Puerto Rico; Korea; Paul Krugman (the latest Economist magazine)

Philip Greenspun's Weblog 2013-10-30

I picked up a paper copy of the Oct 26-Nov 1 Economist to read on a NYC/Boston Shuttle flight the other day, due to the ban on electronic readers during what can sometimes be long taxi/waiting times on the ground (nobody asked me to turn off my Samsung geek watch, which runs a full copy of Android, so I’m not sure how sustainable the ban on small devices is going to be in the Age of the SmartWatch).

Here are some interesting tidbits…

Puerto Rico is bankrupt, more or less in the same manner as Greece. In addition to the pension obligations that render most states insolvent under reasonable assumptions regarding investment returns, Puerto Rico also simply borrowed about 89 percent of its residents’ annual income (i.e., everyone there would have to work for an entire year, paying 100% of their income in tax, in order to pay it off). This compares to a U.S. state average of 3.4 percent. Interestingly, Massachusetts figures prominently in the borrowing binge as well, with debt of nearly 10 percent of state personal income (Hawaii, NY, NJ, California, and Illinois are also identified as high borrowers). The lending fever was fueled by tax breaks for the bonds and the money was spent on a “bloated public sector.” What had kept Puerto Rico going was a manufacturing tax break that expired in 2006.

In a special section on South Korea, the magazine opines that people there need to have more babies so that they can grow the population to a sufficient size for paying health care and pension obligations to those who are currently old and middle-aged. No mention is made of the fact that South Korea is already one of the world’s most densely populated countries (Wikipedia says 1308 per square mile compared to 90 here in the U.S.) or that this population density understates the on-the-ground reality of compression due to the mountainous nature of much of the country. Does it really make sense to try to push off the day of reckoning by producing a big generation of children and then hoping that there will be an even bigger generation after them to pay off their pensions and health care?

There is a section on designing space ships and it turns out that there is an economics connection. Paul Krugman, who turns out to be an avid science fiction fan, wrote a paper in 1978 on how to organize interstellar trade in the presence of relativistic time effects while goods travel between Earth and Trantor.

Albeit not as exciting as a trade route from Earth to Trantor, the magazine carries an article about a plan to build a 262-mile long railroad from Kunming, China to Vientiane, the capital of Laos. This would enable passengers and freight to travel all the way from Bangkok to Kunming. The new railroad would include 76 tunnels and bridges at a cost of $7.2 billion (i.e., less than half what it cost for the Big Dig in Boston).