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  • Morning Bell: The Grecian Formula for Economic Decline

    The President and his team have been blaming “European headwinds” for some of the U.S. economy’s woes. But the truth is that the policies pursued by Washington and Athens are frighteningly similar—and the outcomes are not good for either country. Both countries are in need of comprehensive fiscal reforms, yet their leaders have avoided the tough decisions in favor of bailouts and political posturing.

    In yesterday’s election, political parties supporting Greece’s bailout secured a narrow victory, causing Europe and world markets to breathe a temporary sigh of relief. The parties must now form a coalition government, despite continued protests from the radical party that sought to throw out the terms of the bailout assistance—which could have led Greece out of the euro currency. At 22 percent unemployment, Greek voters expressed disappointment with their limited options.

    The Greek crisis was foreshadowed in this year’s Heritage Foundation/Wall Street Journal Index of Economic Freedom, with Greece registering the largest decline in economic freedom of any country in the world. Its economy is rated “mostly unfree,” and it has the fifth-lowest economic freedom score in Europe, beating only Russia and three former Soviet republics.

    Why is it in such a state? The authors of the Index point to “decades of overspending, a lack of structural reform progress, and endemic corruption,” noting that Greece’s “lack of competitiveness and fading business confidence are serious impediments to economic revival. Adjustments in market conditions have been stifled or delayed by public unions.”

    Sound familiar?

    It should, because the similarities between the U.S. and Greece are alarming. Two years ago, Heritage’s J.D. Foster said that “We’re not Greece…yet.” Since he wrote that in May 2010, however, U.S. debt has nearly doubled as a share of the economy. Greece’s public debt, at 165 percent of gross domestic product (GDP), doesn’t seem that unreal any more.

    A few other points of comparison: The U.S. corporate tax rate is higher than Greece’s. The Index of Economic Freedom pegged America’s overall tax burden at 24 percent of total domestic income, while Greece’s overall tax burden was 30 percent of GDP. Government spending inAmerica—42 percent of GDP—approaches Greece’s government spending level, which exceeds 50 percent of its GDP.

    Both countries have structural economic deficiencies—like tax rates and labor regulations—that are causing deeply rooted problems. And both countries have tried to solve their fiscal problems through bailouts, to no avail.

    Though it goes back to the adoption of the euro in 1999, the European crisis first broke into the open some 10 years later. In April 2009, the European Union told France, Spain, Ireland, and Greece to reduce their budget deficits in the wake of the credit crisis. Since the crisis began, Europe has substantially weakened its banking system, which is propped up only by central bank cash and shaky bailouts.

    Now, defaulting on loans is a real possibility for Greece and other European nations. They have too long dismissed the need for economic growth in favor of government intervention.

    Going into the G20 summit today and tomorrow in Mexico, President Obama “has called on European leaders to recapitalize weak banks and to focus on economic growth and not just budget austerity,” reports Reuters. Basically, he has been urging European governments to spend more now, even as their borrowing costs and debt far exceed sustainable levels. One wonders how countries that have limited or no access to credit markets because of their dire fiscal situations are supposed to borrow the money for all this additional spending. There is only one substantive difference between Obama’s policies for Europe and his domestic policy, where he has urged expanding government jobs as a solution to U.S. unemployment: The U.S. government can still borrow to finance its deficits, because we’re only partway down the road the Greeks have already traveled.

    The overspending, overtaxing, over-borrowing and over-regulating approach does not work for Europe any more than it works for America.

    To deal with any European financial fallout that might affect the U.S., we have to stop embracing the same policies. Congress and the President should rein in federal spending immediately by choice rather than being eventually forced to do so, as countries across Europe have been. They should declare a regulatory cease-fire and disarm the Taxmageddon threat.

    America is responsible for its own economic problems, regardless of the winds sweeping across the Atlantic.

    http://www.morningbell.org

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    14 Responses to Morning Bell: The Grecian Formula for Economic Decline

    1. chyatt says:

      Of course they favor bailout. Free money that will never have to be repaid. Supporting the same old policy that will eventually collapse. This is nothing more than a temporary stop gap measure that is going to end poorly. No pain, no gain.

    2. Johncdavidson says:

      The hardest thing most people have is admitting their mistakes. Spending other people's money makes it all the more difficult when part of it remains in the pockets of the advocates.

    3. Frank says:

      The following would be best for Greece:
      1. Default on their Euro denominated loans & return to the "Drachma" as the unit of currency.
      2. End big government (Keynesian) based economics. Balance the budget through scaling back government & the welfare state. End all forms of crony capitalism & let the "Invisible Hand of the free market" set the exchange rate from Euros to Drachmas & the interest rates. End Central Banking & central control of the economy.
      But, I'm sure, Greece WON'T do these things… just like the rest of Europe & the USA won't do similar things & reduce the size & scope of government or balance their budgets. That's why a global financial meltdown is just about inevitable and we are only postponing things with out present failing course of actions politically & economically.

    4. Wes Evans says:

      Progressives and populist politicians will continue to spend as long as they can borrow to buy political power until they no longer can! Unfortunately voters will continue to elect these politicians until a country is bankrupt. Then all to often it is a military dictatorship that comes to power as the country fall into chaos. We can see that the welfare state is not sustainable from the experience of Europe but many of our political, academic and media elites are so tied to the ideology of socialism that they are unwilling to admit that it is not sustainable over any period of time. These elites benefit from the system as it exist up to the point of failure. It is always the working middle class and non- criminal private sector that suffer the most from this scenario.

    5. Curt Krehbiel says:

      "There is only one substantive difference between Obama's policies for Europe and his domestic policy, where he has urged expanding government jobs as a solution to U.S. unemployment."

      Expanding government jobs as a solution to U.S. unemployment is a non sequitur. Government jobs can be paid for only by taxing the private sector which, in turn, leads to less productivity and less employment. Obama's goal is to nationalize the private sector to the end that all jobs are government jobs and the taxable base is effectively destroyed taking with it the once most productive nation on this planet.

    6. Dr. Henry Sinopoli says:

      Heritage and life-long politicians do everything possible to keep reinforcing 'dangerous situations'. Today's global is very different from the one our brain evolved to comprehend everything. As long as Republicans and Democrats keep us fighting and radio announcers keep shouting the world is ending, along with Heritage writing useless papers ensuring to devide…we will continue to thing with a fight or flight mentality…while lifer politicians (Boehner) play golf and get rich from our fear….

      Greece and the world are tied together…let's find un-fear people…not Heritage lifer politicians to address issues.

    7. I am astounded everyday at the complete paradoxical propaganda that abounds in this country and others. I can understand why people from other countries can be coerced into believing that government is the solution to their problems because governments have always been in control. Only this country and its Constitution are supposed to be safe from government rule and over reach. The invasion of our way of life and our laws started building some eighty years ago after the depression and three terms of FDR. President Obama was able to blame all of our countries problems on George Bush and continues to do so after almost four years of his own watch and his own policies. He now claims that the Republicans and Mitt Romney have nothing to offer but the failed policies of the Bush administration. He is hoping that no one will remember the Bush policies and that he, not the Republicans and Mitt Romney is the one that has continued the bad parts of the Bush policies which were stimulus packages, bailouts, bigger government to support those things and totally out of control spending and debts that will kill any attempts to grow our economy now and in the future.

    8. Ron W. Smith says:

      Yes, reign in the spending. And let's be smart when we do by starting with the biggest driver of national debt during the past decade, our extravagance on the big five: National Defense, Homeland Security, Nation Building, Foreign Aid Designed to Gain the Cooperation of Other Countries, and Veterans Affairs. At over $1,000,000,000,000 a year, the five are now not only supported by taxpayer money as always, they're currently supported by borrowed money. Spending more than the rest of the world combined on the five is not smart in lean times and with a national debt of $16,000,000,000,000, a national deficit of more than $1,000,000,000,000 annually.
      Yes, foreign policy should be front and center in any serious discussion of reducing spending, and the nation's voters should be given entry into those discussions. It's time to openly discuss/debate our long-time role as SuperPower on Call, with more than 700 military installations around the world and our footprint in everyone's back yard, and reassess domestic versus international needs.
      I can't wait for proceedings to begin.

    9. Stupidity is defined as repeating the same action with the expectation of a different outcome. Clearly the Euros have suffered this malady for decades, and now we too are being led by successive leaders into the same irrational expectations. Why is it so difficult for people to transpose the same rules of economics that we all live by onto states and nations? If we did so, we would start electing sensible and grounded leaders. As for Greece, the train wreck has merely been postponed a few months or a year or two. The collapse of the European Union is, and has always been inevitable.

    10. Jeanne Stotler says:

      We DO NOT need to keep pouring money into European coffers,We need to take care of the USA, "Charity begins at home" We never were paid back, with exception of one country, for WWI debt, and then came WWII and again we put money and lives out to help. With every crisis the USA sends MONEY and personnel to help, WHO HELPS US?? Woodrow Wilson was not the best President but he saw being part of the "League of Nations" was not the right thing to do, now we need someone to say to the United Nations, get out of USA, and stop funding this Marxist organization, this goes for the World Bank, other countries will soon realize that they should be responsible for them selves and not depend on the rest of the world to bail them out of their mistakes. Same goes at home, make people responsible for themselves and work not sit home with a hand out.

      • Joseph McKennan says:

        What amazes me is that the United States is the most charitable nation on earth and I keep hearing that most of the world hates us. We have never turned our back on a friend but I see many nations around the world waiting to see if we falter. I believe they would pounce with no mercy and NO one would help us. France is one of the worst offenders. The only European country that I feel is an ally is Italy and the EU will put them straight if they step too far out of line. I guess the reason BHO won the Nobel prize is because our enemies saw an ally in him.
        I like your posts, Jeanne Stotler.

    11. Blair Franconia, NH says:

      We're all Greeks now.

    12. Charles Nystrom says:

      Without question, spending must be cut from this out-of-control governemt which is far to big for any one or any group to know. But First! There has to be a mindset to establish policies that will encourage job growth. Working people paying taxes solves a multitude of problems

    13. Damian Hockney says:

      …but there is of course a major difference between Greece and the USA – the USA has its own currency and Greece does not – and of course Greece is in the WRONG currency (in the same way that the UK was in the early 1990s when it was trapped in the old ERM). There has been a vast amount of diversionary propaganda from the EU attacking the Greeks on all fronts, but of course OECD stats make clear that the Greeks work the longest hours in Europe, and that these fabled early retirement ages are in fact just the same as those practiced elsewhere in the EU – witness the debate this morning about UK armed services possibly having to retire at 45 instead of 40, poor lambs, and the uproar that this is causing – "not fair". really? Tell that to the private sector that cannot even afford to retire at 65. And this is the UK not Greece. Greece is in the wrong currency and the sooner they get out the sooner things will look up. That is not really the case with the USA, which can (and does) practice canny devaluations when it wants.

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