Before Hurricane Maria made landfall on Puerto Rico three weeks ago, the U S territories economy was already in shambles, thanks in part to an overload of debt and an exodus of residents. Now, after this terrible storm, things are much much worse for the three point four million people there. Just fifteen percent of residents have electricity, are lacking clean water, and nearly half the phone services out. One estimate puts the damage at ninety five billion dollars, the equivalent of
more than one year of Puerto Rico's GDP. So what does this all mean for Puerto Rico's economy? Will Puerto Rico even have an economy anymore? We'll talk to two people who will try to answer these questions and more today on Benchmark. I'm Scott Landman and economics editor with Bloomberg in wash Ington. Today we're going to look at Puerto Rico's economic devastation from two perspectives, One from someone who's been on the ground there, and then from someone
who's very familiar with the territory's economy. So how bad is it there? Let's turn to one of our Bloomberg colleagues Jordan Holman, a reporter based in New York who spent seven days in Puerto Rico after the storm covering the situation there. Jordan's thanks for joining us today. Thanks for having me tell us a little bit about what you saw when you were there and how the hurricane disrupted life in Puerto Rico. So, Hurricane Maria very much
disrupted life on the ground there in Puerto Rico. Like you mentioned at the top, most of the island was without electricity, cell service was down, a lot of the streets were not cleared because of utility poles, trees, and a lot of people did not have jobs to go to. Schools were out, and people had to bathe in the river because they did not have access to clean water. So it very much disrupted the way of life down in Puerto Rico, and it's going to be a year's
long recovery until things get back to normal. And speaking of what normal life is like down there, from what I know about their economy, uh, there's there's tourism, of course, I visited there one time. There are some factories, especially pharmaceuticals, maybe some other industries too. Is it possible for anybody to get to work to get paid to do anything these days, so normal will fill dimfer for differ parts
of the island. In San Juan, where tourism is um a big part of the economy more than people working tourism. In Puerto Rico, the hotels are starting to open up. You can see some cruise ships um, you know, docking in the waters there, and there's a huge concerted effort to try to jump start the economy with tourism and trying to tell people that uh, Puerto Rico is open for business. The Bacardi uh distillery down there, it's open
and running. But outside of San Juan and the villages and the more mouth to this areas, that's where people are really trying to look for jobs and for opportunities. Because less of the roads are cleared there, schools aren't open and so parents are put in a tough spot
of what to do next. So what you're saying, Jordan's is, you know, San Juan might be able to get back on its feet and get some touristspect but you know, for the vast, vast majority of the island is just going to be a very very long road back, And who really knows when things will ever get back to some normal stage off at all. Right Right now, many people are just looking for the commodities in life. They're
looking for clean water, they're looking for housing, electricity. UM is huge issues right now, so focusing on getting those back up and running is very key. UM. Further outside of San Juan, and when it comes to the people that you talked to down there, even though its residents are American citizens, Puerto Rico has no representation in Congress. Do people there feel that Puerto Rico has been kind of invisible in some ways in this aftermath of the disaster.
I mean, not that people don't know about it, but given its distance, the fatigue with other hurricanes like Irma and Harvey, that it's it's not really getting the attention and help that the people there deserved. The people I spoke to down there definitely acknowledged that there are a lot of other natural disasters happening right now. Um. There was Harvey UM in Texas and Erma and Florida and other parts of the Caribbean. Right now, there's forest fires
in California. But everyone's stressed to me that while they understood that they still needed a they were still part of this country American citizens. They felt that Trump's visit it could have been a positive thing since he's the president and it brings media attention and resources. But as aid is still coming in, not everyone's receiving it in all parts of the island, and so that's a big focus right now to make sure that the aid is
getting in reaching the people who need it most. Just one last question before we move on to our other guests. Is it possible to even rebuild Puerto Rico in a reasonable amount of time? We have a article out from some of our colleagues about how, uh, you know, the dead burden was so large that public employees like like police officers were already cut. I mean, everything was basically
shambles already. Is it even possible to rebuild? You think Maria definitely didn't help the financial situation down in Puerto Rico, and the electrical grid needs to be rebuilt. Um the water situation needs to be handled as well. Right now, they're still in an emergency rescue recovery stage. But this is also could be looked at as an opportunity for a clean slate for rebuilding the infrastructure in a more
durable way. Tesla said that, you know, they are looking into possibilities of rebuilding, and um Google has said that they're going to help with the cell service, so this could be a place where corporations can step in and help this effort. But it's definitely going to be a year's long recovery. That's uh, definitely what Friema impressed upon me while I was down there, that this is going to be a slow recovery and not everyone's going to fill it at the same time. So that's one thing
that's gonna be a year's long recovery. Definitely sounds like a very, very difficult situation. Thanks, Jordan's so much for coming on today. Thanks for having me. All right, well, let's bring in Arthur McEwen. Now. He's a professor emeritus of economics at the University of Massachusetts in Boston. He's studied the Puerto Rican economy for more than twenty years, consulting to government and non government organizations, and publishing several
articles for both academic and general audiences. Thanks for joining us on Benchmark today, Professor. I'm glad to be here. So from your person affect, can you just give us a little background here before this storm struck. If we can talk about Puerto Rico in some normal state, what have been the major components of Puerto Rico's economy over the years. Well, for the last ten years, Puerto Rico
has essentially been in a recession. The economy has declined by well, there are various measures, but probably about fift since two thousand and six. You've mentioned, or your previous guests mentioned that there's been a large exodus. Hundreds of thousands of people, perhaps uh five hundred thousand have left the country and come to the United States as citizens. Of course they can move here easily, and that's made a big difference. That people leaving doesn't doesn't help the economy.
To be sure, the recession itself has to be put in context in the sense that the Puerto Rican economy was falling further and further behind the US economy, growing slower than the US economy ever since uh and now of course it's going down well however slowly. The United States economy is going up. Um. There are several reasons for this that uh, that is, several reasons for the slow growth and then the development of the recession. All this comes before the hurricanes of course, although it's had
hurricanes before, never never anything like this. In Puerto Rico, the the US government and the Puerto Rican government have focused excessively on manufacturing and attracting US firms manufacturing firms to Puerto Rico with very large tax breaks um. This has led to a distortion of the economy, a failure to focus on other industries, and hasn't done very much for employment in Puerto Rico. For example, manufacturing accounts for about forty of the Puerto Rican economic out would, but
only eight of employment. You know that something is weird when those you hear those numbers. How is that possible? Well, it's possible because the firms operating in Puerto Rico have huge profits and because they basically don't pay any US taxes or Puerto Rican taxes very little on their activities.
So what this is under particular U s laws. Some of those laws have been changed, but the situation has not changed dramatically in in recent years, so it's not And it costs more in lost taxes UH to to increase a job, to make a job in Puerto Rico than the salary of the job. So it's not a very good policy. But also this focus on manufacturing, which I don't think has paid off that well for Puerto Rico, has led to neglect of other sorts of industry on
on the island. I mean, you mentioned earlier that they're counting on tourism to do something. Well, it's a little late, I'm afraid. UM. For the last twenty years, the amount the number of tourist arrivals has been basically flat in Puerto Rico since about If you compare this with the Dominican Republic, which started off with less tourism than Puerto Rico, now is much larger in terms of the number of
tourists that come there. The reason behind this looks very much like the government of the Dominican Republic has increased its spending year after year in support of tourism. In Puerto Rico, the government spending on tourism has been basically flat. The kind of infrastructure that might develop Puerto Rico, the advertising campaigns that might develop tourism and Puerto Rico, those haven't been there. UH. And the other examples come up
for UH. One case is agriculture, which has just been devastated in Puerto Rico over the years of course it's even more devastated now with the with the hurricane UH. And of course the decline in agriculture is part of economic progress has shift to a more urban and industrial economy, but in Puerto Rico it went much further. UH. There is no attention, little government extension programs to build up agriculture, to find the appropriate things. Puerto Rico now imports, by
some estimates, over of its food. UM. Now it's not the best place in the world for agriculture. A lot of the island is is very mountainous. Nonetheless, there's certainly opportunities.
And furthermore, UH, there's very little export of crops to the United States, whereas there are plenty of crops that could be grown in Puerto Rico, and some are some are it's not totally zero UH for export to the US market, but very little has been done by government to help with the finance, the marketing, the extension programs that agriculture needs to get going. Those are just a couple of examples of the neglect that has been there
for for quite a while. Well, they're always figuring out new ways to give tax breaks to manufacturing, which is not driving the economy. Now let me let me interrupt you. Let me interrupt you for a second. So we we've had these decades of failed economic policy experiment basically in Puerto Rico, like Jordan was saying, companies like Google and Tesla are looking at ways of getting the electrical grid
back online or the telecom infrastructure. Is a time for more radical economic experiments that could encourage that sort of thing, or do we really need to go back to basics and see, all right, you have a tropical location, let's put in a tourist infrastructure that that's that really works and that could actually attract visitors. Well, I think the
answer is both. That is, it would be fine to start developing the tourist industry, but at the same time, there has to be something done about the electrical regrid. You shouldn't let a good crisis go to waste, uh, as somebody has many people have said. But the look, the electrical system in Puerto Rico has been very inefficient and very expensive. Uh. This is an opportunity to rebuild it in a way that is not only less expensive, more efficient, but also it will withstand hurricanes to a
degree possible and also could be green. After all, green energy is becoming competitive in the United States, where where energy costs or energy prices are much lower than in Puerto Rico. Puerto Rico recons pay about twice what we pay in the States for electricity, so certainly green energy is viable. It could also be decentralized in a way that you wouldn't have the whole island being out as
it virtually is is now. Just put in a whole bunch of solar panels and you could probably produce a lot of power, right Solar planels and wind as well could could be very important. And incidentally, uh, you mentioned Tesla and Google. I don't know about Google, but not only Tesla, but also a German firm is already bringing in many units for local generation of electricity through a some sort of U sun and power and also with battery systems that I frankly can't can't explain to. But
that's already going on. So it does seem like they're going to need, you know, real major work to rebuild the economy, rebuild the electrical grid, and some probably some pretty innovative solutions. Let me turn to a topic that interests me personally. Actually as part of my day job. For the nine of the time that I don't actually spend recording the Benchmark podcast, I edit our dated a coverage of US economic indicators like employment, GDP, inflation, and
so on. So when I was thinking about this topic, I was saying, well, let's look at economic data and Puerto Rico. And then I was looking at economic data and Puerto Rico, and there there really isn't much to speak of. Either it either doesn't exist or the estimates that are there are not really reliable. Um, why don't we have any real reliable current estimates of GDP, labor market, consumer spending like we do for the rest of the
United States. First of all, the United States agencies such as the Bureau of Labor Statistics and the Bureau of Economic Analysis are only responsible for parts of of Puerto Rican data. Puerto Rico by and large has its own own data system, and being outside the U S data system,
a lot of data is not well collected. I mean, we have the gross national product data, for example, which is the measure of growth and so on in the Puerto Rican economy, but they use nineteen fifty four prices in order to calculate currentum current output in the economy nineteen fifty four. Now, I think the US government, the Bureau of Economic Analysis, they they look at I think it's prices, for example. Well, they're always updating it. I mean in the United States. But as long as I've
been looking at Puerto Rico, it's nineteen fifty four. Well, that's absurd. Things change tremendously. New products are produced that weren't even in existence in nineteen fifty four. Uh, and old products that were important in nineteen fifty four go out of use. Those data are very unreliable. Puerto Rico is invisible in the main economic statistics like the unemployment rate and GDP that pertain to the whole US, even though even though it's residents are considered US citizens, but
it's part of this status. This the status in the United States where it's part of the United States but not part of the United States. Well, it's a colony of the United States. I mean that even though it's meant it's people are are citizens. Um, it's controlled by
the United States. Ultimate authority is with the United States government, but it has a certain degree of autonomy, and one of the areas in which it has a great deal of autonomy is in statistics, and the government simply has not given priority to the development of good statistical systems. And moreover, those the statistics that are gathered are often
politically used and politically controlled. I'll give you one example, when the head of the Institute of Statistics in Puerto Rico realized that there were serious problems with the consumer price index and recalculated it. The government told him not to let this go public, and after a while he let it go public anyway, and they tried to fire him. They didn't succeed, but because it had a certain amount
of autonomy. Another example is that the the legislature in Puerto Rico passed the law that said the government Development Bank should not release any economic statistics in the year before up leading up to an election. If we got any of that in the United States, you would you would have the endless congressional hearings and recriminations and so on. Right, So, those were clearly efforts to use the data system politically which were problems. Now, I mean, I don't mean it's
all absolutely useless. I think that the employment data, for example, are of some use. Then I just we mentioned that before the storm's hipped. The August data showed that which is the most recent data we have, that unemployment was running at almost twelve in Puerto Rico. Now I hesitate to guests. I mean, if they're twelve percent employed, that would be high. The Puerto Rican debt is you know
that that's the overhang on this whole situation. But if you can boil that down to uh ten seconds, how how is that going to play out? Well, I just say with the debt, the President said it has to be wiped out. He hasn't got authority to do that, but they have to find some way to greatly reduce the burden of the debt and Puerto Rico or the situation is basically hopeless. Well, on that note, on that hopeful note, we're gonna have to leave it there. Arthur,
thank you so much for speaking with us today. Thank you. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, or Bloomberg app, as well as on Apple Podcasts, pocket casts, and Stitcher. While you're there, take a minute to rate and review the show. Some more listeners can find us and let us know what you thought. Of the show. You can follow me on Twitter at at scott Landman, and Jordan Holman is at at j O R t
y N Journals. Benchmark is produced by Sarah Patterson, the head of Burt Podcasts Instagrancesca lead. Thanks for listening, to see you next time.