«The establishment of an Economic Freedom Zone, would set off an explosion of growth…»
The establishment of an Economic Freedom Zone, would set off an explosion of growth.
After a particularly devastating hurricane season, Puerto Rico has an uncertain future. Already mismanaged and saddled with debt, the island territory now faces the virtually insurmountable task of rebuilding its infrastructure and economy. But amidst the rubble and heartache lies one of the greatest opportunities in the modern era not just to rebuild, but to reimagine the possibilities for economic and political freedom.
Two simple but powerful steps taken by Congress could hasten recovery and redefine the trajectory of the island’s future.
First, the United States should assume all of Puerto Rico’s outstanding bond debt.
Second, in exchange for debt assumption, the federal government should establish the island as an Economic Freedom Zone.
Within a year, these reforms would help rebuild Puerto Rico; within a decade, they could rebuild our conception of the free market in the Western Hemisphere.
It is important to note that hurricane destruction has not created economic gain by boosting demand for construction. This broken-window view fundamentally misunderstands the nature of this potential. Nor should this plan come at the expense of traditional disaster relief. Before infrastructure can be rebuilt, urgent human needs must be met with outside aid.
But rather than pursue traditional recovery with an eye toward returning to business as usual, this proposal seeks to fundamentally remake Puerto Rico into a modern and dynamic economy built to match and surpass any on earth.
The first step would wipe the slate clean to rebuild from a neutral position. The assumption of Puerto Rico’s debt would be both a relief effort aimed at freeing the local government’s limited resources and a signal to the world of our intentions to further the cause of freedom. Partly borne of mismanagement and partly of miscalculated federal policies, the territory’s debt can at least partially be attributed to the ambiguity of its relationship to the United States. Despite the political challenge of assuming the debt with a $20 trillion debt already on our books, absorbing the $74 billion debt would pay immediate dividends. Puerto Ricans, our fellow American citizens, would have immediate relief, and the freed cash flow would allow them to focus solely on rebuilding the island’s infrastructure.
The federal government’s assumption of a constituent government’s debt would follow historical precedent. As part of his First Report on the Public Credit, and later codified by the Funding Act of 1790, Alexander Hamilton proposed the assumption of state debts in order to both strengthen the financial position of the union and that of the individual states – allowing them each to lower their taxes and establish themselves on equal footing at the outset of our nationhood.
Our fledgling nation took on debt equal to 10 percent of our entire domestic product – a massive undertaking brought forth by visionary leaders. This set up the new federal government to be an instantly credible player on the world stage and made the phrase “backed by the full faith and credit of the United States” the closest thing to a guarantee as can be found in global finance more that 200 years later.
By comparison, assumption of Puerto Rico’s debt by the U. S. in 2017 would be a mere 0.4 percent of our more than $19 trillion economy, a greater political consideration than fiscal.
