Thursday, June 30, 2016

Beach Time

So it’s official. At some point in the near future, Puerto Rico will be run by a junta of seven people. Four of them will be appointed by the Republicans, and only one of them will be Puerto Rican or have a business in Puerto Rico. So that was on my mind, this morning, as I left the apartment to go off to the beach. And that’s when I saw the first person employed by the government: a woman with a broom and dustpan who was cleaning the street.

My first reaction, of course, was to wonder: will she have a job after the junta shows up? Because after many years of living here, it seems perfectly normal that a woman should be out on the street, her yellow vest announcing that she keeps Old San Juan clean. And she, or rather, the many “shes” does / do keep the city clean. I get that, but will the junta? Does anybody clean the streets of New York or Chicago? Have I ever seen anybody out there with a broom?

So I walked to the beach, and once there, passed six policemen, who were busy chatting. Right—as much as I’d like them to be busy catching criminals, let’s be realistic. Were there any criminals at the Escambrón Beach? Of course not—so what else was there to do but chat?

We have, in fact, either the largest or the second largest police force in the nation; a cursory view of the police website didn’t tell me which. So do we truly need all those cops? Well, seven people will let us know!

In fact, nobody quite knows what’s going to happen. We do know that we’ll be electing a governor and a legislature, but nobody is asking the question: what for? Because the governor will make a budget, yes, but then he will have to run it by the junta, and what they say goes. So the junta could very easily say that there has to be a 20% cut across the board in all government agencies, and what would the governor do? Answer: tell his department heads to institute the cuts.

It’s impossible to exaggerate the influence of the government here. Consider that the rate of participation in the workplace is a very low 42%; by contrast, New York has 60%, and the nation-wide average is 63%. So where are all those people who should be working? Answer: living off the government or working in the “grey” economy.

And so seven people will now be in charge of 3.5 million of us. What will they do? The answer is very likely the Krueger Report, which had island liberals howling. There was, for example, the assertion that the federal minimum wage should be abolished on the island, since it leaves us at a competitive disadvantage with other Caribbean islands. So the report advocated cutting minimum wage to $4.25 for workers under 25. Work 40 hours a week, and you’ll earn $170 a week, and that’s before taxes. And that translates to $680 a month. Oh, and that’s $8500 a year.

In addition, the Krueger Report came out and said what we all knew, and here I quote directly:

Workers are disinclined to take up jobs because the welfare system provides generous benefits that often exceed what minimum wage employment yields; one estimate shows that a household of three eligible for food stamps, AFDC, Medicaid and utilities subsidies could receive $1,743 per month – as compared to a minimum wage earner’s take-home earnings of $1,159.

In short, the real miracle is that the labor participation rate is %40, as opposed to something like 10 or 15%. When I worked at Walmart, my students across the political board were unanimous: why in God’s name were they there? Why cope with Walmart when the weather is sunny all year round, and you can get more money going to the beach?

Economists are, generally speaking, rosy-eyed optimists; even so, the Krueger Report makes for grim reading. The number of 72 billion dollars is bandied about as our current debt: but the Krueger Report says this:

Using standard IMF metrics, the overall deficit is larger than recognized, its true size obscured by incomplete accounting. This means that any fiscal adjustment program to restore market confidence starts in a deeper-than-assumed hole.

All of this augurs for major cuts in government budgets. It also augurs for increasing revenue sources: given that the University of Puerto Rico erupted several years ago over tuition cuts, what will happen when the yearly cost of 2,019$ is increased? After all, the cost of in-state tuition at the University of Wisconsin is $24,000. To a Republican mentality, why should the minimum wage be the same, but tuition so much cheaper?

There will probably also be cuts in benefits at the public agencies. Full-time employees of the electric company, I was once told, got Lasik surgery included in their health benefits. Was it true? Well, the student who told me was the daughter of a guy who had had the surgery: what reason did she have to lie? So our public unions, who can be relied to amass in the streets if anyone so much as sneezed in their direction—where will they be? Arm in arm with the students?

Then, of course, there are the retired folks, and guess what? All of the retirement funds are severely underfunded, so can you guess where that is going to lead? And then, what about the Department of Education? We have managed, over the years, to completely invert the docent / non-docent percentage, with the result that the non-docent is about 60%, versus the 40% that it should be. And the Krueger Report did sort of wonder what was happening to the education department budget, since look at this little graphic:

Small-minded economists tend to wonder why, well, you did see up there the sentence, “Education  expenses increased the past decade while total school enrollment declined ~25%,” didn’t you? So what does that mean to an island that has already closed almost 100 schools?

The answer may be in the title of the Guardian article: Hedge Funds Tell Puerto Rico: Lay Off Teacher and Close Schools to Pay Us Back.


That’s the narrative: what’s the reality? Hedge funds own 30% of our debt. The rest is held by institutions, regular retirement funds (401Ks, for example) and individual investors. True, the hedge funds bought at greatly reduced prices. Also true, however, is that everybody and his brother sat around and watched governments of both political power dig us into this hole.

It is, in short, a wrenchingly bad scenario. Add to that our population, which, though we spend big-time on it, has produced several generations of people who are completely uninformed, unaware of it, and incapable of critical thinking.

Now do you see why I sent to the beach this morning?