Podcast Summary: Economic Update with Richard D. Wolff

Episode: Puerto Rico's Crisis is Systemic
Date: September 1, 2016
Host: Richard D. Wolff
Guest: Ian Seda Irizarry (Assistant Professor, John Jay College; Member, Partido del Pueblo Trabajador)

Episode Overview

This episode of Economic Update explores the economic crisis in Puerto Rico as a systemic issue deeply woven into the fabric of both U.S. and global capitalism. Host Richard D. Wolff places Puerto Rico’s predicament within a broader context of tax deals, inequality, and capitalism’s fraying relationship with democracy. Guest Ian Seda Irizarry provides an in-depth analysis of how colonial status, local complicity, and neoliberal policies have perpetuated the island’s crisis, likening Puerto Rico to a microcosm for broader capitalist dysfunctions.

Key Discussion Points & Insights

1. Book Recommendation and Wealth Inequality Cross-Comparisons

• Wolff opens with a discussion about "Lucifer’s Banker" by Bradley Birkenfeld, revealing the depth of corruption connecting banks and politicians ([06:20]).
• Cites a 2013 United Nations report, highlighting how the U.S.'s top 1% earns a far greater share of national income (19.3%) than counterparts in France (8.9%), China (5.9%), and Denmark (4.3%).

  "The United States distributes income more unequally than virtually any of the other major developed and even moderately developed economies in the world."
  — Richard Wolff ([13:56])

2. Apple Tax Scandal and Corporate Tax Strategies

• Reviews the European Commission’s order for Apple to pay $15 billion in back taxes to Ireland due to illegal tax deals, explaining the global dynamics of tax competition and avoidance ([16:50]).
• Explains the 'race to the bottom' among countries to attract multinational corporations with ever-lower taxes, to the detriment of their own public sectors.
• Critique on U.S. politicians’ response—defending Apple, favoring nationalism over addressing corporate tax malfeasance.

3. Trade Agreements and Democratic Deficits

• Both the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) are dissected for their use of secret tribunals (ISDS) that undermine national sovereignty and democratic oversight.

  "It’s the end of even the pretense of a democratic control of capitalist enterprises. The enterprises have gotten so big and so global that they need to subordinate countries..."
  — Richard Wolff ([26:13])

4. Capitalism vs. Democracy

• References Martin Wolf's Financial Times article, noting that the divide between the economic elite and the populace is causing severe democratic strain ([27:59]).

• "Capitalism and democracy may be headed for divorce and the results will be as messy as many divorces have proved themselves to be."
  — Quoting Martin Wolf via Richard Wolff

5. Puerto Rico’s Crisis: Causes and Composition

Guest Segment Begins ([29:57])

A. Crisis Background

• Tax Incentive Withdrawal: End of U.S. Section 936 tax incentives in 1996 (completed by 2006) led to the departure of key industries, most notably pharmaceutical and electronics.
• Colonial Constraint: Puerto Rico, as a U.S. colony, lacks tools to address the crisis. Excluded from Chapter 9 bankruptcy, forced to pay higher costs via U.S. Merchant Marine laws ([33:15]).
• Self-inflicted Dimensions: Internal Puerto Rican elites and private sector groups have collaborated with multinationals, enabling public fund looting for private benefit.

"The complexity of the situation warrants such an analysis...self-inflicted aspect of the crisis, to try and go beyond the usual critiques..."
— Ian Seda Irizarry ([36:48])

B. The Fiscal Control Board ("La Junta")
([38:17] onwards)

• Board members largely from elite, conservative, and banking backgrounds; little actual expertise in economic development.
• Notably includes former Puerto Rican officials implicated in previous economic mismanagement, exemplifying ‘revolving doors’ between government and private sector.
• Guest highlights Carlos Garcia (former Government Development Bank head) for his role in increasing debt and firing public employees during economic downturn ([40:15]).

C. Systemic Political-Economic Dynamics

• Puerto Rico’s government, mirroring broader capitalist trends, resorts to borrowing (not taxing the rich or corporations), increasing dependency on financial interests who then collect interest and benefit from future repayments ([43:20]).
• Data cited: Property-based income up 57% over 10 years, while wage income has fallen 3.7% ([44:17]).

6. Impact on Everyday Puerto Ricans

• Minimum Wage Suppression: Fiscal Control Board is empowered to reduce the minimum wage for young workers from $7.25 to $4.50/hr, even as the mainland debates $15/hr ([45:00]).

  "While we're here...discussing an increase for $15 minimum wage, in Puerto Rico...power has been given to the junta to lower it...to $4.50."
  — Ian Seda Irizarry ([45:15])

• Mass Emigration: Facing austerity and limited prospects, average annual outmigration is about 60,000 people in past decade; population has shrunk by one-fifth ([47:32]).
• Structural Unemployment: Only once since WWII has Puerto Rico’s unemployment dropped below 10%; poverty rate at about 45%.

7. Political Manipulation and Local Bondholders

• The fiscal board and its supporters use "reactionary nationalism" and sentimental imagery of local small bondholders to justify ensuring bond repayments—even when most benefits accrue to large financial institutions ([51:27]).

  "It's an old strategy for major banks and bondholders to enlist little people..."
  — Richard Wolff ([51:27])

8. Public Resistance and Future Prospects

• Growing protests, skepticism about elections (since the board has final say over budgets), and new grassroots organizing offer hope ([52:00]).
• Diaspora communities in the U.S. showing increasing militancy and connection to the island’s fate ([55:49]).

• "Lots of groups are trying to get together and articulate a strategy. So we'll see what happens both in Puerto Rico and outside of Puerto Rico."
  — Ian Seda Irizarry ([55:35])

9. Prescriptions and Hopes for Change

• Irizarry calls for:
  • Rejecting Puerto Rico’s two-party system.
  • Reckoning with both internal and external culprits of the crisis.
  • Rethinking development away from dependence on subsidies and toward self-sufficient, cooperative models (e.g., agriculture and fisheries).
  • Inclusion of diaspora in resistance movements ([54:17]).

Notable Quotes & Memorable Moments

• On U.S. Inequality:

  “The United States distributes income more unequally than virtually any of the other major developed and even moderately developed economies in the world. The United States is not typical. The United States is unusual in its inequality.”
  — Richard Wolff ([13:56])

• On Apple’s Tax Evasion:

  “To say ‘we’re abiding by the law’ neatly avoids their responsibility for the laws being written the way they are.”
  — Richard Wolff ([18:27])

• On Collusion in Puerto Rico:

  “This is not an issue of the US versus Puerto Rico. It’s a more complex thing...collaborators of all of this.”
  — Ian Seda Irizarry ([35:40])

• On the Fiscal Board:

  “The same people and the same policies that in a sense got us to this point are going to be perpetuated through this fiscal control board that basically negates the relative autonomy.”
  — Ian Seda Irizarry ([41:56])

• On Emigration and Austerity:

  "That's the way to escape the structural adjustment program...in the last 10 years we've had over 600,000 people...leave the island every year."
  — Ian Seda Irizarry ([47:32])

• On Systemic Parallels:

  “Puerto Rico is simply an extreme example of a very common behavior that you can see in most cities and states across the United States too. Does that make sense?”
  — Richard Wolff ([43:17])

Key Timestamps

• 06:20: Birkenfeld affair & Obama/UBS campaign collusion
• 13:56: UN Inequality Data
• 16:50: Apple/Ireland Tax Scandal
• 26:13: Secret trade tribunals (ISDS) under TPP/TTIP
• 29:57: Start of Puerto Rico focused segment
• 32:24: Root causes of Puerto Rico’s crisis & colonial constraints
• 38:17: Composition and goals of the Fiscal Control Board
• 44:17: Data on income distribution and tax biases
• 45:00: Minimum wage attack and emigration pressures
• 51:27: Manipulation of local bondholders and nationalist sentiment
• 54:17: Preferred alternatives and strategy for the island
• 55:49: Diaspora involvement and hopes for solidarity

Tone and Takeaways

Richard Wolff maintains a blend of didactic clarity, incisive critique, and empathy, drawing continuous parallels between Puerto Rico’s crisis and broader patterns under U.S. and global capitalism. Ian Seda Irizarry provides an on-the-ground perspective that’s both critical and hopeful, underscoring the complexity of colonial legacies and the need for grassroots-driven alternatives.

Ultimate take:
Puerto Rico’s crisis is not a one-off, but a warning—a small-scale preview of broader systemic risks inherent in capitalist governance, unchecked inequality, and political-economic collusion, demanding widespread attention, solidarity, and systemic change.