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We’re Not Greece ... Yet

Posted By J.D. Foster, Ph.D. On May 14, 2010 @ 5:00 pm In Economics | Comments Disabled

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In his latest New York Times column [2], Paul Krugman manages to make some useful observations before slipping into his usual role of distorting propagandist.

His most important observation is in his title, “We’re Not Greece”. For that matter, we’re not Portugal or France, either, for all of which we can be thankful. Greece suffers from a quadruple whammy. Its fiscal policy is a disaster, with a debt-to-GDP ratio push rapidly toward 150 percent and beyond. Its political system is very shaky and its social fabric appears to be fraying judging by the strikes, mass marches, and gasoline bombs thrown at police. And to top it off, a perennially weak economy is now fated to suffer a massive contraction as the penalty for promising a standard of living to the Greek people that could only be maintained by government borrowing on international markets. For Greece, the jig is up.

So, no, we are not Greece. Our political system is no beauty, but it tends to work. Our society is under the inevitable strains of a big country with a heterogeneous population, yet we press on. Our economy should recovery smartly if Washington can stop throwing monkey wrenches into the operation. But then there’s the matter of the federal government’s finances (and state finances, but that’s for another day).

We’ve long know that the long-run fiscal outlook is unsustainable because spending on Social Security and Medicare in particular are set to soar. Yes, Paul, it is the spending. Krugman appears to be the only person in America who does not understand this. Certainly the leftish folks in think tanks such as the Brookings Institution, the Urban Institute, the Progressive Policy Institute and others don’t dispute this fact. [3]

But now, under the dual pressures of time passing and Obama spending, the long-run isn’t so long any more. Many will explain away the current Grecian formula budget deficits as the obvious and temporary outcome of recession. Fine to a point, but in between the supposed long-run and the short-run is the medium run, and in this medium run (say the period from 2012 to 2020), America’s debt-to-GDP ratio is projected by the Congressional Budget Office [4](CBO) to reach a very French-like 90 percent under Obama’s policies. And, of course these numbers don’t reflect the budget busting Obamacare or all the other emergency, important, or just plain excessive spending Obama and friends will be working on over the next couple of years.

Krugman seeks to dismiss those on the right and the left who see trouble ahead. But he cannot dismiss the growing wariness in credit markets toward all countries with fiscally irresponsible governments. What Greece faces today fiscally is a window on our future if we continue down the debt-laden road. We’re not Greece, yet. But we will be if we don’t find an exit. Fortunately, there are many exits, and they all involve a turn to the right at a spending stop.

If the Grecian crisis does befall the United States, and all the journalists and pundits are then screaming, “How did this happen and who’s to blame?” A big finger of the blame will go to the likes of Krugman and his fellow apologists for the “progressive”, read socialist vision. My bet is America will come to its senses first, however, so Krugmanism will quietly join its fellow doctrines in the trash heap of history.


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URL to article: http://blog.heritage.org/2010/05/14/we%e2%80%99re-not-greece-yet/

URLs in this post:

[1] Image: http://www.heritage.org/budgetchartbook/entitlements-historical-tax-levels

[2] latest New York Times column: http://www.nytimes.com/2010/05/14/opinion/14krugman.html?ref=todayspaper

[3] the Brookings Institution, the Urban Institute, the Progressive Policy Institute and others don’t dispute this fact. : http://www.brookings.edu/~/media/files/rc/papers/2008/04_fiscal_future/04_fiscal_future.pdf

[4] projected by the Congressional Budget Office : http://www.cbo.gov/ftpdocs/112xx/doc11280/03-24-apb.pdf

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