of bankruptcy is that, in theory, it lets municipalities get out of the bad contracts that are causing the financial problems, such as excessive pension promises.
Puerto Rico, like the District of Columbia, is not granted access to Chapter 9 bankruptcy under federal law.
Hence, the call to change the law..."

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