Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Thursday, May 06, 2010

We are NOT Greece

OK, so many of you have probably heard about the fiscal crisis in Greece. You can find a timeline of the way the crisis unfolded here. The upshot of the situation is that the conservative party that governed Greece for most of the last 10 years flat out lied about the size of the country's debt and deficit in relation to their GDP. Last year, the new center left government revealed the true numbers and all hell broke loose.

Now, as this crisis unfolds you hear a lot of talk from the most populist talking heads on CNN, FOX etc arguing that the current deficit spending in the US is leading us to some sort of inevitable Greek like catastrophy here. But I contend that this simply alarmist jingoism and these people are pushing it for partisan political reasons. In this post I will list a number of reasons that WE ARE NOT GREECE.

1) Size matters. Greece is a relatively small, poor country with shaky economic foundations. According to the CIA world factbook, about 15% of the Greek economy comes from tourism. Another 3.3% of it comes from direct aid from the EU in the form of ag subsidies and structural development funds. In contrast, the US economy is dependent on neither source but is instead a large and diversified economy with sizable service sector and industrial sectors. Basically, the Greek economy looks more like Hawaii's or Alaska's (minus the oil) than like the rest of the USA.

2) Americans are better citizens! One of the problems Greece has is a very low rate of compliance with tax laws. That is, Greeks simply cheat on their taxes on a massive scale. The result is the Greek state's capacity to raise public revenue is seriously hindered. That is not the case in the US. As much as people like to joke about fudging their returns, Americans are a law abiding bunch. Part of that is because our government is better at enforcing the tax laws.

3) Checks and balances mean honest government. One of the reasons the previous Greek government was able to flat out falsify their national books is because Greece has a unicameral parliamentary system combined with an electoral system that tends to produce single party majority governments. Combine that with relatively disciplined parties (unlike American parties) and you get a government with virtually no one watching over their shoulders. In contrast, the United States has numerous conflicting partisan and institutional actors watching and reporting on spending and budget issues. It is politically impossible to imagine a situation in which some President or small group of Congressional leaders could falsify the books and get away with it. The national accounts are required by law to be revealed to too many people who have a vested interest in exposing such misdeads by their political opponents.

4) We don't spend or borrow nearly as much! The current Greek debt is about 113.4% of their GDP (from CIA world factbook). The popular reaction to the deficit reduction strategy in Greece has been violent and deadly. The US debt is about 52.9% of our GDP and it is provoking a vigorous political debate about how (not whether) to reduce it (from CIA world factbook). In any given year about 50% of Greece's GDP is taken up in government expeditures. In the US less than 20% of the GDP is taken up with government expenditure. What's more, there are some indications that US economy is beginning to recover from its part of the global recession. That is not the case in Greece. In Greece, the indications are that the economy will continue to shrink.

For all these reasons, I believe talk about the US going the way of Greece is little more than partisan hyperbole.


The Law Talking Guy said...

When you are reduced to praising the US government for its relative honesty, you are putting the rest of the world truly to shame.

I am glad to hear that you do not think the Greek crisis will hurt us. I should think that the biggest impact on us would be a strengthening of the dollar vis-a-vis the euro, which is already happening. That's good for US tourists but kinda crappy for US industry. OTOH, it makes it easier for China to revalue the yuan, as they are doing

The Law Talking Guy said...

If Greeks cheat on their taxes so badly, how are austerity measures going to work? They can evidently cut spending, but it sounds like the increases in revenue won't happen. Maybe they can sell a few things to raise some cash, like giving Macedonia its name, Britain the Elgin marbles, and the Turkish half of Cyprus to the Turks.

On a more serious note, I am a bit surprised by all the commentary bemoaning the inability of Greece to devalue its currency as a means of getting out from under its debt. Was that "solution" really much different, in effect, from restructuring, when the net result is reduction in value flowing back to lenders, and lenders will respond accordingly by refusing to invest in Greek bonds?

On a third serious note, I do feel for the Greek people, especially the pensioners, who are getting reamed over all this. Can't they just expropriate a bunch of rich banks instead?

Raised By Republicans said...

I didn't intend to put the rest of the world to shame. Nor did I intend to suggest that the Greek crisis would not hurt the US. It may very well have some unhappy spill over effects even now.

What I meant to get across was that the US was very unlikely to experience a crisis like Greece's itself.

As for the revenue problem. That is a major concern. There are real worries that tax increases will simply be ignored.

Yes, pensioners are going to get hit hard. But some of them have it coming. The Greek pension law allowed people to start collecting government pensions in their 50s. That's absurdly generous for a country that gets 3.3% of its GDP in foreign aid.

The Greeks cannot devalue their currency (which is probably what they would have done had this happened 20 years ago) because their currency is the Euro and they do not have control over its value. The value of the Euro is set by the European Central Bank's governing board and that body is fairly well shielded from political interference. By the way, the inability to devalue your way out of these kind of debt crises was one of the main arguments from the left against monetary union in Europe.

The Law Talking Guy said...

RBR - you're not reading my comments, and there's no point to talking on the blog if you won't read. I know very well why Greece can't devalue their currency, which was the premise of my comment, if you had bothered to read it. What I was saying, if you had bothered to read it rather than assumed my ignorance, was that I didn't see why the previous ability to devalue currency was so wonderful. In the end, I suggest it probably hurts a government as much in the market for new debt to devalue currency as to restructure debt. I guess you don't have any answer to give as to the economic argument I made about devaluation, which is why you resorted to pretending I was stupid. sorry, very pissed about you thinking I don't know how the Euro works or why Greece can't devalue.

By the way, why do pensioners "have it coming" if they accept the benefits they are offered? That seems a very strange assignment of moral authority.

Raised By Republicans said...

If you go back and reread your original comment:

"I am a bit surprised by all the commentary bemoaning the inability of Greece to devalue its currency as a means of getting out from under its debt. Was that "solution" really much different, in effect, from restructuring, when the net result is reduction in value flowing back to lenders, and lenders will respond accordingly by refusing to invest in Greek bonds? "

It's not unreasonable for me to interpret that as an invitation to discuss why Greece isn't considering devaluing more seriously. As for the economics of the similarity between devaluation and restructuring, I really don't know the answer to that (I'm not an economist) and didn't interpret that as the sole thrust of your comment. So I replied to the elements I could. I wasn't trying to dodge your question or accuse you of being "stupid."

Raised By Republicans said...

RE: Greek Pensioners... I suppose saying they "have it coming" is a bit strong. I was being facetious and I apologize.

A more measured way to express myself: I do think the Greeks (pensioners included) bare the lion's share of responsibility for this. The pension thresholds in Greece are not set by some foreign power (or bank). They are the result of years of policy decisions by democratically elected governments. As a population, the Greek people bare the lion's share of the responsibility for their current situation. Supporting governments that offer full retirement benefits at the age of 54 or whatever it was when that same government is receiving enormous amounts of foreign aid is irresponsible on the part of the government. Continuing to support such governments is wishful thinking at best and at worst reflects a commonly held view that Greece would be fully absolved of any debts without being required to cut spending.

I'm guessing your strong reaction to my statement is in part a reflection of your perception that I blamed the Greek people alone and do not single out international banks. The banks do share a great amount of blame for helping the Greek government(s) conceal their debt. But the banks did not force the Greek government(s) in question to adopt the ridiculously unrealistic spending policies that they did. Nor did the banks force Greek voters to continue to support politicians that offered these benefits at the expense of politicians warning of the long term consequences.

Anonymous said...

RE: Sheltered life.

I have run with the lowlifes and scum for 40 years, I can assure you that the amount of taxes paid is a lot less than you imagine.

I, also, consulted with higher income doctors groups. In some cases, I had them paying less tax than I did when I was making 1/4 as much.

Last stats that I saw on income tax cheats and prisons was in the 90s.
At that time, there were more people doing federal time for Mann Act violations than income tax crimes.

Raised By Republicans said...

Anonymous 2:49.

My point was not that no one cheats on their taxes but rather that the problem is far far less in the US than in Greece. I'm on pretty safe ground on that one.

Also, the enforcement mechanism for tax evasion is not really jail. It's wage garnishing etc. But Seventh Sister would know a lot more about these details than I do.