Linking Depopulation and Debt in Puerto Rico, Illinois

♠ Posted by Emmanuel in at 6/02/2017 05:49:00 PM
Accumulating debt is the American way...even in a protectorate.
The role of demographics in economics is often overlooked. However, there are any number of examples you can bring up that illustrate its substantial role. First, consider Puerto Rico. To say that the US protectorate is in dire economic straits is an understatement. With its ballooning debt, it has the disadvantage of being a mere protectorate instead of a full-fledged part of the USA. Besides defaulting on its debt, poor prospects there are causing an exodus as folks seek work where it is to be found. Namely, somewhere else other than Puerto Rico:
The population drop is astonishing. The island has lost 2 percent of its people in each of the past three years. A comparable departure from the 50 states would mean 18 million people moving out since 2013. About 400,000 fewer Puerto Ricans live on an island of 3.4 million today compared with a decade ago, when its economy began contracting.

The departures have trapped Puerto Rico in a downward spiral. A grinding recession, with joblessness at 11.5 percent, and $74 billion mountain of debt that pushed the island to insolvency has made collecting taxes key to an economic rebound. At the same time, more Puerto Ricans from all walks of life are moving away to better their lives, meaning government revenue is dwindling.
The interesting thing is that economic scenarios for Puerto Rico to begin reducing its massive debts largely underestimates the drag from depopulation. Simply put, what happens when there are not enough folks to pay off these debts? Things look pretty bad on the demographic front:
The government doesn’t seem to have come to grips with the outflow. Puerto Rico’s turnaround plan -- a path to sustainability approved by a U.S. oversight board -- assumes the population will shrink just 0.2 percent each year for the next decade. It uses that number as the basis for its projections of tax receipts and economic growth.

“Most people believe that those forecasts in the fiscal plan are really, really optimistic and probably would have to be revised at some point,’’ said Sergio Marxuach, public policy director at the Center for the New Economy in San Juan.
The rate, as mentioned above, is closer to 2% annually than 0.2%. If you think, "hey, what's the big deal with a US protectorate?" then you're not looking hard enough. Illinois has lost the most residents of any US state for three year running:
For the third consecutive year, Illinois has lost more residents than any other state, losing 37,508 people in 2016, which puts its population at the lowest it has been in nearly a decade, according to U.S. census data released Tuesday.

Illinois is among just eight states to lose residents, putting its population at 12,801,539 people, its lowest since about 2009. Illinois' population first began to drop in 2014, when the state lost 11,961 people. That number more than doubled in 2015, with a loss of 28,497 people, and further multiplied in 2016.
While cause-and-effect is challenging to establish with the cases of either Puerto Rico or Illinois, you see the same pattern of depopulation accompanying debt woes in Illinois as well:
Illinois had its bond rating downgraded to one step above junk by Moody’s Investors Service and S&P Global Ratings, the lowest ranking on record for a U.S. state, as the long-running political stalemate over the budget shows no signs of ending.

S&P warned that Illinois will likely lose its investment-grade status, an unprecedented step for a state, around July 1 if leaders haven’t agreed on a budget that chips away at the government’s chronic deficits. Moody’s followed S&P’s downgrade Thursday, citing Illinois’s underfunded pensions and the record backlog of bills that are equivalent to about 40 percent of its operating budget.

“Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance,” Ted Hampton, Moody’s analyst, said in a statement. “During the past year of fruitless negotiations and partisan wrangling, fundamental credit challenges have intensified enough to warrant a downgrade, regardless of whether a fiscal compromise is reached.”
Same banana in Illinois, then. Folks should really research the depopulation-debt link there better, too.