The Anne Krueger report on Puerto Rico

You’ll find it here (PDF), co-authored with Ranjit Teja and Andrew Wolfe.  Here is a bit of the introductory summary:

Structural reforms

Restoring growth requires restoring competitiveness.  Key here is local and federal action to lower labor costs gradually and encourage employment (minimum wage, labor laws, and welfare reform),  and to cut the very high cost of electricity and transportation (Jones Act). Local laws that raise input costs should be liberalized and obstacles to the ease of doing business removed. Public enterprise reform is also crucial.

Fiscal reform and public debt.

Probably the most startling finding in this report will be that the true fiscal deficit is much larger than assumed. Even a major fiscal effort leaves residual financing gaps in coming years, which can be bridged by debt restructuring (a voluntary exchange of existing bonds for new ones with a longer/lower debt  service  profile). Public enterprises too face financial challenges and are in discussions with their creditors.  Despite legal complexities, all discussions with creditors should be coordinated.

Institutional credibility.

The legacy of weak budget execution and opaque data – our fiscal analysis entailed many iterations – must be overcome. Priorities include legislative approval of a multi-year fiscal adjustment plan, legislative rules on deficits, a fiscal oversight board, and more reliable and timely data.

If I were a Puerto Rican considering statehood…I know how I would vote.

For the pointer I thank Felix Salmon.


But Prof. Tyler, didn't Puerto Rico already voted yes to statehood?

"On November 6, 2012, eligible voters in the U.S. territory of Puerto Rico were presented with two questions. First, when asked to approve or reject Puerto Rico's current status as a commonwealth (or territory), voters rejected it 54% to 46%.

Second, when then asked to choose their preferred status for Puerto Rico, 61.15% of those who marked an option chose statehood in the United States, while 24% of ballots were submitted blank. "


Oops, spoke to soon, there's some good criticism of the vote:
"The history professor Luis Agrait said to CNN that "a large number of ballots—one-third of all votes cast—were left blank on the question of preferred alternative status. If you assume those blank votes are anti-statehood votes, the true result for the statehood option would be less than 50%."",_2012#Criticism

The governor-elect at that time, Alejandro Padilla, called it an "an anti-democratic process." To see what he means imagine an American election where the people were given two questions to vote on:

Do You Support the Democratic Party?

Which of the Non-Democratic parties do you prefer?
-Republican Party
-American Nazi Party
-Communist Party USA.

This is not a good analogy because it gives the impression that the Democratic Party is not
in power.

The question is do you want to change the constitution or do you want to leave it the same. Since the constitution is presumed to be in effect
indefinitely, it is proper to ask whether you support it as it is or do you want to change it.

That is not true of the Democratic party. The Democratic Party is elected for four years at which point it has to leave unless it gets a new mandate.

If you do want to change the constitution, then is it in favor of statehood, independence or free association?

You always had the opportunity to keep the constitution. In that case the second question would have become void because
the majority of the people voted to keep things the same.

As it was, the people of Puerto Rico removed its support to the idea that Puerto Rico can remain an unincorporated territory under the territorial
clause of the Constitution of the United States.

That is a bad analogy.

And one of the alternative statuses was a vague "commonwealth plus" option. It's difficult to say that a majority voted for statehood.

Independence Now!

Viva La Independencia!

4% surpluses or expulsion!

Sorry Steve, the USGS says it's worth to search for oil in PR exclusive economic zone.

Perfect! North Dakota on the Caribbean!

Give it to the Puerto Ricans along with their independence, and let them revive their economy, retain their people, and pay their debts with it. Win, win, win.

And if I got a vote on Puerto Rican statehood, I know how I'd vote:

Viva Puerto Rico Libre!

But Americans won't get a vote. Puerto Ricans have voted in referendums in 1993, 1998 and 2012 and they always voted against statehood. Hopefully their vote will count.

Statehood needs to be approved by Congress.

Who cares how they vote? Given their apparent unwillingness to pay their debts, they are clearly Not Very Serious People. That is what matters most.

Good friends of mine just returned from a 2-year stint living in San Juan. Their verdict: Not Very Serious People. Crime, sloth, the whole manana attitude.

That's from the Washington Post. It's probably more a problem with how disability works in the US than with Puerto Rico, though. Hundreds out of 3.5 million isn't really a trend.

21.1% of the people in Puerto Rico are on disability. For the U.S. as a whole it is 12.1% PR is higher than any other state.Like Greece, PR is a failed/failing welfare state where an every rising fraction of the population is living off the government.

21.1% of the people in Puerto Rico are on disability. For the U.S. as a whole it is 12.1% PR

Social Security Disability beneficiaries number 10.9 million, or 3.4% of the national population.


You are correct. The data is from and is actually the "Percentage of Population Who Reported a Disability". However, another source suggests that my original (misquoted) number wasn't that far off.

See "Trouble on Welfare Island" -

"Puerto Ricans are eligible for federal disability payments, for example, through Social Security. Ms Enchautegui and Mr Freeman point out that, in the territory, federal disability allowances are much higher than the United States average as a share of wages and pension income. Unsurprisingly, therefore, one in six working-age men in Puerto Rico are claiming disability benefits. "

From the WSJ

"In 2006, just 36% of initial applicants in Puerto Rico were awarded benefits. In December 2010, the award rate had jumped to 69%. By 2010, nine of the top 10 U.S. ZIP Codes for workers receiving disability benefits were on the island.

At the time, SSA officials said the high number of recipients and the high award rate was due to the island’s weak economy and a lack of adequate health care for workers.

The program is overseen by the Social Security Administration in Baltimore, but each state and territory is responsible for performing an initial screening to determine eligibility. Social Security officials said in 2011 that Puerto Rico had rigorous standards and a virtually nonexistent error rate.

The characteristics of Puerto Rico’s beneficiaries differed from other areas. In addition to the large clusters in certain zip codes, federal data showed that 33.3% of Puerto Rican beneficiaries qualified because of “mood disorders,” a rate that is at least 10 percentage points higher than any U.S. state.

Disability examiners and federal judges say mental disorders are harder to measure and often rely on medical opinions issued by doctors to make a determination.

SSDI was designed as a way to provide benefits for people who can’t work because of mental or physical health problems, and Americans can qualify for benefits because of ailments ranging from severe back pain to terminal cancer.

A lifetime of benefits, including access to Medicare, can cost the government about $300,000 a person. "


See for a wealth of disability data for PR and the rest of the U.S. The source is the ACS. Out-of-control disability is a huge problem in PR.

Hmm, why is the US there anyway??? .... Well given their geographic location, (just look at their neighbours) there is really not much going on... Same problem as with Greece: the coin is too strong, for such a weak economy...

Barkley, what you said:

"Who cares how they vote? Given their apparent unwillingness to pay their debts, they are clearly Not Very Serious People. That is what matters most."

It is not unwillingness to pay our debts, it's difficulty to pay them. Also, we are serious people. Many Puerto Ricans, including me, are working towards becoming professionals to contribute to economy and make the situation better. I'm quite saddened by your comment.

I'm a Puertorican who just got back from a 4 year stint in the states. I witnesses racism, criminality and debacle over a Confederate flag. My verdict: Not very serious country. But hey! I got a doctorate in structural engineering, so I got that going on for me, which is nice.

Are they saying they need a minimum wage in order to lower labor costs & encourage employment? I didn't understand that bit from the summary.....

The logic is that by lowering the wages to the levels of Mexico, then the young in Puerto Rico will come to the US just like Mexicans come to the US.

But Puerto Ricans get to come to the US by paying JetBlue less than Mexicans pay a coyote.

As the island population has dwindled and the mainland population has grown, the number of stateside Puerto Ricans reached a record 4.9 million in 2012, and since at least 2006 has exceeded the number of Puerto Ricans on the island (3.5 million in 2012).

It's a great test of Open Borders dogma.

The American Community Survey shows that Puerto Ricans have the second highest poverty rate among Hispanic groups. Only Dominicans do worse.


From a prior MR post.


You are missing the point Sailer is (apparently) trying to make. Puerto Rico is what you get when you combine the American welfare state with a low-skill, low-human capital population. Obviously, the disaster in Puerto Rico has implications for the rest of the United States. We are importing low-skill, low-human populations into the United States on a gigantic scale. The welfare state is (massively) expanding.

Check the NAEP statistics for Puerto Rico. They are far lower than any American state. A few quotes may help here. From

“On NAEP, Puerto Rican students lag far behind other U.S. kids” (

“According to Education Week, Puerto Rican students have performed far worse than students in the nation as a whole on the math component of the National Assessment of Educational Progress, a test used to compare student performance across states. (The test, translated into Spanish, has been given in Puerto Rico since 2003. Puerto Rican students don’t take NAEP’s reading section.)”

“Virtually no students in Puerto Rican schools scored at the Proficient or Advanced levels on the test 2005. And while the 2007 scores were reported in a different format, they also show a wide gap between students in Puerto Rico and the rest of the country.”

“Puerto Rico Falls ‘Below Basic’ on Math NAEP” (

“Long-awaited results on how Puerto Rico’s students fared on the National Assessment of Educational Progress in math are finally in—and they’re not good.

Only 12 percent of 4th graders and 6 percent of 8th graders in public schools scored at or above the “basic” level on “the nation’s report card” in 2005. So few students scored at the “proficient” or “advanced” level that the percentages rounded to zero.”

However, some folks in Puerto Rico do have a plan for solving this problem. They want to ban the NAEP. I have a better solution. Independence. ¡¡¡¡¡¡Vive Puerto Rico Libre!!!!

Seriously, I do favor independence. However, the U.S. should make every effort to aide the newly independent nation. For example, we could impose import tariffs on labor intensive goods and exempt Puerto Rico.

For fun read

They need to lower the MW. I believe (but haven't verified any of this), their MW is the same as the federal level. Considering their per capita income is half the rest of the US, this is a very high MW: ~75% of median income for full time work.

Was this report copy-pasted from the Greek report? loool

It's saying that it's far, far too high compared to the productivity of Puerto Ricans. It's 77% of the median wage, implying that there's a lot of people there who simply can't be employed producing enough to make it worth it to pay them. It forces a bunch of people into unemployment or moving to the US.

If I were a Puerto Rican considering statehood…I know how I would vote."

How about a referendum for all American citizens on whether Puerto Rico should be independent?

Can we vote on Detroit next?

I'd vote "yes" to give Texas, Louisiana, Alabama, and Kansas their independence.

Too bad thee weren't more like you around in 1861.

Please tell me you're being sarcastic.

Detroit metro GDP is about twice that of PR's and is a top five US export market, so that would be stupid, but OK.

You are missing the costs in your analysis. ( Not saying I know which way it would go.)

I know which way it goes. About $7 billion in debt was written off in the Detroit bankruptcy. It is a pretty small, one-time, amount relative to its metro GDP (~$224 billion). Puerto Rico is saying it can't pay about $72 billion in debts.

So why is it still a dump? Sincere question.

Is that your response? Why is any city a dumpy? There are more factors that go into that than can be listed here. Anyway, the city is getting better, though it will clearly take a long time. Should we propose voting out all dumpy places?

I think most of the work is being done by the qualifier "metro." Detroit city is in pretty bad shape but its suburbs are still thriving.

I have a relation from a rich family who was encouraged by the latest "development zone" whatever to move into Detroit. Rent prices have quadrupled recently, albiet from a very low starting point, but it is doing better. Whether that will continue is of course an open question, but for now it is improving.

Much of the city is a dump because 2/3 of its population (and an even much higher fraction of those with means) decamped for the suburbs and exurbs.

They decamped to the suburbs because the city was poorly governed after 1961 and atrociously governed after 1973. Detroit's political class is so awful there is no option for passable public administration within the Detroit municipality. In effect, you have to transfer control of the police force to a metropolitan authority and the schools to a series of charter operators and maybe you will begin to make progress.

Ýes, we know how you would vote, but first, you just might want to check into how much TIAA-CREF has invested in those local, state, and federal tax free, high yielding PR bonds - maybe some information can be found here - . Along with finding out how large the Templeton (Franklin) investment was.

Interesting to know that James Tobin wrote an economic report on Puerto Rico in 1975(!), with similar conclusions.

(Link to news item in Spanish)

Guess it's not too hard to buy off economists ...

America must keep Porto Rico as a coaling station to protect a future Isthmusian Canal from Queen Victoria's Dreadnoughts and the Kaiser's High Seas Fleet.

I say the Kaiser's fleet can't compete with the Royal Navy, don't mention that flotilla of barges in the same breadth

"If I were a Puerto Rican considering statehood…I know how I would vote. " Excellent: then why not tell us? Or are you en route to a second adolescence?

Not sure that they'll ever get rid of the Jones Act if they become a state, and that is an enormous drag on Puerto Rico. McCain is against it, but solid Democratic support plus a few Republicans make it (like other things) hard to repeal.

In freight terms how much more expensive is it to ship a TEU from the US to Puerto Rico versus places similarly far located. e.g. Caracas or Trinidad

Cost to ship the same container from East Coast to Puerto Rico was over 2x vs. shipping from East Coast to Dominican Republic (pg 13). Based on rates the NY Fed sourced from . These figures have been cited by Heritage recently.

There was also a GAO white paper written on the topic in 2013, but they never really got a good grasp of the core issue - the actual apples/apples rate differential - and made some excuses for this, basically boiling down to "none of the operators would tell us."

Can't believe they spent a bunch of time and effort studying this but weren't able to actually gather any useful pricing data!

blog does not spend enough time discussing cabotage.


The whole "PR is being crushed by the Jones Act" theme is more or less BS. Yes, Jones Act shipping is more expensive. However...

1. Containerization and other technological advances have drastically cut all shipping costs in recent decades. Shipping used to be a much higher fraction of total costs. Now it isn't.
2. Caribbean distances are short. Even high shipping rates don't have much effect over short distances.
3. Hawaii is far more impacted by the Jones Act and is doing much better that PR.
4. PR is very free to trade with the rest of the world without using Jones Act vessels.

The Jones Act - PR issue is some combination of neo-liberal BS and PR excuse making.

3. Hawaii is far more impacted by the Jones Act and is doing much better that PR. 4. PR is very free to trade with the rest of the world without using Jones Act vessels.

Just to point out, value added in agriculture, mining, and manufacturing account for < 3% of Hawaii's domestic product. It turns some coin in transportation and shipping (4.5% of value added), but I do not think there are ready substitutes for the Hawaiian Islands as a trade entrepot. By contrast, Puerto Rico's domestic product is devoted to industrial output and exports account for 3/4 of domestic product.


Manufacturing accounts for 46% of PR's GDP (see However, that mostly in pharmaceuticals. Needless to say, shipping is not a big deal for drug companies. Quote

"In terms of specialization, more than half of all manufacturing done in Puerto Rico is attributed to the pharmaceutical industry which generates more than 18,000 jobs, pays more than $3 billion USD in taxes, comprise about half of total exports, and has generated more than 25% of the island's GDP for the past four decades.[57] Comparatively, Puerto Rico is the fifth largest area in the world for pharmaceutical manufacturing with more than 80 plants, including:"


Hawaii is not a major exporter of goods subject to the Jones Act. However, it does import goods on a very large scale from the mainland, using Jones Act shipping services. It is also a lot further from LA to Hawaii than from Miami to PR.

I would pay some reasonable weekly fee to read a "Becker-Posner" style blog with Art Deco and Peter Schaeffer. Waddya say, fellas?


We have all been here before. From a prior MR post.

This is a testable hypothesis. The cost of living in Puerto Rico is more than 20% below the U.S. average.

There is a lot of ruin in a country. The Jones Act hurts Hawaii too, I certainly don't deny it. That Hawaii is doing better thanks to a lot of other factors. Among other things, Hawaii has a considerably higher percentage of its economy devoted to tourism, with roughly 50% more people employed in Leisure and Hospitality despite half the population.

I can always point to plenty of states and countries that are doing well despite individual damaging policies.

The US Virgin Islands are nearby and exempt from the Jones Act since 1922. They are doing better than PR. By your logic, this equally proves that the Jones Act is crushing PR.


"The US Virgin Islands are nearby and exempt from the Jones Act since 1922. They are doing better than PR. By your logic, this equally proves that the Jones Act is crushing PR"

I agree. That's why I tried to offer several arguments as to why the Jones Act is an unlikely culprit. For some quantitative estimates see "GAO issues report on Jones Act impact on PR"

"For years, critics have argued the shipping laws cost Puerto Rico anywhere from $200 million to $1 billion annually in increased shipping costs. Proponents, however, counter the estimates are wildly exaggerated and any increased costs are recovered through consistent service, investment in Puerto Rico and the additional work performed by shipping companies serving the island."

The numbers from the critics are probably an upper bound as to the actual costs of the Jones Act. The GDP of PR is over $100 billion. Another useful note is that imported oil for power generation is costing PR far (10X?) than the Jones Act. This is a self-inflicted would. Natural gas and coal would be considerably cheaper. Note that PR does have one coal fired power plant and one or two natural gas based power plants. However, the majority of power production is from oil.


We have all been here before. From a prior MR post.

Rahul, RBO,

Just for fun I decided to test the Jones Act thesis. It turns out that there are freight rate calculators online. Here are some actual numbers

Miami to San Juan – $1,239.09 – $1,369.52 Miami to Kingston – $1,173.59 – $1,297.13 (shorter distance) Miami to Santa Domingo – $1,255.50 – $1,387.66

Newark to San Juan – $1,487.20 – $1,643.75 Newark to Kingston – $1,403.17 – $1,550.88 Newark to Santa Domingo – $1,507.32 – $1,665.99

Not so obvious that the Jones Act is imposing any significant additional costs. However, we have other data points as well. See “Shipping shakeout for Puerto Rico trade” ( Quote

““Within the past 15 years, rates have fallen 22 percent and have only had some moderate recovery in 2010,” said John Reeve, a maritime analyst at Reeve & Associates in Massachusetts. “In comparison, JB Hunt [Transportation Inc., a national logistics company] has raised its rates 59 percent within the same time period.”

It costs roughly $1,050 to move a TEU from Jacksonville to San Juan and about $475 per TEU the opposite way.”

The issue is contentious enough that the GAO has studied it. See “Characteristics of the Island’s Maritime Trade and Potential Effects of Modifying the Jones Act” ( The results were ambiguous in terms of any potential savings because foreign carriers proved unwilling to provide the data.

Another source provides a summary “New Study of U.S. Ocean Freight Law and Puerto Rico Inconclusive” (

“Critics say that American shipping is more costly than foreign transportation and the cost increases the price of consumer goods in Puerto Rico. But the GAO could not substantiate that exemption from the U.S. requirements — enabling foreign shipping between the States and Puerto Rico — would lower most consumer costs.”

Of course, the big picture answer is that freight costs have fallen dramatically worldwide over the last few decades. As a consequence, freight costs simple aren’t nearly as material as they once were. If Japan can export goods across the Pacific to the rest of the world, Jacksonville to San Juan can’t be a material obstacle.

See “Why have containers boosted trade so much?” (

“For many years it was thought to be impossible to quantify the value of containerisation, because the advent of the metal box coincided with a global reduction in trade barriers as a result of European integration and the work of the General Agreement on Tariffs and Trade (GATT), the predecessor of the World Trade Organisation (WTO). But a paper published in February cleverly disentangles the impact of trade deals from that of containers. Looking at 22 industrialised countries, it finds that containerisation is associated with a 320% increase in bilateral trade over the first five years and 790% over 20 years. A bilateral free-trade agreement, by contrast, boosts trade by 45% over 20 years, and membership of GATT raises it by 285%. In other words, containers have boosted globalisation more than all trade agreements in the past 50 years put together. Not bad for a simple box.”

The bottom line is that focusing on the Jones Act is yet another example of “free market” absolutism and libertarian idolatry when the real issues facing Puerto Rico are the toxic interactions of the welfare state and third-world skill levels. Of course, those are very tough issues and even mentioning leads inexorably to the immigration question. However, that’s no excuse for ignoring the facts.

The governor just now wants Puerto Rico declared a city, not a state, so that it can declare bankruptcy. Perhaps it can be absorbed by Michigan and annexed to Detroit.

Prexit now.

Puero Rico:
- has no natural resources
- has no control over currency, it's minimal exports are made artificially expensive as a result of using the dollar
- subjected to federal regulations without any representation in Congress
- an island dependent on imports subjected to the cabotage laws
- the tax incentives that were used to attract foreign investment was eliminated by congress
- no power to establish trade agreements with other nations yet subjected to all trade treaties to which the United States signs without any consideration the island's needs

What else did you expect from Puerto RIco? The United States obtained control of the island via a military invasion and has kept it as a territory for the past 100 years. It deliberately derailed the independence movement in favor of maintaining the status quo.
There was no other outcome that this current economic, political and social debacle.

Statehood has never been more than a pipe dream, and that's been known by both citizens in the Puerto RIco and the mainland. But Congress has preferred not to deal with the situation until it severely affects the interests of the United States. I'm not quite sure if the current fiscal crisis will be enough to elicit action from Congress regarding Puerto Rico's political status.

Your post is remarkably dense with deceptions.

Puerto Rico has suffered an economic depression the last 8 years. It's still more affluent than any other Latin American territory with a domestic product per capita about 60% of national means and half again that of Chile, which ranks 2d among Latin American territories.

As for it's political status, sovereignty has never had much of an electoral constituency on the island except for a brief period ca. 1948, and even then it captured perhaps 19% of the ballots in competitive elections. For fifty years, the separatist vote has bounced around 6% of the ballots. This is not an artifact of American policy. That's just popular preference there.

Stop lying.

Not an artifact of American policy and just popular preference? I guess the 1954 Guatemalan coup d'état was also just a result of popular preference.

Have you read about Law 53 (approved as Bill 24 in May 1948) know as the Gag Order or "Ley de la Mordaza" that made it a crime to own or display a Puerto Rican flag, to sign a patriotic tune, to speak or write of independence, or meet with anyone, or hold any assembly, in favor of Puerto RIcan Independence? For nearly ten years, the Gag Order managed to mortally wound nationalism, and though fear it decreased the electoral force of pro-independence movement, giving way to the electoral rise of the annexation forces.

I invite to revisit Puerto Rico's history and take note of events such as the Ponce Massacre of 1937 (21 dead, 200 injured) and the 1950 Nationalist Revolt.

I guess the 1954 Guatemalan coup d’état was also just a result of popular preference.

You like non-sequiturs, too.

Have you read about Law 53 (approved as Bill 24 in May 1948) know as the Gag Order or “Ley de la Mordaza” that made it a crime to own or display a Puerto Rican flag, to sign a patriotic tune, to speak or write of independence, or meet with anyone, or hold any assembly, in favor of Puerto RIcan Independence? For nearly ten years, the Gag Order managed to mortally wound nationalism, and though fear it decreased the electoral force of pro-independence movement, giving way to the electoral rise of the annexation forces.

What wounded Puerto Rican independence was popular lack of interest, manifested in the performance of the Puerto Rican Independence Party over a period of 60 years. If you'd prefer to lie to yourself and pretend they were all Jedi-mind-tricked by Luis Munoz Marin, go ahead. Just quit pesetering the non-stupid.

I invite to revisit Puerto Rico’s history and take note of events such as the Ponce Massacre of 1937 (21 dead, 200 injured) and the 1950 Nationalist Revolt.

I'd invite you to quit trafficking in fictions of political sociology, but it likely would not do a bloody bit of good. You've got your story and you're sticking to it.

Basically the report recommends that Puerto Rico become another Costa Rica.

But waht able bodied person will work for $400 a month when they can legally go the mainland and earn three times as much. And if they decide to stay for wahtever reason how can the government tax them enough topay off the creditors.

While disability abuse may be rampant in Puerto Rico how would reform help. Cutting the payments, which are funded by the Federal government, will reduce remittances to the island and damage the economy. Even if all those receiving disability found jobs they would not be at higher incomes on average than an island with a $400 a month mimimum wage.

The island is in a death spiral. People have an escape option and population will decline and it will turn into another Detroit.

Yes disability is high. Puerto Rico has been a huge recruitment camp for the military. Many of those coming back from wars return with psychological disorders.


Life for the factually challenged. Puerto Rico is substantially underrepresented in the U.S. military. See and

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