Pangloss Does Puerto Rico

As expected, Puerto Rico has defaulted on a $58 million debt repayment after a cabal of bond holders, hedge fund vultures, and Congressional politicians have balked at allowing the US territory to restructure its debt through bankruptcy protection.

And since the Obama White House has already nixed a bailout, the usual solutions are proceeding apace: austerity for the citizens, and plunder by the same predators who helped create Puerto Rico's fiscal crisis in the first place. 

Although it is officially known as a Commonwealth, Puerto Rico's wealth (now largely consisting of real estate and public utilities) will no longer be shared with the commons. The same hedge fund vultures refusing to cut this debtor colony the smallest break are already buying up luxury hotels at fire sale prices, even bulldozing out a portion of a pristine bay, so as to accommodate their mega-yachts.

As is usual in these fiscal crisis situations, there is plenty of blame to go around. A long history of government corruption and mismanagement on the island: check. Irresponsible borrowing by government officials: check. Mass exodus of tax-exempt corporations once the tax exemptions stopped: check. The same housing bubble collapse that fueled the global economic collapse in 2008: check. A stupid rule requiring that all shipping to and from Puerto Rico be done by expensive United States lines: check.

The real culprit in Puerto Rico's default, though, is Wall Street. Just as the big banks bought up subprime home mortgages and chopped them into pieces before selling them to investors, the big banks went on a Puerto Rican bond-buying orgy, then acted as the middlemen foisting off the shoddy financial instruments to hedge funds. The banksters banked on human need on one side, human greed on the other side,  and then pocketed their unfair share.

So who do island government officials turn to for advice in the wake of this massive swindle? A rational, humane person might suggest the Pope, or Thomas Piketty. But that would be too sane. Because when it comes to solutions, politicians cannot seem to help themselves: they prostrate themselves before the altar of the global banking cartel -- in Puerto Rico's case, this takes the form of current and former International Monetary Fund officials. And what do you suppose these IMF officials prescribed?

You guessed it: austerity for the people victimized by the banks, everlasting debt for the debtor state, a token haircut for the hedge funds, and absolutely no punishment for too big to fail/jail JP Morgan Chase, Goldman Sachs, Morgan Stanley, Barclays and Bank of America.

It's a broken record, playing the same Deju Vu All Over Again song, over and over and over again. The title on the album is The Neoliberal Project's Greatest Hits. To edify the uninitiated, political economist Philip Markowski has written a helpful Thirteen Commandments of Neoliberalism type of liner notes guide that can easily be applied to the Puerto Rican Solution, the Greek Solution, the Detroit Solution, the Fiscal Cliff Solution, the Sequester Solution, or any creative solution relying on twisted logic to create, and then cash in, on a crisis.

A report called Puerto Rico: A Way Forward, authored by former IMF and World Bank neoliberal economist Anne Krueger and some of her minions, closely adheres to the Gospel According to Neoliberalism; to wit, never let a crisis go to waste.

Krueger starts off with the standard false empathy. Times are tough, she says. The politicians worked so, so hard to stave off catastrophe, she says. They deserve credit for all the austerity they've already inflicted, like pension-gutting, higher taxes, public employee wage freezes, and larger class sizes. But those simply are not enough. Puerto Rico has advantages it "can parlay into Market Confidence." And that Market Confidence can be accomplished by the following:

Abolish the minimum wage. Bring back child labor. Privatize public transportation and utilities. Cut government medical insurance benefits a whole lot more. Cut food stamps. Close schools (kids can work!) and fire teachers. Deregulate businesses. Oh, and reduce the costs of shipping and let the hedge funds share just a teensy bit of the sacrifice in order to make the cruelty seem fair and balanced.

Meanwhile, the only people feeling the cruelty are our fellow American citizens of Puerto Rico. The island is already undergoing a crisis in health care. In the past five years, three thousand physicians have fled the island for more lucrative jobs on the mainland. Medicare and Medicaid have already been cut. From the New York Times: 

On an island where more than 60 percent of residents receive Medicare or Medicaid — an indicator of Puerto Rico’s poverty and rapidly aging population — the dwindling funds have set off outpourings of concern among patients and doctors, protest rallies and intense lobbying in Washington.

And while the crisis is playing out most vividly today, its cause dates back decades and stems, in large part, from a vast disparity in federal funding for health care on the island compared with the 50 states. This disparity is partly responsible for $25 billion of Puerto Rico’s $73 billion debt, as its government was forced to borrow over time to keep the Medicaid program afloat, according to economists.

And now I come to a peculiarly bloodless, tone-deaf column by the Times' resident liberal economics pundit, Paul Krugman. He must not have read his own paper's article about the health emergency on the island, because according to him, the situation is not all that bad. At least it's not as bad as in Greece, where they are literally starving to death.  Comparing Puerto Rico to depressed Appalachia, he opines that these places are in hard times because all the young healthy folks are fleeing, leaving the sick and the old behind to live large on the government. So stop your complaining! The anti-austerian rock star economist agrees with Anne Krueger that the minimum wage cut might be a reasonable idea because those Puerto Ricans just aren't as "productive" as the mainlanders:

  A recent report commissioned by the commonwealth’s government argues that its economy is hurt by sharing the U.S. minimum wage, which raises costs, and also by federal benefits that encourage adults to drop out of the work force. In principle these complaints could be right. In particular, even economists who support a higher U.S. minimum wage, myself included, generally agree that it could be a problem if set too high relative to productivity — and Puerto Rican productivity is far below mainland levels.

Then again, muses the benignant Doc Pangloss, the "safety net" is not such a bad thing for those unskilled unemployables. It's not their fault that the "shifting tides of globalization" left innocent people in the lurch. But still, even though they might be "hurting," you can't really call it suffering, because Puerto Ricans  consume 30% more stuff than the Greeks.

I guess that "shifting tides" must be Krugman's euphemism for Wall Street malfeasance. While he rightly chides the hedge funds for being too greedy, he totally ignores the crimes of the big banks. He treats the Puerto Rico crisis as a regional problem, not part of the larger, global problem. "The fiscal crisis is basically the byproduct of a severe economic downturn," he vaguely writes. "The commonwealth’s government was slow to adjust to the worsening fundamentals,."

Not once does he delve into the malign sources of the severe economic downturn. According to him, government officials just couldn't adjust to the fundamentals of free market fundamentalism. Heaven forbid that the banksters adjust to the fundamentals of what it means to be a moral human being.

"Puerto Rico is in the wrong place at the wrong time," he blithely continues.  "These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards". 

Notice how "Manufacturing" suddenly becomes the living, breathing scapegoat -- as opposed to those the ruling class racketeers whose "trade deals" offshore jobs to places where slavery is still legal.

He concludes with some insipid, glass half-full Panglossian l'optimisme :

 Overall, however, the Puerto Rican story is one of bad times that fall well short of utter disaster. And the saving grace in this situation is big government — a federal system that provides a crucial safety net for American citizens in times of need, wherever they happen to live.

Here is my published response:

 It's easy for Mr. Krugman to say that Puerto Rico falls "far short of disaster." Tell it to somebody who actually lives there, somebody whose life is about to be cut short because Medicare and Medicaid payments to doctors -- who are leaving the island in droves -- are being drastically reduced. Tell it to the Vieques residents, half of whom already live in poverty and suffer from the health effects of years of US Navy bombing exercises right in their back yard. Many if not most of them suffer from lead, arsenic and mercury poisoning. And yet they're lucky because they're getting the "saving grace" of bare-bones government aid? The Greeks must be dying of envy.

Anne Krueger, veteran of the IMF and World Bank, prescribed poisonous austerity to Puerto Ricans. An esteemed economist who ironically invented the term "rent-seeking," she now suggests that Puerto Rico's $7.25 minimum wage be cut right along with food stamp stipends and health care. Her laughable Rx of a relatively small haircut for investors while the debt is "restructured " is unsurprisingly being met with howls of indignation from aggrieved hedge fund vultures.

They want Congress (where second class Puerto Rican citizens have no voting rep) to refuse the island's request for bankruptcy relief while they embark on the further plunder of the latest in their long series of victims.

They're terrorists, yet there is no war against them. They own the killing fields.

In his 2013 book "Never Let a Serious Crisis Go To Waste," (see review here) Philip Mirowski writes that as Keynesian as Paul Krugman professes himself to be, he enables the Neoliberal Thought Collective (NTC). This enablement is perfectly and most recently evidenced in his latest column, which ignores Anne Krueger's sadistic prescription of austerity for Puerto Rico, if not tacitly accepting it.

Krugman's criticism of neoliberalism, such as it is, is largely limited to the GOP and those always-nameless "Very Serious People." Regarding Krugman and other liberal pundits, Mirowski writes:

The phenomenon they excoriate and try to pin on the Republican Party is far more elaborate and profound than any party-political dispute or local Machiavellian turn: how can there be a 'Republican' plot when it is a worldwide phenomenon? Indeed, many NTC members reserve their purest disdain for card-carrying Republican Party figures. Surely a few think tanks inside the Beltway cannot, of themselves, paralyze our minds 23/7!.... The understanding of politics displayed by these writers is far too parochial to stand up to the pervasive  character of the global crisis. It is distressing that these writers, frequently champions of hard-nosed, tough-minded 'analysis of reality,' fall short when it comes to serious analysis of the multipronged efforts to steer public discourse in certain targeted directions, the incongruous swerves that so vex their sensibilities.

As what Mirowski calls a cog in the larger neoliberal machine, Krugman continues to enjoy his Times gig as well as his frequent guest appearances on corporate ABC-Disney and CNN Sunday chat-fests and other perks of the punditry profession.He is about as far left as the transpartisan, transglobal NTC can tolerate without self-imploding on its own hot air.