Source :IHT:May 12 2010
It is easy to look at the protesters and the politicians in Greece —and at the other European countries with huge debts—and wonder why they don’t get it. They have been enjoying more generous government benefits than they can afford. No mass rally and no bailout fund will change that.
Only benefit cuts or tax increases can.
Yet in the back of everyone’s mind comes a nagging question: How different, really, is the United States, the world’s largest economy? The numbers on U.S. government debt are becoming frighteningly familiar.
The debt is projected to equal 140 percent of gross domestic product within two decades. Add the budget troubles of state governments, and the true shortfall grows even larger.
Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.
The United States will probably not face the same kind of crisis as Greece, for all sorts of reasons. But the basic problem is the same. Both countries have a bigger government than they are paying for. And politicians, spendthrift as some may be, are not the main source of the problem.
The American people are.
Americans have not figured out the kind of government we want. We are in favor of Medicare, Social Security, good schools, wide highways, a strong military— and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and the United States.
Many people, including some who claim to be outraged by the deficit, still have not acknowledged the disconnect.
Consider the different fates of two parts of President Barack Obama’s agenda. Mr. Obama has unrealistically said that taxes do not need to rise on households making less than $250,000, and this position has come to be seen as an ironclad vow. He has also called for billions of dollars in sensible cuts in agribusiness subsidies, tax loopholes and the like. The news media and Congress have largely ignored those proposals.
The message seems clear: Woe unto the politician — in Washington, Athens or London—who tries to go beyond platitudes and show some actual fiscal restraint.
This situation obviously cannot continue, as Robert Greenstein, perhaps the leading liberal budget expert in the United States, points out.
‘‘Most of the public thinks, ‘If only the darn politicians could get their act together to cut waste, fraud and abuse, and to make tax avoidance go away and so on,’’’ said Mr. Greenstein, head of the Center on Budget and Policy Priorities.
‘‘But the bottom line is, there really is no avoiding the hard choices.’’ For Greece and possibly other European countries, change will come from the outside. The countries lending the money for the Greek bailout—chiefly Germany—are demanding big cuts in the welfare state. Greek citizens will soon have a harder time retiring in their 40s.
In the United States, we are likely to have the chance to solve our problems before our lenders demand it. Those lenders continue to see the American economy as a haven.
It is even possible that future growth will make the current deficit projections look too pessimistic. That sometimes happens when the economy is weak. After the recession in the early 1990s, for example, almost no one imagined that the budget would show a surplus by the end of the decade.
But the main issue is not the nearterm deficit — the one created by the recession, the wars in Iraq and Afghanistan, the tax cuts enacted under President George W. Bush and the Obama stimulus. The main issue is the longterm deficit.
As societies become richer, citizens tend to want better schools, better medical care and other government services. The United States is following that pattern, but without paying the necessary taxes. That combination has it on a course to Greece-like debt.
As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer it waits, the bigger the cuts will need to be (because of the accumulating interest costs).
Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs departments are less than $600 billion.
That is why fixing the budget through spending cuts alone, as congressional Republicans say they favor, would be so hard.
Democrats have more of a strategy —raising taxes on the rich and using health care changes to reduce the growth of Medicare spending—but it is not nearly sufficient.
What would be? A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.
Much of that may be unpleasant. But by no means will it doom the country to reduced living standards or even slow economic growth. Americans can still afford to spend more on Medicare than today, and more on education, the military and other areas, too. We just cannot afford the unrealistic promises that the government has made. We need to make choices.
‘‘It’s not a matter of whether we have the resources to solve our problems,’’ as Alan Krueger, the chief economist at the Treasury Department, said. ‘‘It’s a matter of political will.’’ For now at least, elected U.S. officials are hardly the only ones who lack that will.
Only benefit cuts or tax increases can.
Yet in the back of everyone’s mind comes a nagging question: How different, really, is the United States, the world’s largest economy? The numbers on U.S. government debt are becoming frighteningly familiar.
The debt is projected to equal 140 percent of gross domestic product within two decades. Add the budget troubles of state governments, and the true shortfall grows even larger.
Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.
The United States will probably not face the same kind of crisis as Greece, for all sorts of reasons. But the basic problem is the same. Both countries have a bigger government than they are paying for. And politicians, spendthrift as some may be, are not the main source of the problem.
The American people are.
Americans have not figured out the kind of government we want. We are in favor of Medicare, Social Security, good schools, wide highways, a strong military— and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and the United States.
Many people, including some who claim to be outraged by the deficit, still have not acknowledged the disconnect.
Consider the different fates of two parts of President Barack Obama’s agenda. Mr. Obama has unrealistically said that taxes do not need to rise on households making less than $250,000, and this position has come to be seen as an ironclad vow. He has also called for billions of dollars in sensible cuts in agribusiness subsidies, tax loopholes and the like. The news media and Congress have largely ignored those proposals.
The message seems clear: Woe unto the politician — in Washington, Athens or London—who tries to go beyond platitudes and show some actual fiscal restraint.
This situation obviously cannot continue, as Robert Greenstein, perhaps the leading liberal budget expert in the United States, points out.
‘‘Most of the public thinks, ‘If only the darn politicians could get their act together to cut waste, fraud and abuse, and to make tax avoidance go away and so on,’’’ said Mr. Greenstein, head of the Center on Budget and Policy Priorities.
‘‘But the bottom line is, there really is no avoiding the hard choices.’’ For Greece and possibly other European countries, change will come from the outside. The countries lending the money for the Greek bailout—chiefly Germany—are demanding big cuts in the welfare state. Greek citizens will soon have a harder time retiring in their 40s.
In the United States, we are likely to have the chance to solve our problems before our lenders demand it. Those lenders continue to see the American economy as a haven.
It is even possible that future growth will make the current deficit projections look too pessimistic. That sometimes happens when the economy is weak. After the recession in the early 1990s, for example, almost no one imagined that the budget would show a surplus by the end of the decade.
But the main issue is not the nearterm deficit — the one created by the recession, the wars in Iraq and Afghanistan, the tax cuts enacted under President George W. Bush and the Obama stimulus. The main issue is the longterm deficit.
As societies become richer, citizens tend to want better schools, better medical care and other government services. The United States is following that pattern, but without paying the necessary taxes. That combination has it on a course to Greece-like debt.
As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer it waits, the bigger the cuts will need to be (because of the accumulating interest costs).
Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs departments are less than $600 billion.
That is why fixing the budget through spending cuts alone, as congressional Republicans say they favor, would be so hard.
Democrats have more of a strategy —raising taxes on the rich and using health care changes to reduce the growth of Medicare spending—but it is not nearly sufficient.
What would be? A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.
Much of that may be unpleasant. But by no means will it doom the country to reduced living standards or even slow economic growth. Americans can still afford to spend more on Medicare than today, and more on education, the military and other areas, too. We just cannot afford the unrealistic promises that the government has made. We need to make choices.
‘‘It’s not a matter of whether we have the resources to solve our problems,’’ as Alan Krueger, the chief economist at the Treasury Department, said. ‘‘It’s a matter of political will.’’ For now at least, elected U.S. officials are hardly the only ones who lack that will.
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