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Several years ago, MyGovCost explored the concept of the national debt as kind of an emergency reservoir, which is an idea that we’re going to revisit today to apply to the unique situation in which the hurricane-devastated U.S. territory of Puerto Rico finds itself.
What if, instead of being some seemingly intangible thing involving numbers with way too many zeroes, the money that governments borrow over time was water that came from an emergency reservoir high up on a mountain, whose main purpose is to help put out big fires that, while infrequent, can cause great damage to the community, if not completely wipe it out in the case of the biggest fires.
Most of the time, there’s not much need to tap into the water supply held in the reservoir. Should it be tapped, say to address smaller fires, it’s understood that the politicians and bureaucrats in the government who are responsible for managing it will take steps to replenish the reservoir, so that it will once again be fully capable of providing sufficient water to put out the big fires for which it is intended.
That view changes over time as the politicians come to see the emergency reservoir as an underutilized resource, where they suggest other ways in which the community can benefit from having access to it. Eventually, they hit on the idea of using it to provide incredibly inexpensive residential and industrial water services to the community, which are very popular with the people who live in it.
In turn, the community’s politicians and bureaucrats who manage the emergency reservoir come to be very well rewarded for their public service. So much so, in fact, that they are willing to allow the level of water up in the reservoir to drop well below the level that would be needed to save the community should it ever be threatened by a large fire. They do this mainly to preserve their popularity and to continue collecting their generous rewards, rather than risk either by cutting back on any of the benefits of the water services they are providing to the public to more sustainable levels so that the reservoir can be replenished.
At the same time, the members of the community become so dependent on having cheap water provided every day from the emergency reservoir that they cannot themselves afford to take the steps that would allow the reservoir to be replenished without serious setbacks to their living standards. Even if that means that the entire community could someday be devastated or completely destroyed by fire. “Someday” being the operative word, because as the politicians might ask, what are the odds that a day of reckoning might come during their lifetimes?
And when that day inevitably does arrive, everyone discovers that for all practical purposes, the emergency reservoir may as well be bone dry. Disaster has struck, and the entire community gets burned because it doesn’t have anywhere near the water it needs in its emergency reservoir to draw upon to put out all the fires when it really needs it to serve that fundamental purpose.
Soon, they ask other communities that have their own emergency reservoirs for help, but discover that they are reluctant to give up their own limited water supplies unless the water-wasting community commits to real reforms that will end its practice of siphoning off emergency reservoir water for uses other than putting out fires. Because why should they provide anything more than the most minimal amounts of aid if it is only going to get diverted away from where it is most genuinely needed?
To paraphrase Herbert Stein, things that cannot go on forever, stop. When the emergency reservoir runs dry, when a government cannot borrow any more because it has borrowed so much that its lenders no longer trust that the government will pay them back because of the practices that the politicians are trying to sustain, it comes to a crashing halt, with the unsustainably inflated living standards of the people in the community becoming the hardest hit casualty. The saddest part is that it could all have been avoided with better stewardship and more restraint in providing both public benefits and rewards for public service in the time before the crisis came.
That’s where we are today with Puerto Rico. And Greece. And Venezuela. And possibly soon, Connecticut, which has taken the lead among troubled U.S. states from Illinois. The specifics of the disasters that have befallen each and led to their various crises are different, but the underlying themes that led to their precarious positions today are all the same.
The tragedy is that none of it happened by accident, as the only element left to chance was the timing of the disaster that eventually came to expose how depleted the emergency reservoir had become.
For the people of Puerto Rico, the beginning of the recovery from the disaster needs to continue its well-received focus on providing humanitarian aid. For the territorial government of Puerto Rico, that aid must be allowed to be delivered without any being diverted to cover the costs of the bad decisions of its previous politicians, where to restore their reservoir of good will, they will need to finish implementing the reforms and reckoning needed to put the fiscal future of Puerto Rico onto a sustainable path.