Robert Samuelson enumerates what may possibly be the best thing about the Greek financial crisis:
The Welfare State’s Death Spiral
What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
The welfare state’s death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day — no one knows when — doubt governments’ ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.
Greece illustrates the bind. To gain loans from other European countries and the International Monetary Fund, it embraced budget austerity. Average pension benefits will be cut 11 percent; wages for government workers will be cut 14 percent; the basic rate for the value added tax will rise from 21 percent to 23 percent. These measures will plunge Greece into a deep recession. In 2009, unemployment was about 9 percent; some economists expect it to peak near 19 percent.
If only a few countries faced these problems, the solution would be easy. Unlucky countries would trim budgets and resume growth by exporting to healthier nations. But developed countries represent about half the world economy; most have overcommitted welfare states. They might defuse the dangers by gradually trimming future benefits in a way that reassured financial markets. In practice, they haven’t done that; indeed, President Obama’s health program expands benefits.
Another reform high on the list is removing the state from the marketplace in crucial sectors like health care, transportation and energy and allowing private investment. Economists say that the liberalization of trucking routes — where a trucking license can cost up to $90,000 — and the health care industry would help bring down prices in these areas, which are among the highest in Europe.
Say what? You don’t hear the NYT give that advice to the US – even when the Obama administration is going down the Greek road:
Yes, a lot of “raise taxes” stuff in there too, but that’s because Greece has gotten so far down the road of guaranteeing a bunch of pricey while avoiding raising the tax rates, preferring to borrow and spend, so that the public is never alerted to the true costs of these programs until it’s too late, and the country must accept higher tax rates or go bankrupt.
Sound familiar? Seems to me there’s a very cool cat with nice pecs at 1600 Pennsylvania Avenue who has a similar agenda. Hide the costs of your programs in order to get them passed, and then, when it’s politically impossible to restrain those costs, tell the country you are sadly forced to raise taxes due to circumstances beyond your control.
As Jeff Goldstein points out,
The selfish gamble implicit in the welfare state is that, though most people know on some level that spending in excess of revenue isn’t a very fiscally responsible long-term plan on which to build a stable society, many are willing to bet that resources won’t run out in the short term — which means these types of voters believe they will still get theirs so long as they continue to “vote in their own economic interests.”
Future generations? Not their problem.
In the meantime, don’t buy Greek bonds. Or California‘s.