USA Today's editorial board published a misleading editorial comparing the economic crisis currently crippling Greece with the economic problems facing the United States, fear mongering that a similar crisis could happen “in as little as a decade.” But economists have repeatedly dismissed the comparison, explaining that the U.S. economy is dissimilar from Greece and therefore unlikely to face a similar debt crisis.
On July 6, the editorial board published a piece claiming that the United States could find itself in a Greece-like economic and financial crisis as a result of America's debt and entitlements. According to the editorial board, “Greece is just further along” in its debt crisis however, Americans can expect a major shock “in as little as a decade.”
Both countries have amassed large debts. Both are run by politicians eager to tell voters what they want to hear about national finances, not what they need to hear. Both have aging populations. Both are familiar with irresponsible banks lending to irresponsible borrowers. And both have been plunging headlong towards debt crises.
Greece is just further along.
Yet efforts to even modestly curtail health benefits, or any other “entitlement” programs for that matter, meet thunderous opposition from politicians, labor unions, senior citizen groups and others. Often, the objections are couched in language of people having “earned” their benefits after a lifetime of work.
In fact, they've earned a portion of their benefits. An average couple that retired in 2010, for instance, will receive $387,000 in Medicare benefits after having paid $122,000 in Medicare taxes while working. Social Security is in somewhat better shape but it, too, will soon have to start drawing down its reserves, adding more red ink to the budget.
Unless benefit programs are reined in, America is heading for its own debt crisis. It won't be complicated by whether it should drop out of a currency union. And it might be delayed by a vibrant and innovative private sector. But it could arrive in as little as a decade. And then everything will seem Greek to us.
USA Today's doom and gloom predictions are indistinguishable from the cartoonish fearmongering that has been promoted by Fox News since 2010.
Washington Post contributor and international political economist Daniel Drezner blasted media outlets for allowing the “re-emergence of a Greece-related meme that should have died of shame and embarrassment about four years ago.” According to Drezner, after years of the media predicting a Greek-like disaster “exactly none of these things have come to pass.”
And on the July 5 edition of ABC's This Week, Nobel Prize-winning economist Paul Krugman downplayed the impact of the Greek debt crisis for other developed economies, explaining that Greece's GDP is roughly equal to that of Miami, Florida. Krugman also argued in his New York Times column that U.S.-Greece comparisons are unreliable, since they project debt in future decades and assume fiscal policies remain static.
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.
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.
Yes, the United States needs fiscal adjustment -- Auerbach and Gale say that we have a long-run fiscal imbalance of 6-plus percent of GDP, although much of that could be closed by reining in health costs. But we really don't look much like Greece.