Alejandro Garcia Padilla, the governor of Puerto Rico, has skipped out on a $422 million payment owed to private-sector creditors.
The missed payment, due on May 1, was just another scene in the slow-motion train wreck that has been termed “Puerto Rico’s economic crisis,” but to call the territory’s status a “crisis” understates the severity of the problem.
Puerto Rico’s territorial government is responsible for some of the problems its people are facing, such as its overly generous entitlement programs for workers, but Washington, DC lawmakers are ultimately responsible for the territory’s economic death spiral.
One Washington, DC policy making things worse for Puerto Rico is called the Jones Act.
A 2012 report issued by the Federal Reserve Bank of New York (FRB-NY) studied the effect of the Jones Act on Puerto Rico and concluded increasing the cost of shipping goods to Puerto Rico from the mainland has resulted in fewer goods being shipped to Puerto Rico and less money available to Puerto Ricans.
According to the American Maritime Congress, a lobbyist organization representing the interests of the merchant marine industry, only 77 ships in the entire world comply with the requirements of the Jones Act. By artificially reducing the volume of shipping, the cost of shipping increases, making everyday goods more expensive for Puerto Ricans.
“It costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions,” the Federal Reserve Bank of New York wrote.
Instead of considering targeted big-ticket bailouts from the mainland’s treasury to patch over their past mistakes, national lawmakers should enact free-market policies, including repealing the Jones Act, to help make prosperity more readily available to everyone, regardless of whether they live in Chicago, California, or Canóvanas.