I have seen America’s future, and it is Greece.
By this I do not mean that the Midwest will soon be covered with ancient ruins or that Texans will swap hamburgers for feta cheese. I mean that the ongoing Greek financial crisis is the same kind of crisis the United States might face a few years from now if we continue to make the same kinds of mistakes the Greeks have made over the last decade.
For those who haven’t followed this saga, let me reassure you that the story is quite straightforward: Greece is bankrupt. And although Greece’s bankruptcy is headline news this week—Greece’s weak finances threaten the stability of the euro, the common European currency—the truth is that Greece has been bankrupt for years. Its budget deficit in 2009 was 12.7 percent of GDP. Overall debt was 113.4 percent of GDP. Those are not figures that can be achieved overnight.
Some of Greece’s economic problems are highly specific. The country has an unusually old-fashioned legal system, a bureaucracy straight out of a Kafka novel, and a byzantine system of regulation worse even than our own. The Wall Street Journal points out that—extraordinarily—Greece, practically alone among developed economies, does not have a centralized and computerized land registry, which means, for example, that farmers can surreptitiously cultivate public land and eventually become de facto owners. By European standards, Greece also has an exceptionally closed economy. Barriers to doing business, both legal and informal, are very high, which is part of why Greece has one of the world’s lowest levels of foreign investment.
More to the point, Greece has borne all these burdens for a long, long time. Yet nothing has been done, because the country’s deeply partisan political system is totally paralyzed. Try to carry out any social security reform in Greece—raise the pension age, stop early retirements—and watch what happens: Mass rioting followed the passage of a pension reform bill in 2008, and the government became so unpopular it lost the next election. The land registry cannot be modernized, because those who possess land illegally will fight back. The barriers to investment cannot be lowered, because business lobbies are more powerful than politicians.
The political class is aware of the country’s economic problems, but it denies them. Last month, the European Commission issued a report accusing Greece’s finance ministry and statistical service of “severe irregularities” stemming from “the submission of incorrect data.” In eurospeak, that means the commissioners think the Greeks have been lying: That 12.7 percent budget deficit was originally forecast to be 3.7 percent, and plenty of other figures coming out of Greece seem to have been way off. No country makes accounting errors like that by accident.
Greece shares its financial weaknesses with several other European countries (nowadays referred to—really!—as the PIGS: Portugal, Italy—or sometimes Ireland—Greece, and Spain). But in a different sense, Greece’s weaknesses are also shared by the United States. Though we do not have precisely the same problems, we do have a similar level of political paralysis and a similar level of partisanship. It is not possible to reform U.S. Social Security: President Bush tried halfheartedly and gave up before he started. It may not be possible to reform health care, either: Hillary Clinton failed, and President Obama, despite throwing in expensive sweeteners, may well fail. The influence of lobbyists cannot be reduced. The power of interest groups to influence legislation cannot be tamed. We might not have farmers squatting on state land, but we do have farmers dependent on huge, distorting agricultural subsidies that apparently cannot be reduced.
Fortunately for American politicians, we do not have to submit our financial statistics to a European Commission, and thus we do not have to lie about them outright. But aside from our very large budget deficit—at the moment, 9.9 percent of GDP and climbing—we also have liabilities that are rarely acknowledged. The costs of Medicare and Medicaid are going up, as is the cost of veterans care. Markets assume that the vast debts of Fannie Mae and Freddie Mac are underwritten by the government, and someday the government might be called upon to pay them. No one is lying about these things, but no one is talking about them very much, either.
The good news is that the American government’s bankruptcy is not on the front pages, and it won’t be for many years: Our sheer size, our entrepreneurship, and our relatively open business culture will keep us going for a long time. But the Greek crisis shows that the combination of debt and political deadlock can be deadly. The catharsis we feel as we watch it unfold—that Aristotelian combination of pity and fear—should shock us far more than it has so far.
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