Thursday, July 2, 2015

The Reverse New Deal: Aggressive austerity proposed for Puerto Rico, while the super-wealthy use Puerto Rico as a tax haven

(WPA poster, courtesy of the Library of Congress Prints and Photographs Division.)
Puerto Rico is experiencing some serious economic problems, and a new report by Anne Krueger (former World Bank Chief Economist), Ranjit Teja (from the International Monetary Fund), and Andrew Wolfe (American University) recommends some serious austerity measures for the island. It's okay though, because the super-wealthy won't have to sacrifice much at all...just the other people.  

High poverty rates notwithstanding, the austerity-for-others economists want the citizens of Puerto Rico to make less money at their jobs, have less vacation time, have less access to medical care, and, of course, pay more taxes (conservatives always want the poor to pay more taxes, tolls, fees, and fines - to subsidize the past, present, and future tax cuts for the wealthy). But don't fret, the report also includes smooth-sounding technical jargon, so that the bitter pills of poverty can be swallowed more easily, for example: "Reducing input costs for labor, energy and transport is key to regaining competitiveness, so that production can be geared to more buoyant external markets." Oh, okay. Competitiveness! Buoyant external markets! Golly gee, reducing people's access to health care isn't so bad after all!!  

The report also tells us to be patient, because "supply-side reforms...take time." Hmmm...didn't Republican Governor Sam Brownback keep saying that, as the Kansas budget was being pulverized year after year with supply-side reforms (and, by the way, is still being pulverized)?

Despite the claims that their policy proposals will spread the pain "across all stakeholders," their recommendations, for the most part, are just the standard recommendations made by today's austerians -  for example, they want to lower the minimum wage (to $2.42, or less, per hour), raise taxes that disproportionately burden the middle-class & poor (e.g., sales tax, property tax), make it easier for companies to engage in mass lay-offs, send teachers to the unemployment line, and cut Medicaid funding.

Raising taxes on the super-wealthy? No, they don't like that idea too much. Broaden the tax base a bit, maybe, but don't raise rates!

(A guide to Puerto Rico, created by the WPA's writers' program. Image provided courtesy of Wolfsonian-Florida International University,
So, why all the cuts for programs that help the middle-class and poor? To restore market "confidence." Apparently, markets need to know that the middle-class & poor are being financially terrorized sufficiently, and that their health care needs are being ignored, before they're willing to, let's say, open a bunch of furniture stores and hire thousands of people.

(See political economist Robert Skidelsky's interesting op-ed, "Economic myths and tall tales - the confidence fairy and bond vigilante," The Guardian, April 22, 2015)    

The funny thing is, as these economists are calling for impoverished Puerto Ricans to become even more impoverished--essentially, sacrificing their financial, emotional, and physical health for the supposed good of the island--the Forbes 400 is adding hundreds of billions of dollars to their already-bloated fortunes, every year...corporations and the super-wealthy are engaging in all manner of tax avoidance and tax evasion, thereby depriving the U.S. Treasury of $100 billion dollars (and probably more), every year...and, ironically, millionaires & billionaires are greedily using Puerto Rico as a tax haven.

Interestingly, we are told that Puerto Rico has a "crippling $78 billion debt." Now look again at that yearly tax avoidance & evasion figure in the paragraph above.  

As I wrote in a previous blog post, New Deal policymakers had a different way of addressing problems in Puerto Rico. For example, they hired struggling Puerto Ricans into public job programs and they helped them complete their high school and/or college education. To me, that sounds a heck of a lot better than, "Hey, you're making too much money! You should be making $2.42 per hour instead of $7.25!"

But even these trickle-down economists who are proposing harsh austerity for Puerto Rico understand the benefits of the New Deal. On page 5 of their report, they write, "The distress in the banking sector would have been worse were it not for the backstop provided by [the New Deal's] FDIC..." (I wrote in "New Deal"... for some strange reason they forgot to mention that).

Perhaps, instead of trying to reduce the salaries of Puerto Rican workers, our trickle-down economists should contemplate other New Deal policies too. For example, instead of waiting for the confidence fairy to show up, maybe recommend a public jobs program, right now, for unemployed Puerto Ricans. I mean, I know that the concept of creating jobs for the jobless is an extraordinarily confusing concept, but let's give it a try anyway.

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