There are obvious parallels between the crisis in Puerto Rico and the disaster in Greece — a poor economy overshadowed by a huge wealthier economy to the north, budget problems, declarations that the debt is unpayable. And I don’t want to minimize the problems and pain in San Juan. But it’s important to understand that the depth of the pain is just not of the same order of magnitude, and not just because Puerto Rico’s banks are secured by a national safety net, although that helps.
I’ve been trying to produce some indicators using the Puerto Rico data, and they’re remarkably unlike Greece.
It’s true that Puerto Rico has achieved an impressive drop in real GNP (people usually use GNP for PR because so much of of GDP is profits accruing to offshore firms). But the drop per working age adult is less, because of large-scale emigration — which is actually supposed to happen when changing economic winds cause a U.S. region to lose competitive advantage. Unemployment is up, but “only” by 4 percentage points. And there doesn’t seem to have been anything comparable to Greece’s collapse in living standards. Greek real consumption per capita has plunged, whereas Puerto Rico’s has actually risen.
What’s supporting that consumption? Some of it surely involves private remittances from Puerto Ricans working on the mainland and sending money home. But it’s also fiscal federalism: as Puerto Rico’s economy has stumbled, its payments to Washington have dropped while its receipts from federal social insurance programs have risen, so that the island is in effect receiving aid on a scale that would be inconceivable in Europe.
Now, none of this guarantees against bad economic developments, all it does is soften the blow. And there is a downside to high labor mobility (suggesting, for the wonks, that Mundell had it wrong), namely the problem of an emigrating tax base while the recipients of government services stay put. But again, bad as it is, the Puerto Rico story isn’t remotely in Greece’s league.