America, don’t be smug about Greece’s debt woes
In many ways, Greece is unlike the United States. Greece has a far less dynamic private sector. Its government is largely unable to perform basic tasks, such as collecting taxes. And it shares a currency with 18 other nations, which makes it harder to manage its economy.
But before Americans get too smug about the troubles of a relatively small Mediterranean nation, they should consider the similarities between Greece and the USA.
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. And both have been plunging headlong toward debt crises. Greece is just further along. Including the amount owed to Social Security, the U.S. Treasury is $18.2 trillion in hock. That puts the United States, along with Greece, in the select group of nations with debts exceeding 100% of annual economic output. That’s not a good place for America to be, especially as its Baby Boomers begin to retire and put even more strain on health and retirement programs.
Greece and the U.S. also have strikingly similar attitudes about what people are “owed” after a few decades of work.
Going into the financial crisis, three-quarters of Greeks participating in the nation’s two main pension funds (one for public sector workers and one for private) were retiring before age 61. Not surprisingly, these pension programs had to be curtailed sharply.
Washington does not provide such generous pensions, except to military veterans, civilian employees hired before 1987 and select senior government officials. Nonetheless, many states and localities have made unaffordable pension promises to police officers, teachers and other public sector workers.
The U.S. also funds a host of benefit programs, mostly in health care, that are undermining America’s economic future by borrowing from young workers and future generations.
Annual health care spending by the federal government has increased nearly tenfold to $1.1 trillion since 1985 and now accounts for roughly 30% of the budget.
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 who 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 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.