Response to Posting CPR for a Flatlining Economy

CNE Blog was launched recently, very new, and very interesting commentary on solutions to economic problems facing the island's economy. I was surprised to hear about the "famous Keynesian" stimulus plan, although the island's fiscal policy response (like many states) has been contractionary, or to cut spending and increase taxes.
I think some of the things to simultaneously keep in mind when coming up with recommendations and possible scenarios for responding to the economic crisis in Puerto Rico is to ALWAYS keep in mind how the hell the PR economy got to where it's at. It has nothing to do with a particular political party. But I think that many economists would agree that Puerto Rico's economy has become much more dependent to the US economy. And regardless of your preferred island status, economic dependency towards the mainland United States exposes and undermines the island's economic stability. Regardless of your feelings towards the island's status, everybody knows NOW that many states (and cities) in the United States have fared better than others because certain economies have diversified and become less dependent on one particular sector or region. The same rule applies to Puerto Rico. For much too long, PR has drifted towards economic dependency on the mainland US, an obscure economic relationship that has driven the island's economy into disaster.

What to do now??? Long term stuff

If the island values enhancing their infrastructure (roads, bridges, public transportation), it must support and lobby for the National Infrastructure Bank Act of 2007, created by Senator's Dodd and Hagel. This bank will support implementing a national covered bond will utilize the federal government's leveraging ability to amass local municipal bonds together and avoid systemic risk for investors. It's not the tell all solution solver for PR's problems, but since their bond ratings have suffered (probably more so than other municipalities nationwide), it has very much to gain, and very little to lose in standing behind this bill.


I do concur with AD=C+I+G+NX as a national model for looking at the economy.

If the government is going to increase their spending, I would say that SMART government spending is better than ANY government spending, yes. The same way a private business must be conscious about their capital investments, so a government must be concerned with increasing the overall tax base (for the long term, ie, inflation, productivity growth, etc.) and providing better services for the economy.

If the government continues to cut spending and increase taxes, it will perpetuate the recession, since these policies are contractionary. But there is something more complicated than this. On the revenue side, if there is a gap of $3.2billion, why can't corporate taxes cover about half while the government either finances the other half and/or cut additional spending.

I think the short-term recommendations to appoint an economic reconstruction "czar" is in order because it will allow the government to re-dedicate a portion of its resources to allocate funding in an efficient manner. But the goals of "czar" MUST produce savings that will offset the new office, and the distribution of the office's funds.

Solution 2 on Multiplier Effects
Although construction IS one of the largest multiplier effects, one must keep in mind how much of the housing market (that started the economice decline nationwide) contributed to the expansion of the construction industry. Construction should focus primarily on public infrastructure projects as indicated in the report (roads, low-income housing, hotels), BUT should also include transportation improvements as well.

Medium Term Recommendations
I think that private sector development should be focused on small business development that has a local consumption and customer base. Many of the school reforms that were addressed for medium term recommendations are intimately connected with the resources that students have outside of schools, particularly after-school and other extra-curricular programs, and other career track programs (that continue to be cut nationwide for budget balancing).

I think a larger more aggressive approach is to reform shipping (export and import) laws that allow a larger possibility of imports and exports for the island's economy. This will not only primarily decrease shipping costs to and from the US but also open ports regionally as well.
More to come on international shipping and trade...