The Power and the Money

Leave Puerto Rico alone

 Puerto Rico has its troubles, but I like the place.

 
Below is the text of H.R. 2499, which just made it out of the House. I am not strongly opposed, but I do not think it is a good idea.

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Puerto Rico Democracy Act of 2009’.

SEC. 2. FEDERALLY SANCTIONED PROCESS FOR PUERTO RICO’S SELF-DETERMINATION.

(a) First Plebiscite- The Government of Puerto Rico is authorized to conduct a plebiscite in Puerto Rico. The 2 options set forth on the ballot shall be preceded by the following statement: ‘Instructions: Mark one of the following 2 options:

(1) Puerto Rico should continue to have its present form of political status. If you agree, mark here XX.

(2) Puerto Rico should have a different political status. If you agree, mark here XX.

(b) Procedure if Majority in First Plebiscite Favors Option 1- If a majority of the ballots in the plebiscite are cast in favor of Option 1, the Government of Puerto Rico is authorized to conduct additional plebiscites under subsection (a) at intervals of every 8 years from the date that the results of the prior plebiscite are certified under section 3(d).

(c) Procedure if Majority in First Plebiscite Favors Option 2- If a majority of the ballots in a plebiscite conducted pursuant to subsection (a) or (b) are cast in favor of Option 2, the Government of Puerto Rico is authorized to conduct a plebiscite on the following 3 options:

(1) Independence: Puerto Rico should become fully independent from the United States. If you agree, mark here XX.

(2) Sovereignty in Association with the United States: Puerto Rico and the United States should form a political association between sovereign nations that will not be subject to the Territorial Clause of the United States Constitution. If you agree, mark here XX.

(3) Statehood: Puerto Rico should be admitted as a State of the Union. If you agree, mark here XX.

SEC. 3. APPLICABLE LAWS AND OTHER REQUIREMENTS.

(a) Applicable Laws- All Federal laws applicable to the election of the Resident Commissioner shall, as appropriate and consistent with this Act, also apply to any plebiscites held pursuant to this Act. Any reference in such Federal laws to elections shall be considered, as appropriate, to be a reference to the plebiscites, unless it would frustrate the purposes of this Act.

(b) Rules and Regulations- The Puerto Rico State Elections Commission shall issue all rules and regulations necessary to carry out the plebiscites under this Act.

(c) Eligibility To Vote- Each of the following shall be eligible to vote in any plebiscite held under this Act:

(1) All eligible voters under the electoral laws in effect in Puerto Rico at the time the plebiscite is held.

(2) All United States citizens born in Puerto Rico who comply, to the satisfaction of the Puerto Rico State Elections Commission, with all Commission requirements (other than the residency requirement) applicable to eligibility to vote in a general election in Puerto Rico. Persons eligible to vote under this subsection shall, upon timely request submitted to the Commission in compliance with any terms imposed by the Electoral Law of Puerto Rico, be entitled to receive an absentee ballot for the plebiscite.

(d) Certification of Plebiscite Results- The Puerto Rico State Elections Commission shall certify the results of any plebiscite held under this Act to the President of the United States and to the Members of the Senate and House of Representatives of the United States.

(e) English Ballots- The Puerto Rico State Elections Commission shall ensure that all ballots used for any plebiscite held under this Act include the full content of the ballot printed in English.

(f) Plebiscite Costs- All costs associated with any plebiscite held under this Act (including the printing, distribution, transportation, collection, and counting of all ballots) shall be paid for by the Commonwealth of Puerto Rico.

The intention is blindingly obvious. Hope that independence voters will plump for option (2) in the first round, only to see themselves get slaughtered by the statehood proponents in the second. The rub? People vote tactically. Independentistas will vote for the status quo in round one, and all we will have had is another pointless election.

Besides which, the bill does not bind Congress to accept the referendum results. Translation: sovereignty-association might be accepted, were it not for the fact that any reasonable agreement would increase fiscal costs. The argument is worth repeating. The 14th Amendment makes it essentially impossible to strip Puerto Ricans of American citizenship against their will. That means that the Puerto Ricans currently collecting federal entitlements or individual benefits would continue to do so in an independent republic. The simple arithmetic is an increase in net federal costs of $600 million per year, as tax revenues from the island dried up. The more complex arithmetic might allow for savings of $2 billion in Medicare and $1.8 billion in food stamps and school lunches ... but based on the model of free association worked out in the Pacific, the federal government would probably continue to pay those benefits for some time in under sovereignty-association. In other words, a vote for sovereignty-association would be a vote for the status quo.

Statehood is even less likely to be accepted. First, it would also increase fiscal expenditures. Second, and more important, it would give the Democrats an advantage in the Senate and electoral college. That would not have been true 12 years ago, but Puerto Ricans voted against statehood in 1998. Of course, they voted for “none of the above,” which is kind of amusing ... but which should not be taken as a great grass-roots upwelling in favor of a nebulous sovereignty-association. Anyway, the island would be rather unlikely to vote for GOP candidates at the national level (although you never know) and so it seems equally unlikely that Congress would accept the results of the referendum.

In short, a bill that would accomplish nothing, and pick at one of the great unheralded victories in decolonization. France and Algeria shoulda been so lucky. Heck, if Congress hadn’t been so stone-cold racist, the Philippines and the United States coulda been so lucky.

There are a lot of federacies in the world. The U.S. is one. There is nothing wrong with this. Situation unbroke, no need to fix. Plus, making Puerto Rico a state would destroy my sinister plan to annex Iceland. Think it through, people!

Iceland, European empire, deposit insurance, and terrorism ... really

 Why is the Icelandic taxpayer on the hook, asks Jonathan? The short answer is: blame Europe!

 
Everyone knows about the European Union, the big confederation (with some federal characteristics) of countries sitting there on the Old Continent. Fewer people know about the European Economic Area. The EEA is basically an agreement under which Iceland, Norway, and ... er ... Liechtenstein get access to the European market in return for adopting some E.U. laws and regulations. (Switzerland has basically replicated the same arrangements without formally signing on to the EEA.)  The EEA required its members to adopt European law on deposit insurance in return for granting EEA banks the right to branch into the E.U. As a result, Iceland adopted a deposit-insurance scheme in 1999.

Click the link on the Icelandic scheme. (Or keep reading.) Scroll down to Chapter 5, Article 10. It reads: “This amount shall be linked to the EUR exchange rate of 5 January 1999.”  The reason is quite simple: the E.U. law required countries to create schemes that insured deposit accounts with a value of at least €20,000. Ergo, the Icelandic scheme guaranteed €20,887. Now, the scheme was financed by a 1% levy on bank deposits and was rather vague about what would happen if it could not meet its obligations. Was the government then responsible? Were savers then on their own? What?

The 300,000 British depositors who fell in love with the 6% rates that Landsbanki offered through its “Icesave” accounts did not seem troubled by these distinctions. They deposited £5 billion. In an Icelandic bank. A bank they had never heard of before 2006 based on a tiny island of 300,000 people. Any resemblance to Barbados is entirely coincidental. Barbadian banks do not do this sort of thing. This may be because Barbadian bankers have banked for some time, while the Icelandics were pretty green.

 
Maybe the Britons thought that Iceland was in the Caribbean? More likely they were taken in by a message that Britain’s financial regulators allowed to stand on its website:  “You can also rest assured that with Icesave you are offered the same level of financial protection as every bank in the U.K.” 

Well, when Iceland finally went kablooie, worried Britons began a run on Landsbanki, which led to a rather remarkable conversation between Iceland’s finance minister, Árni Mathiesen, and Chancellor Alistair Darling of the United Kingdom:

Darling: “Do I understand that you guarantee the deposits of Icelandic depositors?”

Mathiesen: “Yes, we guarantee the deposits in the banks and branches here in Iceland.”

Darling: “But not the branches outside Iceland?”

Mathiesen: “No, not outside of what was already in the letter that we sent.”

Darling: “But is that not in breach of the EEA treaty?”

Mathiesen: “No, we don’t think so ... Since we can’t cure the domestic situation, we can’t really do anything about things that are abroad.” 

Darling:  “See, I need to know this in terms of what I tell people. It’s quite possible that there is not enough money in [Iceland’s depositor guarantee] fund. Is that right?”

Mathiesen:  “Yes, that is quite possible.”

Darling:  “You have to understand that the reputation of your country is going to be terrible. It really is a very, very difficult situation where people thought they were covered and then they discover the insurance fund hasn’t got any money in it.”

After hanging up the phone, Darling did something even more remarkable: declare Iceland a terrorist state. It was the easiest way to freeze Landsbanki assets inside the U.K. (Sadly, most of Landsbanki’s assets were not in the U.K.) He then guaranteed that British depositors would be repaid in full. Good politics, of course, and probably needed to prevent crippling bank runs in Britain, where a lot of foreign banks operate.

At that point, Darling went back to Iceland — which desperately needed financial support from other Nordic countries to prevent runs there and obtain IMF money — and convined them to pass a bill that would pay Britain back for the money it spent supporting the deposits of its citizens who had placed their money in the banks of a terrorist state. Icelandic voters, for some reason, were miffed by that ... and the result was the referendum.

 

 
What happens now is anyone’s guess, although I am fairly confident that my most excellent proposal will not be adopted. Answer your question, LT?

A modest proposal

  I have really got to start cross-posting on AFOE.  They've given me permission; I just don't feel like my Europe stuff lives up to their standards.

Anyway, the Economist had an interesting column about Iceland and the European Union.  The conventional wisdom is that Iceland would like the euro.  But there are political difficulties.

So why not associate with the United States?  I don't mean become a state, that would be stupid.  Icelanders aren't Americans, and truth be told, they don't seem real likely to become Americans.  They don't listen to reggaetón or country, they don't build malls, they don't put neon-tubing on the underbodies of their cars or shoot guns for fun.  (Cue Jussi telling me that I'm a nationalist.  I am coming around to his point of view.  That is not a good thing.)  But what about becoming a Commonwealth, like Puerto Rico or the Northern Marianas?  They'd have to give up membership in the European Economic Area, but what has that ever gotten them?  They wouldn't have to give up membership in all those Nordic agreements, although they would have to allow Americans to become Icelandic citizens after one-year residency, same as Puerto Rico does. 

So what would this magnanimous move cost the American taxpayer?  Nothing!  Icelanders over age-65 wouldn't qualify for social security under current law; they haven't paid anything in.  But let's say the U.S. waived that, and paid Icelandic pensioners the minimum benefit, just to be nice.  What would be the cost?

A back-of-the-envelope calculation:

Revenues
Social security taxes	$571,032,371
Medicare taxes	$148,386,548
Other taxes	$278,400,105
Total tax payments	$997,819,024
Expenses
Social security benefits	$305,818,800
Food stamps	$116,955,415
Medicare	$184,156,636
Revenue sharing and federal agencies	$281,807,447
Total federal expenses	$888,738,298

And that's worst-case, in which Washington bribes Icelandic seniors (who would still get whatever they get from the government of the Commonwealth of Iceland) and Icelanders remain as poor as they are and collect all the food stamps they can.  These estimates are seriously biased in favor of maximizing the fiscal cost of an Icelandic commonwealth to the federal government of the United States; the actual costs would likely be substantially lower.

Better still, the above figures don't count the additional benefit to Iceland of all the officials whom they can shift to the federal payroll.  Icelanders get the dollar, the support of the U.S. Navy in fishing disputes, an additional $700 a month for their retirees, and the ability to fob off a good chunk of the expenses of government onto the American taxpayer.  Americans get $109 million per year and a great location for an anti-missile base, even though said antimissile system makes no sense and they have to put up with 300,000 new citizens whose musical traditions hark back to ... German pop music.

Sounds like a win-win to me.  Nordic readers?  Americans?  What do you think? 

And most interestingly ... can any of our Canadian friends make a similar calculation for your great federation?  Y'all don't have commonwealths, but surely someone must be able to ballpark the fiscal effect of a Province of Iceland.