On the demographic issues of Puerto Rico in an era of exodus

I was reminded of my post questioning the viability of Caribbean islands in an era of worsening natural disasters when I began reading reports of the devastation wrought on Puerto Rico by Hurricane Maria.

Hurricane Maria is Puerto Rico’s worst in nearly a century, a double blow as it follows the destructive Hurricane Irma by just two weeks. The costs, both human and financial, have only begun to come into view. This much is certain: the U.S. territory, bankrupted by runaway debt, now confronts an even deeper economic crisis. Four months after the island’s government sought protection from creditors in the nation’s largest municipal insolvency, the odds of a speedy resolution now appear to be dimming. President Donald Trump said Thursday he plans to visit the island and declared Puerto Rico a disaster zone, which helps clear the way for federal assistance.

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Already, the financial aftershocks of Hurricane Maria have begun to ripple through the U.S. financial industry. Prices on Puerto Rico general-obligation bonds maturing in 2041 fell to 48.7 cents on the dollar as Maria raked the island, down from 52.6 cents last week. It was another sign that bondholders increasingly doubt the island’s ability to repay what it owes.

“The human pain and suffering and tragedy is really significant,” said James Spiotto, managing director at Chicago-based Chapman Strategic Advisors LLC, whose firm advises on municipal restructurings. “Certainly for the bankruptcy, this doesn’t help. Puerto Rico needs to recover economically and financially for its residents and to be able to pay the creditors.”

The National Guard and the U.S. Federal Emergency Management Agency were assisting Puerto Rico in restoring power, Governor Ricardo Rossello told reporters Thursday. He urged residents to stay off the streets and remain calm as many are still unable to communicate with family members. That includes the governor himself, who hasn’t been able to reach his parents. A key priority is reopening the port in San Juan to bring in generators, food and water, Rossello said.

“The communication systems have collapsed in general,” Rossello said. “And what I ask the people for is prudence, patience and calm.”

Legal issues should be put on hold as the island grapples with the aftermath of the storm, a judge advised the parties involved in Puerto Rico’s restructuring, according to Reuters, which didn’t name the judge.

The financial situation was dire before Maria hit. The island’s economy has been contracting for a decade, sending a stream of residents to find work on the U.S. mainland. As Puerto Rico faces catastrophic damage, it must restore the health and safety of its citizens while navigating the bankruptcy process to help it reduce a $74 billion debt load and a broke pension system.

Among the economic questions, one of the biggest is how Puerto Rico can reverse its out-migration. About 400,000 people have left the commonwealth since 2008.

“A declining population doesn’t make it easier to handle the debt that stays behind,” said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which manages $6 billion of municipal bonds, including insured Puerto Rico debt. “It stays for everybody else to try to take care of.”

(Note, if you would, the importance placed on demographic issues in the above analysis.)

The seriousness of the emergent humanitarian crisis on the island is only becoming clear, as is the increasingly laggard, even dismissive American official response under Trump. Arguments that Trump's failure to respond as effectively to a disaster impacting four million American citizens as the Obama presidency did to--for instance--the 2010 catastrophe in Haiti are rooted in anti-Hispanic racism have been reported by (among others) the Toronto Star's Daniel Dale. Certainly's Trump mock-Spanish pronunciation of Puerto Rico is unfathomable, as are the many other things he has said. As Puerto Ricans drive around the island for days in search of a cell signal and Puerto Ricans remind the United States that they are also Americans and New York State mounts its own aid effort for want of federal intervention, a catastrophe is unfolding.

Demographic trends are at the heart of many of Puerto Rico's current and potential future issues. As Mark Hugo Lopez and Gabriel Velasco noted for Hispanic Trends at the Pew Research Group, in their June 2011 survey "A Demographic Portrait of Puerto Ricans", though there are eight million people of Puerto Rican descent in the United States, at the time these two were writing only half of them live in the jurisdiction of Puerto Rico.


Half lived on the American mainland, a consequence of heavy migration from the Caribbean island to the mainland United States starting perhaps a couple of decades after the American conquest of the island from Spain in 1898, after Puerto Ricans were granted American citizenship. Until recently, relatively high fertility counterbalanced emigration and allowed for continued population growth. In recent years, however, the island has begun to experience a declining population.



This emigration slowed down in the 1970s and 1980s as Puerto Rican incomes began to converge on those of the mainland United States but accelerating again after the 1990s, when the island's economy began to lag again following the expiration of tax incentives intended to spur industrial development on the island. The Puerto Rican economy has experienced unending recession for the past decade, government debt spiraling as GDP has fallen. The island remains rich by international standards, with GDP per capita roughly on par with that of Poland and Latvia and ahead of nearly all of Latin America. Just as Poles and Latvians, however, have responded to the relative poverty of their homeland by leaving for richer points as soon as they could, so have Puerto Ricans also left. A migration once centered on New York State, especially New York City, began to find other destinations, Florida for instance emerging as a major new destination for Puerto Rican migrants.

Forbes's Tim Worstall is hardly alone in noting that Puerto Ricans could, and in fact are, respond to the inevitable economic deterioration of the island by leaving. That this migration of people, especially of productive workers and young families, will make the island's finances more difficult to manage is inevitable.

While the court proceedings could eventually make the island solvent for the first time in decades, the more immediate repercussions will likely be grim: Government workers will forgo pension money, public health and infrastructure projects will go wanting, and the “brain drain” the island has been suffering as professionals move to the mainland could intensify.

It's that last line which is the truly important point here. Those who are owed the money are going to be screaming blue murder about how much of it they want back. And in one manner they should be able to get most of it back. Puerto Rico does, after all, have taxing rights over a number of people from now off into perpetuity. It's possible to keep squeezing those people for as long as it takes. Except, of course, it isn't as that brain drain points out. As I've mentioned before the people don't in fact have to stay and be taxed to pay the debt:

The population figures, which were released last month, illustrate how Puerto Rico’s fiscal and economic crises are likely to worsen. Puerto Ricans are American citizens, and as they leave the island to seek employment or retirement in the U.S., the island faces a shrinking tax base to pay for debts incurred over the past decade.

The Census Bureau report showed that Puerto Rico’s population fell 1.7% in the year ended June, an acceleration from the 1.6% decline for the year before that. The island’s population has fallen by more than 1.1% for five straight years.

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This newer, or perhaps just realised, problem is that the population can just up sticks and leave: but the debts get to stay behind. And an economy that has a shrinking tax base and yet a static debt can all too easily fall into a death spiral. The debt per person, and the taxes needed to pay it, rise ever higher, leading to more of the productive population leaving and that raises the debt per productive capita again and thus the tax rate on those who remain.

This again speaks to Puerto Rico's specific legal status. Anyone and everyone can just get on a plane or a boat to the mainland. No visas are required, there cannot be an exit tax applied to them, they cannot be forced to take a piece of the debt with them. In this sense it's just the same as moving from one US state to another. It isn't like trying to move out of the US Federal tax net, where you do have to pay up all the taxes that you would owe even up to the point of unrealised capital gains and so on. Nope, just go and leave the debt behind.

Demography blogger Lyman Stone observed, looking at data on passenger traffic to and from the island, that the scale of net emigration from Puerto Rico is serious. He has observed that, according to some plausible scenarios, Puerto Rico might be set for a population collapse greater than that experienced by island after the 1840s, with the possibility of the island's population falling by half or more.

All this was before the catastrophe of Hurricane Maria. With the island's infrastructure devastated, and with economic sectors like agriculture wrecked, with no sign of an immediate recovery to a reality that had already been dire, and with Puerto Ricans being American citizens with the right to move, how many people will stay? Megan McArdle's suggestion, based on the precedent of New Orleans after Hurricane Katrina, that 30% of Puerto Rico's population might leave does not sound obviously implausible. Stone's suggestion of a sharp fall in the population of Puerto Rico does not seem impossible.

What will be done about this? A migration of such a scale will obviously have huge consequences for the United States. New York City may not be suitable for new Puerto Rican migrants--climate refugees--given its dearth of affordable housing, but family connections between Puerto Ricans on the island and the mainland make it a natural destination. Florida, in particular, may also become a major destination. Lauren Ritchie's suggestion in the Orlando Sentinel, based on interview with Puerto Ricans and migration experts alike, that Orlando may be as much remade by Puerto Rican migration as Miami was by Cuban migration certainly sounds possible. How will this effect--for instance--state politics? What will happen to the island of Puerto Rico and the people on it? Will the island finally be integrated firmly into the American federation, as a state as a bare majority of Puerto Ricans wish?

Taking a look at Jonathan Last's arguments on migration

Demographics writer Jonathan Last (Wikipedia article, official site) has gotten a fair bit of attention for his Wall Street Journal essay "America's Baby Bust", wherein he argues that the United States' slowing economy is directly connected to low fertility. Much of the reaction to his analysis has been critical. Writing in The New Republic, Rui Texeira questions Last's dismissal of immigration and his piecemeal remedies for low fertility (tax breaks as opposed to government programs). It's taken apart scathingly by Love, Joy, Feminism!'s Libby Anne, who rightly finds Last's equation of Chinese forcible one-child policy with small American families ridiculous, Last's dismissal of the idea that things could be done to make family life easier on the grounds that people shouldn't necessarily expect happiness ill-guided, and makes an argument that Last's focus on fertility of well-off white American women reflects the "race suicide" rhetoric of early 20th century American eugenicists.

Me, I'd like to take a look at a Los Angeles Times op-ed that got published on the 8th of February, simply titled "Fertility and Immigration". I think this to be one of those articles that could benefit from a fisking.

In Washington, politicians are trying to reform America's immigration system, again. Both President Obama and Republican Sen. Marco Rubio (R-Fla.) are proposing "paths to citizenship" for an estimated 11 million illegal immigrants. Other proposals abound, including finishing the border fence, creating a better E-Verify system for employers and passing the last Congress' Dream Act.

All of these ideas, however, fundamentally misunderstand immigration in America: Future immigration is probably going to be governed not by U.S. domestic policy choices but by global demographics.

1. In Last's defense, he does say "probably".

2. Against Last, he really does overlook the importance of policy in determining major migration flows. Consider the movement of Poles to Germany. Large-scale Polish migration west dates back to the beginning of the Ostflucht, the migration of Germans and Poles from what was once eastern Germany to points west, in around 1850. By the time Poland regained its independence in 1919, hundreds of thousands of Poles lived in Germany, mainly in the Ruhr area and Berlin. Leaving aside the exceptional circumstances of the post-Second World War deportations of Germans from east of the Oder-Neisse line, Polish migration to (West) Germany continued under Communism, as hundreds of thousands of people with German connections--ethnic Germans, members of Germanized Slavic populations, and Polish family members--emigrated for ethnic and economic reasons. In the decade of the 1980s, up to 1.3 million Poles left the country, the largest share heading for Germany. Large-scale Polish migration to Germany has a long history.

And yet, in the past decade, by far the biggest migration of Poles within the European Union was directed not to neighbouring Germany but to a United Kingdom that traditionally hasn't been a destination. Most Polish migration to Germany, it seems, is likely to be circular migration; Germany missed out on a wave of immigrants who would have helped the country's demographics significantly. Why? Germany chose to keep its labour markets closed for seven years after Poland's European Union admission in 2004, while the United Kingdom did not, the results being (among other things) that Polish is the second language of England.

Regulations matter. I've already noted that in Mediterranean Europe, the large majority of immigrants don't come from North Africa, notwithstanding reasonably strong trans-Mediterranean ties. Why? Restrictive migration policies. Other examples can be easily found. Migration to different countries occurs largely at the will of different countries. There are no hordes battering down the doors.

For the last 30 years, a massive number of immigrants has poured into the U.S. from south of the border. Today there are 38 million people living in the United States who were born somewhere else. That's an average of more than 1 million immigrants a year for three decades, a sustained influx unlike any we've seen before in U.S. history. And regardless of what policies Washington decides on, that supply is likely to dry up soon.

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When it comes to immigration, demographers have a general rule of thumb: Countries with fertility rates below the replacement level tend to attract immigrants, not send them. And so, when a country's fertility rate collapses, it often ceases to be a source of immigration.

1. That's not a hard-and-fast rule. Looking to the post-Second World War era, for instance, even though fertility rates in North America and western Europe were substantially above replacement levels, these regions still attracted large numbers of immigrants. Why? Simply put, economic (and political) conditions in these countries were sufficiently attractive to migrants, who could easily find work.

2. A collapsing fertility rate does not mean a country stops being a source of immigration. Look at post-Communist Europe, if you don't believe me. Now, it is true that if fertility falls to low levels and stays at low levels, the size of the cohorts of potential emigrants will eventually shrink. I don't think it a coincidence that Romania has emerged as a source of immigrants as the cohort of children born under Ceaucescu's pro-natalist policies comes of age. That shrinkage by itself does not mean a diminished propensity to migrate, however. Look, again, at Romania. The ability to migrate, whether we're talking about being able to afford the various costs and benefits of the movement or the non-existence of barriers to migrate (or even the existence of incentives to migrate is more substantial a factor than the mere presence of a cohort of people of which some may become potential migrants.

Consider Puerto Rico. In the 1920s, Puerto Ricans began to trickle into the United States. Their numbers accumulated slowly, and by 1930, there were 50,000 Puerto Ricans living in the U.S. (nearly all in New York City). Over time, however, the community reached a critical mass, and by the mid-1940s, 30,000 Puerto Ricans were arriving every year. The Puerto Rican wave continued, and grew. In 1955, 80,000 Puerto Ricans came to the United States.

But from 1955 to 2010, the number plummeted. Even though the population of Puerto Rico had nearly doubled in that time, the total number of Puerto Ricans moving to the United States in 2010 was only 4,283.

Why? After all, migrating to the United States from Puerto Rico had become easier, not harder. And while economic conditions in Puerto Rico brightened somewhat, the opportunities and standard of living in the U.S. are still superior.

What happened is that Puerto Rico's fertility rate imploded. In 1955, Puerto Rico's total fertility rate was 4.97, well above replacement. By 2012, it had fallen to 1.64 — even further below the replacement line than the United States'.

I went to the Penn World Tables and pulled data on Puerto Rico for the 1950-2011 period.

"Brightened somewhat" is faint praise indeed for the Puerto Rican economic miracle. PPP-adjusted GDP per capita in Puerto Rico rose from a shade over 18% of the United States average in 1950 to 58-59% in 2010, depending on the exact method used. It grew by 250% in the two decades after 1950, experienced a brief regression and slow recovery in the 15 years subsequent, and since 1985 has continued to converge notably. All this economic growth has come has the population of Puerto Rico has almost doubled, and as the American economy has of course continued its own growth.

Living standards in Puerto Rico have risen hugely. If they hadn't, and all things remained the same, Puerto Ricans would still be leaving their island for the United States in very large numbers. Total numbers might be smaller, but the propensity to leave would not have diminished palpably.

Many Latin American countries have already fallen below the replacement level. It's not a coincidence that sub-replacement countries — such as Uruguay, Chile, Brazil and Costa Rica — send the U.S. barely any immigrants at all. The vast majority of our immigrants come from above-replacement countries, such as Honduras, El Salvador, Colombia, Guatemala and Mexico.

One thing that Last seems to have overlooked completely is that the countries with sub-replacement fertility in Latin America that he named are (by and large) not only the more economically developed countries in Latin America and therefore would be less likely to send migrants than less developed ones, but that these countries have ties outside of Latin America to countries other than the United States. (The small republics of Central America and the Caribbean are quite poor, and are almost as dependent on the United States in many ways as, oh, Puerto Rico. Mexico is the exception, mainly because Mexico borders directly on the United States. If it didn't, there would not be somewhere in the area of forty million people of Mexican background in that country.)

For instance, Last says that there aren't many Brazilians in the United States. That's true; as the Burgh Diaspora's Jim Russell recently noted, many Brazilian migrants are returning to their country. That said, Brazilian emigration is overwhelmingly not concentrated on the United States. There are at least as many Brazilians living in Japan as in the United States, and more Brazilians living in western Europe. The United States is not the world.

Consider Mexico, which over the last 30 years has sent roughly two-thirds of all the immigrants — legal and illegal — who came to the United States. In 1970, the Mexican fertility rate was 6.72. Today, it's hovering at the 2.1 mark — a drop of nearly 70% in just two generations. And it's still falling.

The result is that from 2005 to 2010, the U.S. received a net of zero immigrants from Mexico.

Stricter border control has, of course, played no role in this.

Last is right to note that the global demographic transition will diminish numbers of potential migrants. He is wrong to conclude that it will diminish the propensity of people to migrate, and doesn't take into consideration the critical role of public policy in either enabling or disabling flows of migrants. Give it a C minus.