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

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.