Puerto Rico Death Spiral

"I've come to release this info. I'll be brief and let me just keep shit simple." Squaredance Eminem

In these days of the endless droning of wide-spread use of propaganda, it's rare to get the "truth" these days.  But last week, outgoing Puerto Rico governor Alejandro Garcia Padilla beseeched the Puerto Rico federal oversight board that:

“You will soon realize that any reduction in spending implies intolerable effects in aggregate demand, and will further throw Puerto Rico into a death spiral that will directly affect creditors’ recoveries across the board”
Puerto Rico End Game

For me, this prediction is simple, it is inevitable. As our economy continues to degrade, less is always less.  By removing spending from the Puerto Rico economy (whether from budget cuts, payroll reduction (public and private), and immigration) it will mean that any economic development that does happen will falter.

Just as in the parable of the sower of seeds,
“A farmer went out to sow his seed. As he was scattering the seed, some fell along the path, and the birds came and ate it up. Some fell on rocky places, where it did not have much soil. It sprang up quickly, because the soil was shallow. But when the sun came up, the plants were scorched, and they withered because they had no root. Other seed fell among thorns, which grew up and choked the plants. Still other seed fell on good soil, where it produced a crop—a hundred, sixty or thirty times what was sown. Whoever has ears, let them hear.”
... instead, for Puerto Rico, PROMESA is the farmer, his seeds are economic development, the aggressive anti-competitive actions of market leaders are the birds, the massive government payroll is the rocky places,  the low labor participation rates are the shallow soil, and the insanely anti-small business environment is the thorns.

I wish I knew what the good soil of the parable is for Puerto Rico.  What I do know is that we are already in the grip of an economic death spiral.  We have been since 2006.  The real question is when will the spiral reach the bottom?

What does the bottom of this economic collapse look like?  What other unexpected infrastructure failures are we going to see? Where will the economic growth come from? Will we be able to resurrect our lost manufacturing base?

The Real Truth Behind Puerto Rico's Financial Crisis

Island Facing Economic Destruction

If you want to truly understand what is behind Puerto Rico's financial crisis, look no further than the U.S. Bureau of Labor Statistics "Economy At a Glance" for Puerto Rico. With some statistics dating back to 1976, the graphs and supporting data paint a very clear picture.

Since the peak at 2006-2007, employment numbers have dropped to levels reached 20 years ago.  As I've mentioned in this forum before, what we are witnessing in Puerto Rico is the opposite of economic development; we are experiencing economic destruction.


The implications of this reversal of economic development are three-fold.  First, going forward, all tax collection goals will be more challenging to meet. With a smaller labor force, that means fewer taxes collected.  Unless of course, Puerto Rico implements sweeping tax reforms and switches from the IVU to the IVA.

Second, it is no wonder that there is a mass immigration of Puerto Ricans, there just aren't enough jobs to keep them here.  And while the grey economy still remains strong in Puerto Rico, it appears that even on the fringes of society, there still aren't enough jobs.

Finally, while President Obama just announced the members of the Financial Review Board, it will take years, maybe even a decade for Puerto Rico to establish a floor to the economic destruction.  Meanwhile, the economy is going to get worse, maybe much worse, before any economic development (and the jobs that go with it) can begin.


The scariest thing about Puerto Rico's economic downturn is not knowing how bad it will get before things turn around.  I mean, where is the bottom?  What will these numbers look like after the PROMESA is up and running?  How many more jobs will be lost?  Where will the new jobs come from? What companies? What technologies? What industries?  I wish I knew...

Bonus Math

Employment is at 1,007,496 as of Jul 2016.  In July 1996, employment was at 1,098,169; a difference of roughly 90 thousand jobs.  Let that soak in for a second, yes, there were 90K more jobs twenty years ago!   You would have to go back another year to August of 1995, to compare our current employment numbers.  We've destroyed 21 years of economy growth.

Letter to the Puerto Rico Government, US Congress, and Puerto Rico Bondholders: Let's Not Create Another Katrina Catastrophe!

In the latest op-ed piece about the Puerto Rico bond crisis, the New York Times reiterates a dichotomy between paying the bond holders and paying the police, hospitals, etc.  This is a worrisome comparison and should be removed from everyone's discussion of the Puerto Rico financial crisis.

I'm imploring everyone to rethink this comparison.  Whatever happens in the coming days and weeks, I urge everyone to prevent our on-going crisis from becoming Puerto Rico's Katrina.

Let's be honest and forthright when talking about the choices ahead.  Whether it is through bankruptcy, an external financial review board, or if it comes to it, other payment default legal proceedings, some tough decisions are coming.  However, let's all agree that there are many non-essential government services that can be defunded before we have to reduce our emergency preparedness.

I'm not suggesting that we make these budgetary changes now, I'm just putting forth my hope that we can agree that the last services to be placed under a budgetary microscope are those related to our ability to respond to an emergency, whether, it is an earthquake, a tsunami, a hurricane, or civil unrest (among many other possible threats).  But just like Katrina, we have time to prepare for the eventual changes that this crisis will bring, so let's us that time judiciously and plan for scaling back non-essential government services.

If we must make these types of tough choices, let's close the parks, close the sports facilities, the libraries, all of the municipal governments, anything but the services that help us protect and preserve the citizens of Puerto Rico.  The waters are indeed rising, please act responsibly.

Spam and the Anti-Design Pattern for Websites

The hard lesson learned from e-mail Spam, was easy to understand but difficult to digest.

So while it was easy to detect Spam, and see it's reach growing in the size of our Spam folders, it was much more difficult to internalize just exactly why it was happening.  Very simply it was the simple combination of two of humanities least favorite things, math and the science of very large numbers.

Large Numbers

As we reach the end of 2015, as predicted, the estimated number of Internet users is reaching 3,000 million; a number so large it becomes an abstract concept.  It's an abstract concept because it is exceedingly complex to create a mental image of its' magnitude.  We can visualize 100,000+ people, just imagine a full football stadium or concert.  If we stretch ourselves, we maybe see a crowd of 200 or even 400 thousand people.  Maybe we've even witnessed a million people together, but a 1,000 million? Never.


Now for the hard part, while you may detest Spam, have you ever wondered why it still exists?  After we've thrown a mountain of money to stop Spam, it keeps rolling into our e-mail accounts.  The simple, uncomfortable fact is, that it works.  For if it didn't work, do you think it would still be a problem?   To answer why, we have to use math.  So here it goes:

There are an estimated 14.5 billion spam messages generated globally per day.  Now I know that you might never open and click on one of those messages, but if only .1% (.001 multiplier) of those messages were opened, that would still generate 14.5 million positive results PER DAY!

Small percentages, even if not all that small can also baffle many. If there are four of us together and only one of us gets married, that means 25% are married.  Easy peasy, nice and cheesy, we get that immediately.

We can even grok 1 out of 10, or a hundred, or maybe even of a thousand.  If percentages get smaller than 1, then the confusion starts to set in.  Now we have to imagine a tenth, or a hundredth of a person. Say what?

Anti-Design Pattern

So keeping this in mind, what do you think will be strategy for websites?  For they too are ruled by large numbers and math.  And if you thought the Spam numbers were large, they are small compared to what's happening on the web.  The standard measure of success online is the advertising click through rate.

Currently, the overall web display advertising click through rate is .06% (.0006 multiplier), and the rich media click through rate is slightly more, 0.27%, but still very small.

Example pop-up ad from website visited to 
research this post
Therefore, we should think of some websites  as Spam we voluntarily seek out.  thus giving us our Anti-Design Pattern:
When you go to a website, and they immediately throw up an advertisement, that pop-up message, to join their email, our download their whatever, is an online website Spam message.  If you click through on that ad, the website has achieved it's goal, and captured a way to contact you.
Of course remember, whenever a website can successfully extract any form of online contact, they will Spam you incessantly. Just think about it.  See how Spam creeps into our online experience; even for the most sophisticated and discriminating web surfer?


The reason why I think website pop-ups are an anti-design pattern because this practice runs counter to what just about any "social media expert" will tell you.  Aren't you supposed to build a relationship and generate value, before you ask for permission?

Mandatory pop-up advertisements do the exact opposite.  They levy an "attention tax" on you as soon as you enter a website, before I've even got a chance to start a relationship or receive something of value.

Puerto Rico Squaredance

First these words from the prophet Marshall Mathers:

"All these people I had to leave in limbo
I'm back now, I've come to release this info
So I'll be brief and let me just keep shit simple..."
You know that one metaphor about re-arranging the chairs on the Titanic?  Well since we have to Boriqua-ize everything, try this one on for size.  The debt-reduction plan that Puerto Rico's Governor, Alejandro Garcia Padilla announced this week, amounts to nothing more than installing new glass windows in your house, right before a category 4 hurricane hits the island.

While the jury, read the US Congress and Wall Street, is still out on whether the new plan will be accepted, the news leaking out about the plan is very disturbing.  In general, the new plan seems to be constructed on basic financial and psychological assumptions about Puerto Rico which are just not true.  Chief among these assumptions are:

Lowering government spending will help the local economy grow

Only on the spreadsheets of the Governor’s advisors and in the wet dreams of Republican presidential hopefuls does spending less equate to more and better paying jobs in the public sector.  As I’ve noted before, the financial clout and largess of our economy was purchased on the backs of various administrations creating unnecessary government jobs and doling out cushy government contracts.

Is it any coincidence that our economy peaked, just as the government payroll peaked?  No, the only way to grow the economy in Puerto Rico is to stimulate the creation of more high paying jobs.  Just as Operation Bootstrap brought the island out of an agrarian economy and into 20th century using high paying manufacturing jobs, Puerto Rico needs hundreds of new hi-tech global businesses and the creation of thousands of high paying jobs.

By tightening up tax policy and other business restrictions, the grey economy will produce more taxable income

While it isn’t everyone’s first talking point, the plan includes all of the previous tax reform policies.  Remember all of that hullabaloo about the IVA?  Well it’s back!  Only this time the stakes are even higher.  The new plan contains even more policies that are aimed at making tax evasion more difficult.  I’ve written ad nauseum about this, so I won’t rehash those points.  The bottom line remains the same, as long as the grey economy is easier, more profitable, and carry minimal risk of punishment, the underground economy will thrive.

Much of our current tax evasion problem comes from people and organizations who simply choose not to follow the existing rules.  Unless these new policies make tax collection easier to enforce, they are mere words and promises.

Labor participation rates will increase

This should be evident from the first two assumptions, but it is worth it’s own discussion.  Think of it as their corollary.  One of the primary justifications for this new plan is that by adjusting our economic policies, it will encourage more people to join the labor market.  I can’t think of a more ridiculous idea than suggesting that lowering wages will incite more young people to join the job market.  That is, unless you're a Republican, which theoretically the Governor is not.

In the past, this ploy was feasible, because they were cushy government jobs, however isn’t that what this new plan is supposed to eliminate?  Where will these new low paying jobs come from?  Isn’t our economy just about saturated with service economy businesses?  Let’s get real here, thinking that Puerto Rico can compete with the low cost labor available in China, Mexico, or even the Dominican Republic is impossible.

Rico will eliminate it’s debt

As hard as these new policies have been defended, you’d almost expect them to leave Puerto Rico free and clear of it’s debt, but that has never even once been suggested.  So let’s be clear, in order to pay for it’s current debt, Puerto Rico must refinance, or restructure,  that debt with more debt.  Further, the only legal mechanism for restructuring debt is bankruptcy, which both Congress and Wall Street are dead set against.

So where does that leave Puerto Rico? In my summation, I’d say just about exactly where it is now.  The only thing different is that the “economic hurricane” that is just about to hit Puerto Rico has been upgraded to a category 5, but it’s just going to hit us just a little bit later.  

With lower than expected tax incomes due to a stubborn and evolving underground economy, lower than expected labor participation rates, and without a rapidly growing economy, Puerto Rico will revisit, time and time again, the looming "economic hurricane" of outstanding debt. Alas, the lost Xanadu that Operation Bootstrap brought to the island will never be seen again.

The Illusion of Fairness: Part 1

As promised here is the follow-up on the “Incentives for the Payment of Taxes in Advance of the Tax Transformation Project Act.”  In this installment, I’d like to breakdown the provisions which allow for citizens to prepay taxes.

First of all, it should be crystal clear to everyone, that tax reform is coming to Puerto Rico.  There is no question whether the IVA will pass or not, it is only a matter of time.  How else can you explain the Puerto Rican government creating a process for citizens to prepay taxes?  I mean let’s get real here, it’s in the title of the new law.

Our old friend Occam’s Razor almost guarantees us that the only way to explain the creation of this new law is because it is a forgone conclusion that tax reform is coming.  I would go further to suggest that this law represents an unspoken covenant between the richest citizens of Puerto Rico and the Puerto Rican government.

Still not convinced?  Let’s just imagine that the tax reformation does not happen.  If that’s the case, then the Department of Hacienda has quite a mess on their hands.  They will have received payments for taxes, based on future tax rates that did not become law.  I guess they could simply refund the payments, that is, unless they really needed the cash (which they do).  What happens if the government spends some of the money?  Where will they get the money to make the refunds?

As I mentioned in the previous post, this program is aimed at a very selective group.  Here is a summary of the types of taxes eligible (PDF) and who would be likely to benefit from the discounted taxes.

Type of tax Beneficiaries

Owners of life or endowment insurance annuities
Capital Gains Individuals, estates, trusts
Capital Gains Corporations
IRA's and
Educational IRA's
Individuals with IRA or IRA educational accounts
Dividend Distributions Share holders of public corporations issuing dividends
Corporations with accumulated earnings and profits

Secondly, as you can see, these discounted tax payments are aimed at any citizen with annuities, IRAs, and stocks.  In other words, these discounted taxes will benefit the richest of our citizens.

In addition, it is also aimed at companies large enough to have long term capital assets and those fortunate enough to have large profits.

I'm always suspicious of laws that claim to be doing one thing, but actually authorize something completely different. In this instance, the press release from the Department of Hacienda claims the governor signed into a law a tax amnesty program.  However, if you read the release or review the law (Ley de Incentivos para el Pago de Contribuciones en antelación a la Transformación Contributiva), you will realize that it also sets up a new program for the most wealthy Puerto Ricans to prepay taxes at discounted rates.

Photographic Collection From Okeanos Explorer: Exploring Puerto Rico’s Seamounts, Trenches, and Troughs

Mona Passage
NOAA To Explore the Puerto Rico Trench in Historic Dive

The National Oceanic and Atmospheric Administration (NOAA), on whose work we rely on during all tropical storm activity, is currently operating an exploration of the ocean surrounding Puerto Rico

The expedition will explore Puerto Rico’s seamounts, trenches, and troughs.  Using both at-sea and shore-based science teams, the expedition will investigate unknown and poorly known areas, including the Puerto Rico Trench, Muertos Trough, Mona Passage, and the Virgin Islands Trough.

NOAA Okeanos Explorer Program
Amazingly, the expedition is able to live stream the dives over YouTube, as illustrated in this image from the mission plan.

Blast From The Past

I remember my teacher wheeling the television into my classroom so we could watch video from Apollo 16.  Truth be told, now that I think about it, that experience fundamentally changed my life.  It kindled a life long passion for science, to which I am forever grateful.

ROV Deep Discoverer 
So when I watch live video from our exploration of uncharted territory right on my very doorstep, forgive me, it gets me going.  It takes me right back to that classroom in the dark, watching my life change before my very eyes.  I hope it takes you there too, for we are witnesses to history in the making. Truth.

Prelude: Corrupt is as Corrupt Does

Puerto Rico Tax Collections Take The Easy Road

Very quietly this week, Governor Garcia Padilla signed into law, the 2015 Puerto Rico Incentives for the Payment of Taxes in Advance of the Tax Transformation Project Act. The new law offers an amnesty for payment of taxes.  The hope of the Garcia Padilla administration is the new incentive will encourage the payment of overdue taxes.  Beginning immediately, the amnesty will be open until June 30, 2015.

With the new law, the Puerto Rico government is looking to raise around $290 million during its operation.  The taxes collected are predicted to help reduce the government's fiscal deficit for this year.


What surprised me most about the news is who the new law is targeting.  Besides snuggling up to those evil evasores, with the new law:

"taxpayers can prepay, at incentivized rates, tax that will be payable in the future on the capital gains arising from the increased value of certain assets, including equity investments, and contributions to individual retirement and savings accounts."

Wait a minute, hold the phones. This is a pretty dense way of saying that, if you're rich enough to actually have capital gains, you can reduce your income taxes with this new amnesty law.  How convenient for those who have the "burden" of capital gains.


I'm saddened that our government doesn't have the will to pursue the taxes our laws demand be paid.  But, I've seen this before, it's fairly common.  In fact, our legislators are offering a two-fer, consequently with the Hacienda amnesty, CESCO is also currently offering an amnesty on toll violations

In a previous life I worked in IT for a major wireless carrier, so I know what collections is all about.  Cutting edge technology was always a factor in collection rate optimization.  Because going in, it was already accepted that collections would never reach 100%, ni por tanto.  If memory serves me, I think we had an average  30% success rate on past due collections.  Your company's rate may vary. ;-)

I offer this anecdote to provide a perspective for these questions:

  • What is the minimum accepted collection rate for this program?
  • What is the overall amount of past taxes due?  And how many people or companies are we talking about?
  • Just how many toll violations are there and how much is owed in the corresponding fines?
  • Don't we have their contact information?  What, we don't know how to "find" them?  
  • What is the Government's resolve concerning enforcing the rule of law? 
Puerto Rico's Prepaid Tax Program

Rarely do you see the clear intention of laws made to benefit the few, maybe only the "1 percent" of the Puerto Rico general population.  Of course, since corporations are now people, they're included in the 1% as well. For brevity's sake, I'll break down this new program and prove that it straight up "informal corruption."

It Takes A Pueblo - Culture Change in Puerto Rico

You need to walk a mile in the shoes of a (hu)man before you can understand the (hu)man.  In order to teach that (hu)man, you must understand the (hu)man.

Recent articles by Jay Fonseca and Samuel Oakford call our attention to the immigration of young upwardly professional Puerto Ricans p'al norte (migration to the US of A).  Here's another perspective to consider...

Where Do We Learn?

Without out access to a formalized school system, mankind suffers.  To doubt this suggests you doubt science.  And we know what Neil deGrace Tyson shows us; science doesn't need your belief to still be true.

However, whether a child relieves a formal education or not, they will always get educated by his(her) pueblo.  Especially so, by her parents,  his immediate family, or even groups and individuals outside their family (media,church, politicians, etc.).

Gettin' Schooled!

Melvin Resnick studied the history of English bilingualism in Puerto Rico and shared his findings in the 1990's.  In a landmark paper, he observed "motivated failure" within the English as a second language, educational system.

Most ESL students on the island confront real obstacles to learning English.  To illustrate the failure of teaching English, consider that most school children in Puerto Rico receive 12+ years of English (SL) education, but some 80% of Puerto Ricans remain functionally monolingual (Spanish only).

Resnick points to effort to convince the Puerto Rican people that the learning of English meant the loss of identity and subjugation to a foreign colonial power (coming after 400+ Spanish colonialism, in the end, most Puerto Ricans were pretty sick of the treatment by the Spanish).

The rhetoric can even go so far as suggesting that the resistance to learning English was a simple rejection of the United States' attempt to Americanize Puerto Ricans through the public school system.


This is just one motivated failure example, among an infinite others that occurs outside of the formal education system.  Me, I was raised in a pluebo that was prejudiced against the black.  In others it might be homophobia or prejudism against Dominicans.  Or maybe even as extreme as pueblos which forbid women from showing their faces or receiving any formal education.  For certain, in all of the varied places around the world, it's our pueblos that define who we are and how we see the world.

Throughout (hu)mankind's existence, we've repeatedly seen that only through education and community can we get (hu)man to act against his self-interest.  Just as our ancestors used a new found respect and belief in science to bring us out of the dark ages and into the age of enlightenment, we too must find our way out of the blinders which keep (hu)mankind ignorant and afraid.

So while we must depend on public and private schools to teach our children reading, writing, and arithmetic, we must find new ways of teaching our children something which goes beyond technology or even information literacy, let's call it perspective(science) literacy.  In perspective literacy we use science to teach (hu)man his place in the universe, her place in her pueblo, and how that science dictates our place within them all.

Into The Future

A new digital generation will soon bear the burden of humanity.  Grown from long term technology literacy and digital independence, this new generations relates differently; it doesn't need television news, consumes mass quantities of modern media, and shares nearly everything that happens in their lives on the Internet.

It will take considerable study of the impact of this new generation.  What tragedies are bound to happen?  Which tragedies have the highest probabilities of impacting our well-being?  How will this generation (or the next) be any less self-serving than most of it's predecessors?  Unfortunately, all of this a big ask of any pueblo, even for any group of (hu)mans.

Of course there are always tragedies which bring about the end of the world as we (Puerto Rico) know it; who knows it may even be a large scale extinction event, the kind that forever changes a pueblo.  It's been a while since Puerto Rico has faced one...we can only wonder what might be the first, or the next.  How will our pueblo change?  How will our pueblo survive?