Alex Pollock for the Library of Law and Liberty: Rexford Tugwell, sometimes known as “Rex the Red” for his admiration of the 1930s Soviet Union and his fervent belief in central planning, was made governor of Puerto Rico by President Franklin D. Roosevelt in 1941. Among the results of his theories was the Government Development Bank of Puerto Rico, a bank designed as “an arm of the state,” which is a central element in the complicated inner workings of the Puerto Rican government’s massive insolvency.
The bank has just defaulted on $367 million of bonds, the first, but unless there is congressional action, not the last, massive default by the Puerto Rican government and its agencies on their debt. The Government Development Bank was judged insolvent in an examination last year, but the finding was kept secret. The governor of Puerto Rico has declared a “moratorium” on the bank’s debt, which means a default. A broke New York City in 1975 also defaulted and called it a “moratorium.”
Adding together the Puerto Rican government’s explicit debt of about $71 billion and its unfunded pension liabilities of about $44 billion amount to $115 billion. This is six times the $18 billion in bonds and pension debt of the city of Detroit, which holds the honor of being the largest municipal bankruptcy ever.
Puerto Rico’s government-centric political economy goes back to Rex the Red, but its budget problems are also of long standing. In this century, the government has run a deficit every year, borrowed to pay current expenses, and then borrowed more to service previous debt until the lenders belatedly ceased lending and the music stopped. …
Pollock’s Law of Finance states that “loans which cannot be repaid, will not be repaid.” Naturally, this law applies to the $115 billion owed by the Puerto Rican government, which is on its way to some form of restructuring and reorganization of debts. It seems clear that this should be done in a controlled, orderly and equitable process, which takes into account the various levels of seniority and standing among the many different classes of creditors.
The case against piracy
Michael D. Smith and Rahul Telang for Creative Future: The argument goes something like this: Piracy doesn’t hurt sales of media, because the people who seek out pirated content would never pay for it anyway.
That’s an interesting theory, but what really matters is how well it matches the evidence we see in the real world. Fortunately, economists and other academics have been gathering data and compiling research since the days of Napster in 2000. This provides us with more than 15 years of peer-reviewed papers on the topic. My colleagues and I recently reviewed the published academic literature on the topic and found that 22 out of 25 peer-reviewed journal articles showed “piracy causes harm to producers by reducing legal sales and revenues.” The evidence is clear: In the vast majority of settings, piracy does exactly what you would expect it would do: It hurts sales. …
“OK,” one might say, “but why should I care about the producers’ revenues? If I can get content for free, that’s great for me, and I don’t care if it’s bad for you.”
We recently investigated the question of whether piracy affects creative output and found that although piracy might benefit consumers in the short run, it is likely to harm them in the long run. Why? Because when revenues are reduced, producers are likely to invest in fewer projects. Yes, technological advances have made it cheaper to make films, which means artists and studios are making more of them than ever, but if piracy could be eliminated, the evidence suggests, we’d have even more investment in high-quality filmed entertainment than we do now.
Less content means fewer opportunities for creative artists to do what they love, which means piracy harms both audiences and creatives alike.
The limits of tax collection
From the Committee for a Responsible Federal Budget: The Internal Revenue Service recently released new estimates of the “tax gap,” the amount of taxes owed that go uncollected. They reveal that only 84 percent of the money owed in taxes is collected each year, which resulted in a “net tax gap” of $406 billion per year on average between 2008 and 2010. That amount is a combined $458 billion not voluntarily paid and another $52 billion collected after the IRS contacted those who were delinquent. The net tax gap of $406 billion is about 2.8 percent of gross domestic product, which would be equivalent to $6.5 trillion over the next decade.
Most of the tax gap – $387 billion, or 84 percent of the gross amount – comes from taxpayers underreporting their income. About half of the net tax gap ($203 billion) comes from underreported pass-through business income, small corporation income and the self-employment payroll tax.
In addition to underreporting, underpayments accounted for $39 billion of the tax gap and those who didn’t file any returns accounted for $32 billion. The vast majority of underpayments and nonfilers ($55 billion) came from individual income taxes, though the IRS does not break out exactly where they came from. …
Since 2008-2010 were very low tax collection years, the tax gap has likely grown, making it an even larger potential pot of money, unless tax compliance rates have increased significantly. Policymakers should do as much as they can to ensure everyone, and every business, is paying the taxes they owe.
Compiled by Joseph Lawler from reports published by the various think tanks.
