Krugman Acknowledges the Role of the Jones Act in Puerto Rico’s Troubles

Economist and New York Times columnist Paul Krugman isn’t someone you would ordinarily expect to see taking aim at the Jones Act, but the Act’s role in Puerto Rico’s economic troubles is too obvious to be denied. In a recent article, Krugman refutes the idea that Puerto Rico is about to become America’s version of the Greek crisis, but doesn’t hesitate to lay part of the blame for the island’s high transportation costs on the Jones Act:

Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall.

What went wrong? There was a time when the island did quite well as a manufacturing center, boosted in part by a special federal tax break. But that tax break expired in 2006, and in any case changes in the world economy have worked against Puerto Rico.

These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards. And its island location puts it at a disadvantage compared not just with the U.S. mainland but with places like the north of Mexico, from which goods can be quickly shipped by truck.

The situation is, unfortunately, exacerbated by the Jones Act, which requires that goods traveling between Puerto Rico and the mainland use U.S. ships, raising transportation costs even further.

Krugman goes on to attribute the lack of a full Greek-style crisis to the fact that Puerto Rico benefits from America’s fiscal strength and a safety net for the island’s citizens that provides far more aid in the form of welfare, medical care, and so on than Greece could hope for from Europe.

Unfortunately, rather than looking to solutions–such as reforming the Jones Act in an effort to help revitalize Puerto Rico’s economy–Krugman appears content to applaud the government safety net and consign Puerto Rico’s economic future to the, “shifting tides of globalization.” It’s an eloquent way of brushing off the fiscal crisis by saying that if existing policies and the loss of young workers to better jobs elsewhere mean that the island will continue to struggle, than that’s simply how things work sometimes.

As Hawaii faces its own fiscal issues, including the restrictions caused by the Jones Act and a growing “brain drain” of young workers–an echo of Puerto Rico’s concerns–we would do well to address the policies that hamper our success rather than pursuing a course that could leave our own state vulnerable to those same “shifting tides” mentioned by Krugman.

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