At the Sanders Institute Gathering: The people of Puerto Rico are facing severe austerity measures; a new study, Austerity Versus Green Growth for Puerto Rico, presents a way out of the debt spiral says Professor Robert Pollin
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SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Burlington, Vermont.
We’re at the Sanders institute gathering, where intellectuals, activists, policymakers are gathered, looking at the critical problems our world is facing, our country is facing, and to look at possible solutions. Puerto Rico has been struck twice, first by Hurricane Maria and then Irma. But even before that, it had a spiraling debt problem of negative growth. Since 1976, the special tax exemption in Puerto Rico had attracted giant corporations to set their headquarters in Puerto Rico. But when the tax exemption was phased out between 1996 and 2006, the corporations left and the island and economic growth in the island came to a grinding halt.
The high energy costs of Puerto Rico forced the government to borrow more and more money to pay the energy corporations. Then came the hurricanes, which destroyed the chances of the island repaying their debts. A new study, titled Austerity Versus Green Growth for Puerto Rico by Amanda Page-Hoongrajok and Shouvik Chakraborty and Robert Pollin, came up with a detailed plan on how Puerto Rico can emerge from the crisis through a green growth program. On to discuss all of this with me is Robert Pollin, one of the coauthors of the study. Thank you for joining us.
ROBERT POLLIN: Thank you very much, I’m happy to be on.
SHARMINI PERIES: Bob, so here you are at the Sanders Institute. We are discussing how to solve some of the critical problems we are facing, and Puerto Rico is certainly one of them. And you were there recently, and you’ve done the study. Tell us about what it is that you’ve found that you think we can saw with a green growth plan.
ROBERT POLLIN: Thank you. Well, as you said Sharmini, Puerto Rico has been in a negative growth trajectory for almost 20 years. I mean, it hasn’t been as bad, but due to the ending of those tax subsidies for corporations, Puerto Rico had a growth strategy that was based on subsidizing corporations. It was a terrible growth strategy, but at least it was a growth strategy. And so, when that was terminated initially under President Bill Clinton, they were left with nothing. And that led to this long-term buildup of debt. They were facing a crisis before the hurricanes last year; the hurricanes exacerbated an already bad situation. Now, post Irma, so now the debt situation is completely untenable. In fact, if you read the mainstream business press, the mainstream business press says you cannot repay this debt, there’s no way.
I mean, even the government’s so-called recovery program shows the economy at negative growth for another five or six years. I mean, this is way more severe than the 1930s depression for them, way more severe certainly than that the 2009. You’re putting these people through the ringer. They have no solution, essentially. It is the bankruptcy, it is the combination of bankruptcy, of economic ideas and greed of the bondholder, capitalists, who by the way, most of the bondholders now are pretty recently purchases of the bonds. They bought the bonds under distressed situations, they knew what they were getting themselves into, they bought them at a deep discount, so for a 100 dollar bond maybe they only paid 20 dollars because of the risk. So they knew they were facing risk. Therefore, when you face a high risk, you should experience default if you can’t squeeze any more out of the country.
Now, alternatives. So if you think about Puerto Rico, Puerto Rico is a very sunny place, a very windy place, it is a perfect setting for a green transition. And on top of that, because of the hurricanes, their energy infrastructure was destroyed and still isn’t close to fully operative. So we took the idea that I myself and colleagues have worked on in other settings, at the same time the government’s own long term growth strategy does at least make gestures toward some kind of green infrastructure alternative, it’s not worked out at all. So as you said we did, work out a detailed program of a green energy transition. Now, under the green energy transition, you get a lot of benefits for Puerto Rico that actually don’t have anything to do with climate change. Whatever happens in Puerto Rico with respect to reducing emissions and going to green energy will not have any impact whatsoever on the climate situation because they’re too small.
I mean, it can help spiritually and so forth, but it’s not going to make any difference. It will make a difference for –
SHARMINI PERIES: So tell us the plan.
ROBERT POLLIN: Yeah. So the plan is basically to take a percent and a half to two percent of the island’s GDP every year and invest in energy efficiency and renewable energy. Energy efficiency meaning public transportation, retrofitting buildings, building up the electrical grid, which has been destroyed, making it compatible with green energy, and industrial machinery such as combined heat and power systems. So that’s efficiency. The renewable is solar wind a little bit less geothermal and hydro. And so, build it up and then stop importing oil. And basically, right now the island runs one hundred percent on imported energy, one hundred percent. About four or five percent of GDP gets shipped out every year because they have to import all their energy. And they end up having to pay very high prices.
Right now, they’re paying two to three times more for electricity than we in the mainland of the United States pay. They’re paying four times more than what is projected for the solar and wind energy over the next five years. So this is a winner for them based on price, that they’re going to get much cheaper electricity, in terms of getting rid of this import dependency, so five percent of GDP that’s now shipped out as imports. They can invest in their economy. And then, it creates a lot of jobs. So we estimate in the first year maybe about 25,000 jobs, but then over the course of the transition to a zero emissions economy in 30 years, they would create about 80,000 jobs.
SHARMINI PERIES: OK. So we’re talking about a very depressed economy right now and you are pending this model on GDP growth. What is the GDP growth and what can be invested in this new green economy?
ROBERT POLLIN: That’s a great question. Of course, there is no growth because they are in an austerity budget which means, basically, what does the austerity budget mean? It’s not just words. It means basically public sector workers are losing their jobs, it means people are losing their pensions, it means having access to health care and education is being decimated. That’s what’s going on now. And you have no opportunities whatsoever. So under this proposal, what we are saying, one of the things is people do still buy energy, they do still run cars and turn on electricity when they can. So what we’re saying is that we’re going to set an energy tax, a fossil fuel energy tax, and on average that’ll generate about a billion dollars a year.
And what we’re saying is, of the billion, you give one third into building up the green sector, one third redistribute directly to low income people to help them offset any of the losses they face, and OK, we will take one third and give that to the bondholders. They will take a big haircut, they will get about 30 percent on the dollar of what they hold officially in debt, but it’s better than zero. And that is in the context of a growing economy. So releasing the debt burden and having a direct investment project for Puerto Rico will promote growth again. We don’t assume it’s going to be fast growth, maybe two percent growth, which is moderately slow. And that is a way through which you create jobs, you get rid of the dependency on oil and you have cheaper energy. And it is the alternative to austerity.
SHARMINI PERIES: And is debt cancellation an option?
ROBERT POLLIN: We can go to a hundred percent. What I’m saying is we’re canceling about two thirds. You could a hundred present and you could still run the same green growth program. So mine is more like, OK, we will acknowledge some compromise here. The bondholders will get something, they’ll get 30 cents on the dollar. They’re not going to get 70 cents, they’re not going to get 100 cents and they’re not going to get zero. But you can obviously adjust that.
SHARMINI PERIES: Now, the U.S. can bail it out if they want to in a minute, as well as provide more aid that Puerto Ricans so desperately need after these kinds of crises, debt crises as well as the climate impact of the hurricanes on the economy. But Trump is very set on canceling any sort of aid packages to Puerto Rico. But we do have a new Congress, a freshman class at least, who can fight back at that decision, do we think?
ROBERT POLLIN: Well, anything that through Congress also has to go through the Senate and then the president. I mean, the Federal Reserve – you make a good point. Federal Reserve could buy up the bonds and then it’s over. Now, you still don’t have a growth strategy, so you still need green growth. It will be easier if, obviously, if it’s a hundred percent debt cancellation, you still need to raise the billion dollars a year in the revenue from the carbon tax and put it back into the community. You don’t have to then give any to the bondholders. I’m saying give 30 cents on the dollar to the bondholders.
SHARMINI PERIES: Now, given that Puerto Rico is in such a vulnerable state environmentally, I mean two hurricanes within days, is any type of investment like this, even on the part of the public sector, a risk worth taking?
ROBERT POLLIN: It’s not even a risk because their energy infrastructure is destroyed anyway. They have to build it back up. The Government’s own documents … I mean, they do have electricity going for the most part again, but it’s really based on patchwork, as the government itself acknowledges. And they say, well you know, we do have to come up with a more longer term solution. So as long as you have to come up with a longer term solution anyway, why not do one … Again, let’s say we don’t care at all about climate change, which we do, but let’s say we don’t. It’s still the best program because it’s a way through which you get cheaper energy, a way through which you eliminate your import dependency, which are both massive factors holding back the economy.
SHARMINI PERIES: All right. Now, the paper is titled Austerity Versus Green Growth. Why is it … I mean, explain the austerity factor and how it eliminates because it creates green jobs.
ROBERT POLLIN: You mean how green growth eliminates the austerity.
SHARMINI PERIES: Exactly.
ROBERT POLLIN: Well, because it creates a framework for growth because, again, the energy infrastructure is destroyed, but can you fix it? No, because we have to pay the bondholders. There’s nothing we can do. OK. Jobs, what can we do about jobs? We can’t do anything about jobs because the government is already committed to, the next five or six years, to a negative growth economy, which means job contraction. So we’ve got to come up with some alternative, and this is an alternative that directly addresses the fact that the energy infrastructure was destroyed, the fact that they have the resources, they have the wind, they have the sun and the energy costs have come down. You can deliver green energy for electricity at five, six cents per kilowatt hour. They’re paying twenty five cents per kilowatt hour right now in Puerto Rico. It’s all imported and it’s mostly all diesel fuel, which is very expensive and very dirty. So this is a viable alternative.
SHARMINI PERIES: All right, Bob. Thank you so much for joining us. You’re becoming the solutions man.
ROBERT POLLIN: Yeah, I’m the solutions man.
SHARMINI PERIES: I thank you so much for joining us here on The Real News Network.