Smith Faculty Opinion Article
June 14, 2012
The United States Is Becoming Too Much Like Greece
This weekend, Greece go to the polls but and the winners will not likely be
able to form a government that can solve the county’s intractable economic
problems. Americans should pay close attention—the United States is becoming too
much like Greece and could easily end up in the same place.
Greece’s troubles began with an uncompetitive private sector instigated by
unrealistic labor market policies and a single currency with Germany. Exports
became too expensive, domestic industries could not adequately compete with
imports, the private sector grew too slowly, and unemployment rose. Youth
unemployment and underemployment became endemic.
In the United States, huge trade deficits on oil and with China are slowing
growth—both are caused by government policies. With more offshore drilling and
better use of abundant natural gas, the US could cut oil imports in half.
Regarding China, the United States could take action against China’s undervalued
currency and protectionism but doesn’t. Consequently, unemployment is stuck
above 8 percent and too many college graduates are waiting on tables or at
counters at Starbucks
To tap down unemployment, Greece permitted workers to retire too young and
spent too much on pensions, and the government spent lavishly on education,
health care, and other services to create jobs.
In the United States, state and local governments are spending too much on
social security and employee pensions. Federal government spending has
permanently increased, under the guise of temporary stimulus, to create
government jobs and to subsidize a very inefficient health care system. States
are spending too much on inefficient educational and transit systems, and other
services, and on skyrocketing Medicaid mandates and health care benefits for
employees and retirees.
The federal deficit has rocketed from $161 billion in 2007 to about $1.3
trillion, and has been above $1 trillion for four years. The US has lost its
prized AAA credit rating, and its creditworthiness will continue to fall if the
huge federal deficit is not curtailed. President Obama has no credible plan to
bring down the deficit.
As federal and state debt mounts up, the U.S. credit rating will continue to
be downgraded, and investors will become reluctant to hold US bonds without
receiving much higher interest rates. As in Greece, high interest rates on
government debt will drive federal and state governments into insolvency, or the
Federal Reserve will have to print money to buy government bonds and
hyperinflation will result. Calamity would result, either way.
Peter Morici is a professor at the University
of Maryland School of Business and former Chief Economist at the U.S. International