Our Colonial Empire

It may seem anachronistic, and it should be a source of some embarrassment, but the United States is one of the few remaining colonial powers. We have colonies, which we euphemise as territories, in Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands. Actually there are sixteen territories in total but these five are the only ones permanently inhabited. Those born in these territories, with the exception of American Samoa, are automatically American citizens, though they have very limited voting rights. For reasons I haven’t bothered to research, American Samoans are citizens of the U.S. only if one of their parents is a citizen, and even then they are accorded similarly restricted voting rights.

By and large these colonies are treated kindly, have substantial local rule and have warm relationships with us. Nevertheless, from time to time, there are efforts to alter their status, one way or another. Today marks one such effort.

For the fifth time our fellow citizens in Puerto Rico are voting on a status change. The options as usual are no change, independence or statehood. Any change requires Congressional approval. The odds this time, and for the first time ever, are that statehood will prevail because the opposition is mostly boycotting the plebiscite.

I don’t think its current status makes sense, is fair or is sustainable in the long-term. It was imposed by force. The residents are pseudo-citizens, i.e. they don’t participate in the election of our President and they pay no federal income taxes. The island’s economy is moribund. And from our viewpoint, we don’t get much out of this arrangement.

I would argue for independence, with a significant transition period to work out the details. Everyone benefits, but only after a fairly tricky adjustment period. Puerto Ricans now living in the U.S. have all the privileges and responsibilities of any citizen. Thus any change in status shouldn’t affect them, though I suppose they might be accorded the option of which country to join.

The problem is that there is no way Congress would approve either change of status for Puerto Rico. It isn’t clear why independence seems to be off the table, but statehood would be anathema for Republicans. That is because the residents are deemed “people of color”, which most Republicans view as synonymous with Democrat. Two new Democratic Senators? Not a chance! Polls have shown that mainland citizens favor statehood for Puerto Rico over statehood for the District of Columbia, which tells you a lot about both of their prospects.

When this issue does get serious consideration, and I believe that is inevitable, the status of the other territories should also be regularized. There is a precedent for independence. The Philippines were acquired as a territory in the same way that Puerto Rico was, as the spoils of the Spanish-American War, and they now flourish as an independent country. If statehood becomes feasible, one option that has been suggested is for Puerto Rico and the U.S. Virgin Islands to combine as a Caribbean state. And it has already been proposed that the Pacific territories become a part of Hawaii. Larger states are more economically viable although geographical separation presents unique problems.

Puerto Rico Bankruptcy

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Several months ago I posted a warning that Puerto Rico was about to become our version of Greece. Its profligate policies and misguided tax manipulations by the federal government have created a financial disaster. Basically, Puerto Rico is a third-world economy attempting to live like a U.S. state, very much like Greece’s position in the E.U. Just like Greece, Puerto Rico is in a monetary union with the rest of our states but without a common fiscal policy. Now the predictable consequences have come to pass. Within weeks, Puerto Rico will default on its bills and will be unable to provide municipal services. Before long, chaos will ensue unless something is done promptly in Congress. What chance do you think that has of happening?

There is so much wrong that no simple solutions will work, and some possibilities are precluded by their commonwealth status. Under current law, their municipalities and public corporations cannot file for Chapter 9 bankruptcy, an option allowed in any of our 50 states. Changing this requires Congressional action, and without this option a disorderly disintegration of public services will eventually occur. But by the best accounting, even that change probably is insufficient as the commonwealth’s public debt is unserviceable. Default will freeze investment, with unknowable consequences.

Belatedly, the Obama administration has gone before Congress to present a solution and it is breathtaking in its concept. Recognizing that only a major action might work, the plan proposes to allow Puerto Rico itself to declare bankruptcy. No U.S. state can do this. In fact some scholars argue that the Constitution wouldn’t even allow that for states, which retain residual sovereignty. Nevertheless, allowing Puerto Rico to declare bankruptcy would no doubt impair every state’s fiscal rating, as the suspicion would linger that some might grasp this lifeline in extremis.

The White House has stated that this resolution would be restricted to U.S. territories, so that Guam for example could go bankrupt but not Mississippi or California. However this is just a statement of policy, not law, and suspicious buyers would likely demand higher interest on all state bonds. This administration approach will be very costly, as federal funds in the billions would be needed and the indirect cost from higher interest rates would add immeasurably.

There is a side effect of this resolution that isn’t insignificant. The status of Puerto Rico is odd. Its residents are citizens of the U.S. but they have only non-voting representation in Congress. They have had plebiscites offering the alternatives of independence or application for statehood, but so far neither has achieved the necessary support. In fact, it is not obvious that statehood would be granted. What benefit do we accrue from adding them as our 51st state? But in any case, if this bankruptcy idea were actually employed, that would probably preclude statehood for the foreseeable future. As a result we would have this dependent child to support for decades to come.