U.S. Not As Different From Greece As We’d Like To Think

From AEI's Enterprise Blog…

USA Today editorializes that the "Greek debt crisis offers preview of what awaits U.S." if we allow deficits, debt, and entitlement costs to continue to rise. And of course that's right: our situation is not qualitatively different from that of Greece, Spain, Portugal, and other countries. It's just quantitatively different: our spending, deficits, and debt are rising just as theirs are, but we're merely starting from a lower level.

But this quantitative difference isn't quite as large as USA Today thinks. For instance, the editors say

To be sure, there are huge differences between Greece and the United States. Here, the federal government represents about 20% of the U.S. economy, whereas the Greek government is about 40% of its economy.

This looks like Greece is spending twice as much relative to the size of the economy as the U.S. government. But that ignores the fact that the United States has a more decentralized government structure such that much of our spending—and borrowing—takes place at the state level. Comparing national-level government spending doesn't show the whole picture.

According to the Organization for Economic Cooperation and Development, as of 2008 total government expenditures in Greece were 44.8 percent of GDP, while in the United States they were 36.4 percent of GDP. A difference, yes, but we're far closer to Greece's spending levels than we'd like to think—and, thanks to the baby boomers' retirements and rising health costs, we're looking to close the gap.

A similar story can be told with regard to debt, where states heavily burdened with borrowing and, as I've shown, massive unfunded public-sector pension liabilities, may eventually need to turn to the federal government for help.

Fiscal crises in Europe might make the United States look better on a temporary basis if a financial panic forces a flight to the dollar. But longer term we're all in the same boat, and it's taking on water.