Puerto Rico’s $367 million bond default likely won’t be the last, writes Alex J. Pollock, a senior fellow at the R Street Institute, in a column at the Library of Law and Liberty. He notes that Puerto Rico’s Government Development Bank and “government-centric political economy” trace their origins to FDR appointee, Governor Rexford Tugwell (known as “Rex the Red” for his political belief in central planning). Although mainland Americans may just be reading about Puerto Rico’s debt problems recently in the news, Puerto Rico’s budget issues have been a longstanding problem which has grown to an estimated $115 billion deficit, over 6 times the debt of Detroit. Although Detroit is to date the largest municipal bankrupty in US history, Puerto Rico’s deteriorating bond rating indicates that unfortunate record could be in jeopardy.

Pollock proposes a 3 step approach to the Puerto Rico debt crisis:

“1.The creation of an emergency financial control board to assume oversight and control of the financial operations of the government of Puerto Rico …2…restructuring and reorganization of debts…3.Puerto Rico must develop a sustainable economy—that is, a market economy to replace its historical government-centric one.”

Pollock notes that of his 3 strategies to deal with the debt crisis, the most important long term is sustainable economic development and growth, which is essential for achieving ongoing prosperity and preventing future additional debt crises. Dealing with a debt crisis of this scale certainly won’t be easy, but Puerto Rico’s deficit could act as a caution for other US states with budget problems. Perhaps those cheerleading the trend towards government controlled economies will observe the result those policies have brought in Puerto Rico, but if Detroit wasn’t warning enough, Puerto Rico may not be either.

Read Pollock’s full piece here.

Photo Credit: Castillo de San Cristobal, San Juan Puerto Rico |Prayitno | Flickr