America's debt spiral resembles Greece's crisis
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 kind of crisis the United States might face in a few years, if we continue to make the kinds of mistakes that the Greeks have made over the past decade.
For those who haven't followed this saga, let me reassure you that the story is quite straightforward: Greece is bankrupt. And though Greece's bankruptcy is headline news this week -- Greece's weak finances threaten the stability of the euro -- the truth is that Greece has been bankrupt for years. Its budget deficit in 2009 was 12.7 percent of its gross domestic product. 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 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. Both legal and informal barriers to doing business 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 of these burdens for a long, long time. Yet nothing has been done because the country's deeply partisan political system is 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 denies them. The European Commission issued a report last month 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 as well. No country makes accounting errors like that by accident.
Greece shares its financial weaknesses with several European countries (nowadays referred to -- really! -- as "PIGS": Portugal, Italy, Greece and Spain). But in a different sense, Greece's weaknesses are shared by the United States as well. Though we do not have precisely the same problems, we have a similar level of political paralysis and a similar level of partisanship. It is not possible to reform Social Security: President George W. Bush tried half-heartedly and gave up before he started. It might not be possible to reform health care either: Hillary Clinton failed, and President Obama, despite throwing in expensive sweeteners, may well fail, too. The influence of lobbyists cannot be reduced. The power of interest groups to sway 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 -- 9.9 percent of GDP and climbing -- we also have liabilities that are rarely acknowledged. The costs of Medicare and Medicaid are rising, 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 doing very much about them either.
The good news is that the American government's bankruptcy is not on the front pages, and it will not 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.