The economic mess in Europe was set off by the Greek crisis, which was spurred by the country's sky-high sovereign debt. The U.S. has pretty substantial sovereign debt. Is the U.S. headed for the disorder Greece now
finds itself in?
That question was bound to come up, and in Wednesday's New York Times, David Leonhardt does the honors: "how different, really," he asks, "is the United States?" He points out that both in Europe and in the United States, the public wants programs but not taxes--it isn't really the politicians' fault. Here are the numbers:
The debt is projected to equal 140 percent of gross domestic product within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger. Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.But if Leonhardt's question is "how different are the U.S. and Greece," the answer coming back from the econobloggers is simple: "very." Here's why.
- These Numbers Are Misleading Economist and New York Times columnist Paul Krugman takes issue with Leonhardt's comparison of a "(highly uncertain) projection of debt 20 years from now--a projection that’s based on the assumption of unchanged [U.S.] policy--with actual [Greek] debt now." In fact, "actual US federal debt is only about half that high now," while "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." A "more or less apples-to-apples comparison" shows the fundamental difference:
Basically, the United States can expect economic recovery to bring the deficit down substantially; Greece, which has a larger structural deficit and also faces a grinding adjustment to overvaluation with the eurozone, can't.
- Greece Is Trapped, America Isn't "The bottom line," agrees The Economist's Ryan Avent,
"is that it's not clear that there is any set of policies Greece can
adopt which will prevent default. Debt costs are too high and growth is
too slow. There are many different ways that America could close its
budget gap; it's merely having an intense political debate over which
way is the best way." Other differences include that the Greek
political system is "dysfunctional" and that the States faces fewer
problems in the form of strong unions and inflexible labor markets.
- Similarities and Differences The Atlantic's Derek Thompson acknowledges that Greece and the U.S. are similar in that "we've conditioned the electorate to expect more services and fewer taxes ad infinitum," and keep "elect[ing] politicians who promise to preserve that imbalance." But on the other hand, "we control our own currency, we're more productive, we have a much stronger economy and while we suffer from tax avoidance like many countries, Greece faces epic shortfalls."
- Our Debt May Be Bigger Than We Think, argues Veronique de Rugy at National Review. It has to do with the way the government is counting and predicting Social Security revenue: "In reality, these assets are pure accounting fiction." Once reality catches up the deficit figures are going to shoot up.