The Greece Card

It’s a simple enough question. Are the problems in Greece being hyped in this country so that politicians can either reduce benefits or privatize parts or all of social security and medicare? I’m thinking that’s a yes.

David Leonhardt, writing at NYT, seems to find some parallels between Greek and US sovereign debt that belay the underlying differences in the two nation’s economies. The first argument is the size of the debt in relation to the size of GDP. Some of his arguments are based on projecting GDP 20 years out which is a specious activity in and of itself. This is something Paul Krugman talked about today on his blog.

Um, that’s comparing a (highly uncertain) projection of debt 20 years from now — a projection that’s based on the assumption of unchanged policy — with actual debt now. Actual US federal debt is only about half that high now. And it’s worth pointing out that Greek debt is projected to rise to 149 percent of GDP over the next few years — and that’s with the austerity measures agreed with the IMF.

While we’re not experiencing a robust recovery that is creating jobs within the usual expectation of Okun’s law, it will certainly be consistently better than the economic growth rate of Greece. Both our growth rates and unemployment rates have historically been better than Greece for a variety of reasons. This was even true during the post WW2 when our debt was a huge multiple of our GDP. Economic Growth compounds and there are a lot of factors that go into a good economy. Good laws, protection of private property,education, technology, and innovation are just among a few that can accelerate a country’s growth rate. Greece is not well known for any of these things.

When I hear many right-wingers’ arguments right now–that it’s the Greek welfare state that is at the heart of Greece’s problem–I cringe. When I know we currently have an administration that buys a weaker form of their viewpoints, I can’t help but think we’re going to revisit privatization of Social Security and benefits cuts in all these kinds of programs. We’re already hearing them referred to as entitlement programs when they are a paid-for benefit program. The difference is that the demographics between the time they were developed and now is quite different along with the expansion of key benefits. The original social security wasn’t really set up with COLA clauses in mind or survivor and disability benefits. The funding mechanism does need to be revisited, however,this doesn’t necessarily mean we have to completely revamp the system.

Leonhardt does eventually get around to elucidating the spending/funding gap which is going to be a problem. My issue is that by playing in to the just like Greece wail of the right wingers, he’s opening us to blaming ‘entitlement programs’ completely with no serious recognition of the burden placed on the country by the excessive Bush tax cuts and two wars. By comparing us to Greece whose problems were triggered by a lot of things–including an Olympics they couldn’t afford–Leonhardt plays into the the current meme about ‘welfare’ states.

As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer we wait, the bigger the cuts will need to be (because of the accumulating interest costs).

Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.

This is why fixing the budget through spending cuts alone, as Congressional Republicans say they favor, would be so hard. Representative Paul Ryan of Wisconsin has a plan for doing so, and it includes big cuts to Social Security and the end of Medicare for anyone now under 55 years old. Other Republicans have generally refused to endorse the Ryan plan. Until that changes or until the party becomes open to new taxes, its deficit strategy will remain unclear.

Democrats have more of a strategy — raising taxes on the rich and using health reform to reduce the growth of Medicare spending — but it is not nearly sufficient.

What would be? A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers, as Republican governors favor; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.

Another consideration is that Greece–as part of the EZ–has less flexibility with monetary and fiscal policy than the United States. It is also obviously a smaller economy with far fewer resources. If you take a trip over to Brad DeLong’s page, he has six different factors that he talks about that are germane to this comparison. This is one that I think is worth mentioning here.

As long as unemployment is unduly elevated–above 7.5%, say–our major economic ill connected with big deficits is not excessive deficits forecast for the 2020s and beyond but excessive unemployment and idle capacity now

So, I’m wondering why are we getting so much discussion about the US becoming Greece these days when so clearly the underlying structures of our US economy are so different? The only thing I can come up with is that folks want to point to Greece’s social programs. They are a huge part of the Greek budget, but, this is a country that also doesn’t build and maintain a huge, world inhabiting, technologically advanced military. As such, they are bound to have a larger portion of their expenditures in butter instead of guns.

I can only figure that this is buttering us up for the inevitable discussion of what to do with Social Security.