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Politics Foreign Affairs Culture Fellows Program

US is, and isn’t, like Greece

Judge Posner: The economic situations of the United States and Greece are more alike than one might think. In both countries, the government is insolvent, in the sense that its taxing power, constrained by politics, is insufficient to finance the government’s liabilities, which include not only bonds but also entitlements (such as social security and […]

Judge Posner:

The economic situations of the United States and Greece are more alike than one might think. In both countries, the government is insolvent, in the sense that its taxing power, constrained by politics, is insufficient to finance the government’s liabilities, which include not only bonds but also entitlements (such as social security and medicare) and essential public services (such as defense). (See my post, “Is the Federal Government Broke?,” Aug. 29, 2010, regarding our government’s insolvency under standard principles of bankruptcy.) In both countries, government is cutting spending when (from an economic standpoint) it should be increasing it, to take up the slack in private investment and stimulate employment and in turn consumer spending (which drives business spending, which increases the demand for labor). In both countries a major cause of the current economic problems was cheap interest rates that encouraged the governments to finance public services by borrowing rather than taxing—taxing would have generated opposition to the extravagant level of those services. And in both countries another major cause of the current problems was the opacity of key financial data, a result in part of regulatory laxity and in part of the complexity and scale of modern financial instruments and operations. And finally, both countries have dysfunctional governments, made more so by the depression triggered by the financial collapse of September 2008.

The differences? Posner says that the US can still borrow at cheap rates, while Greece cannot. On the other hand, there’s so much waste in the Greek government that it can cut a lot of the fat without harming essential services. Not so in the US, where we’re going to have to cut entitlements if we want to save ourselves. Posner concludes:

So, for neither country, is a solution for insolvency in sight. Fortunately, because the future is unforeseeable, despair would be premature.

Don’t kill yourself yet! Something might turn up!

(H/T: Andy Crouch)

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