When I point out that Puerto Rico got in trouble by allowing the burden of government spending to grow faster than the private economy, thus violating my Golden Rule, honest leftists will admit that’s true but then challenge me on what should happen next.
That’s a very fair – and difficult – question. The amount of government debt in Puerto Rico is so large that repayment would be a big challenge. In effect, today’s taxpayers and tomorrow’s taxpayers would suffer because of the reckless choices of yesterday’s politicians.
It could be done, to be sure, just like Greece could dig its way out of debt with a sufficient degree of spending restraint.
That being said, I’m not necessarily opposed to debt relief. Whether you call it default, restructuring, or something else, debt relief would give Puerto Rico a better chance of getting back on its feet. Moreover, I’m not exactly overflowing with sympathy for investors who lent money to Puerto Rico’s profligate government. Maybe they’ll be more prudent in the future if they lose some of their money today.
But here’s my quandary (and I feel the same way about Greece): I don’t mind debt relief if it’s part of a deal that actually produces better policy.
But I’m opposed to debt relief if it simply gives an irresponsible government “fiscal space” to maintain wasteful programs and other counterproductive forms of spending.
And I see very little evidence that Puerto Rico is interested in making the needed structural reforms to alter the long-run trend of ever-rising outlays.
Nor do I see any evidence that Puerto Rican officials are pushing for much-needed reforms in areas other than fiscal policy. Where’s the big push to get exempted from the Jones Act, a union-friendly piece of legislation that significantly increases the cost of shipping goods to and from the mainland? Where are the calls to get Puerto Rico an exemption from minimum wage laws that are harmful on the mainland but devastating in a less-developed economy?
These are some of the reasons why I don’t want to reward Puerto Rico’s feckless political class by granting debt relief.
And here’s something else to add to the list. Notwithstanding 40 centuries of evidence that price controls are a form of economic malpractice, the government has decided to use coercion to prohibit voluntary transactions between consenting adults.
The excuse is the Zika virus, but the result will be failure. Here’s some of what CNN is reporting.
The government of Puerto Rico has ordered a price freeze on condoms… Any store that hikes prices to try to capitalize on people’s fears of the virus will be fined up to $10,000. Other items on the price-freeze list: insect repellent, hand sanitizer and tissues. …The price gauging [sic] ban went into effect at the end of January on mosquito repellents. Condoms were added to the list in early February… “The price freeze remains in effect until after the emergency is over,” Nery Adames, Secretary of the Department of Consumer Affairs, tells CNN.
By the way, you’ll notice that the government didn’t address the one thing it legitimately could have done to reduce condom prices.
Condoms are subject to the island’s 11.5% sales tax, one of the highest in the nation.
But let’s focus on the policy of price controls.
With his usual clarity, Professor Don Boudreaux explains the consequences of these horrid restrictions on market forces.
The price freeze will prevent the Zika-inspired rise in the demand for condoms from calling forth an increase in the quantity of condoms supplied to satisfy that higher demand. The resulting shortage of condoms will prompt some people to wait in queues to buy condoms, cause other people to turn to black-market suppliers, and cause yet other people simply to not use condoms during sex. Each of these consequences reflects the reality that the price freeze, rather than keeping the cost of condoms “cheap,” will raise that cost inordinately – and, in the process, further promote the spread of Zika.
Amen. Don is spot on about the negative consequences of allowing politicians and bureaucrats to interfere with market prices.
So we have a government “solution” that actually makes a problem worse.
Just as price controls have contributed to economic misery in Venezuela.
Or caused shortages after hurricanes in the United States.
Puerto Rico needs its version of Ludwig Erhard. Instead, it’s governed by people who apparently learned economics from Hugo Chavez.
P.S. Speaking of condoms, I hope I’m not the only one who is both amused and disgusted that politicians and bureaucrats simultaneously squander money to discover men don’t like poorly-fitting condoms while also imposing regulations that prevent condom companies from offering a greater variety of sizes.
P.P.S. Though I guess those examples of government foolishness are comparatively frugal compared to the “stimulus” grant that spent $6,000 per interview to discover why some men don’t get “stimulus.”
[…] can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal […]
[…] can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal […]
[…] can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal […]
[…] third reaction is that price controls never work, regardless of the market or sector, so limits on rent will exacerbate housing […]
[…] Which is why such policies generally are supported by the world’s most economically illiterate governments (or, in the case of Nixon, the most venal politicians). Oh, and don’t forget Puerto Rico. […]
[…] can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal […]
[…] can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal […]
[…] If you want more evidence of the folly of price controls, see how they backfired in Puerto Rico and […]
[…] Unfortunately, the government has been doubling down on bad policy. […]
[…] Unfortunately, the government has been doubling down on bad policy. […]
[…] Amen. Puerto Rico got in trouble because of bad policy. And the bad policy wasn’t just excessive spending. There have also been grossly misguided interventions such as price controls. […]
[…] Amen. Puerto Rico got in trouble because of bad policy. And the bad policy wasn’t just excessive spending. There have also been grossly misguided interventions such as price controls. […]
there are 1.6 million homeless children in America… their fate is largely a result of zoning… gentrification… regulation… and ineffective and incompetent government policy… Obama’s love of regulation has destroyed much of our economic vitality… most notably it has prevented small business entrepreneurs from creating new fulltime jobs… and giving low income American’s a hand up… property taxes are killing the American dream of home ownership for scores of economically challenged folks… with lost jobs and/or underperforming paychecks… wealthy families head for greener pastures… leaving government approved abandoned homes and scorched earth for the rest of us… see Detroit…
which way to the food pantry? do they have chips?
[…] https://danieljmitchell.wordpress.com/2016/02/26/puerto-ricos-economically-illiterate-government-imp… […]
Everyone knows the price controls lead to shortages, and no one wants short condoms.
It is hard to escape the similarities between the war reparations imposed on Germany after WWI and the austerity being imposed on the Greeks and Puerto Ricans’, not to mention all Europeans and Americans in the very near future. Keyenes was not right about much, but he was right about the consequences of the reparations.
Only one big difference as far as I can tell. There was a world war in the early 20th century. This time, debts were run up so people could get fat, gorge on pharma and expensive elective surgeries, fill up huge houses and acres of storage units, retire early and live a life of privilege, all at the expense of their children and grandchildren.
I have my opinion on which is worse, war or urinating and defecating on your posterity, but the outcome will be the same. War.