On Monday night's third and final debate, Mitt Romney accused Barack Obama of driving America down the road to Greece. We've been told for over a year that Greece shot itself in the foot by borrowing too much money, which it used to coddle "lazy" Greek workers, who retire to some picturesque island before they could even join the AARP here in the U.S. This characterization of Greece's troubles, as it happens, is completely wrong, a point to which we will return. But let's say, for now, that we swallow the conventional wisdom about Greece. Is America really heading down that path? Let's find out.
U.S. and Greece at a Glance: Apples and Oranges
Greece is a tiny country, geographically and economically. The Greek economy is about the size of Maryland's, and it's one of the smallest economies in the European Union (EU). A tiny country, like a tiny business, is very susceptible to bankruptcy. Why? Think about your neighborhood hardware store. If it defaults on a loan, the bank will seize its assets and be on its merry way. If GM or Goldman Sachs is in danger of defaulting, their creditors will negotiate to restructure their loans. After all, the bank doesn't want their biggest clients to go out of business — better to let them get back on their feet so they can pay back their loans. Greece is like the hardware shop. Of course the banks can't seize a country, but they can bully it to get what they want. America, on the other hand, is the biggest economy in the world — twice the size of our nearest rivals. Lenders would have to work with the U.S.gently to get their money — in the case of default. This, we will find, will probably never happen.
Greece is a tiny component of a huge monetary union, the EU. This means that Greece can't "print" money when it needs to. It has to go through the European Central Bank (ECB). The United States, on the other hand, not only has its own currency, but that currency is the reserve currency of the world economy. This means that technically, if we owed China money (though China really owns a rather small portion of U.S. government debt), we could just print that money and hand it to them. Of course this wouldn't be responsible, but it would be a way out. It would weaken the dollar, but this could actually be good for U.S. exporters. Remember, we're always criticizing China for making its currency too cheap! And anyway, we could print a lot of money before it made a noticeable difference in the dollar's value.
This is because there will always be a high demand for dollars, as it has essentially become the world's currency. When countries trade with each other, they usually trade in dollars to keep things simple. Since the dollar is so useful in this way, countries like to hoard as many dollars as they can. Of course, if the U.S. abused its monetary power to pay for vast amounts of wasteful spending, we could slowly lose our advantages. But regardless, we're unlikely to "spend our way to Greece" any time soon.
And then there's the size of the debt. Greece's debt in 2011 was about 160% of GDP. In the U.S., we're just a little bit over 100%. This may not seem like a huge buffer, but remember that the U.S. is seen as much more reliable than Greece as a borrower. How reliable? If lenders don't trust that a country can pay back its debt, they assign it a higher risk. High risk means high reward or there's no reason to lend, so high-risk countries have to pay higher interest rates. This is the magic of the market that Mitt Romney frequently espouses. So what kind of interest rate does the U.S. government pay on its debt? When you consider inflation, right now it's actually negative. This means creditors are so confident that the U.S. can repay their debt that they are actually paying the government to keep their money safe.
The Real Trouble with Greece
Now, the media tells us that the Greeks are in trouble because they have been "lazy" and "spoiled." Even self-declared "liberal" media outlets like the Huffington Post claim that Greece is "a party." But is it really? Would you be surprised to learn that in 2010, Greeks worked more hours per year than Americans or Germans? Besides Korea, Mexico and Chile, Greeks worked more hours per year than any other workers on the planet. So if Greece didn't go broke because their workers were on the beach drinking Mai Thai's, then what happened?
The corporate media (even the Huffington Post, which remember is owned by AOL Time Warner) claim that Greeks haven't been paying their taxes. But according to researchers at the University of Glasgow, Greek workers and small businesses pay taxes or face high fines. Wealthy professionals and large corporations, however, avoid paying taxes by leveraging their political connections.
The other major source of Greek debt is not welfare, but corruption on the part of both politicians and large corporations. The cost of infrastructural investment in Greece is three to six times higher than the rest of Europe. This means that building roads, bridges, defense systems, etc. in Greece is very expensive. This isn't because the workers building these things keep retiring early. It's because Greek government officials give out overpriced public contracts to private companies in exchange for big kickbacks. These corrupt foreign companies are often French or German conglomerates like Siemans. So some of the beneficiaries of this corruption are from the same countries which are now wagging their fingers at Greece for spending too much money!
And what's the solution Greece's critics suggest? Diane Francis with the Huffington Post is not alone in suggesting Greece sell off it's government assets, including "beautiful publicly-owned islands." Well, as Nobel Prize-winning economist Joseph Stiglitz points out, corrupt governments tend to sell off public assets in corrupt ways. So instead of Greece getting a good price for its assets, Sieman's will probably just buy some beautiful islands for pennies on the dollar, while some government minister lines his pockets and Greek taxpayers foot the bill — again.
If the U.S. finds itself in the place of Greece in the future, it will not be because of universal health care, food stamps or Social Security. It will not be because workers are greedy or lazy. If we find ourselves in Greece's place, we will probably have gotten there the same way Greece did: crony capitalism, bloated defense spending and tax dodging by wealthy individuals and large corporations.
Unfortunately, these are precisely the policies Mitt Romney prescribes for America.