Greece, as anybody who has read the newspaper, checked the internet, or watched television in the past few days has likely noted, faces a severe financial crisis. An EU wide bailout package, at best, will stabilize things temporarily. Greece will have to raise taxes and cut services. As a result, it’s become a popular meme, particularly on the right, to say that the United States will turn into Greece if current patterns continue. This simply won’t happen. Another major financial crisis for the United States is quite possible but, if a such a crisis does erupt, it’s not likely to look much like the one in Greece for at least five reasons:
1. The U.S. has much stronger economic fundamentals than Greece.
The United States’ economy has plenty of weaknesses—debt, labor costs, so-so primary and secondary education—but also plenty of strengths. The United States has almost always come in first or second in the World Economic Forum’s Global Competitiveness rankings (second in 2010, first in 2009), has the highest GDP per capita adjusted for purchasing power parity of any large economy, has the most productive overall workforce, defines the world’s culture, and leads in nearly every field of scientific discovery. Greece, on the other hand, came in at number 71 in the most recent World Economic Forum Rankings behind countries like Egypt, Columbia, and Botswana.
2. Americans work harder than almost everyone.
Americans work longer weeks and, even though work force participation rates have declined during the recession, still go to work at higher rates than their peers in almost all other well-off countries. Greeks were near the bottom by both measures. As a result, America can afford much more debt than Greece.
3. At least for now, America doesn’t have nearly as much debt as Greece and, countries with similar amounts of debt don’t necessarily collapse.
The United States Public Debt, the kind of debt that taxpayers really pay net interest on, is at a worrisome 67 percent of GDP and, if current projections hold (which they probably won’t) is only expected to hit about 75 percent in the next few years. Greece ran into trouble and saw credit downgrades when debt hit 125 percent of GDP. Even if the United States did run up a public debt like this—and that’s certainly within the realm of possibility—it won’t necessarily mean an immediate call for Greek-style austerity measures or a need for a rescue package. Japan, which, like the United States has many fundamental economic strengths, has a public-debt-to-GDP ratio approaching 200 percent and, although mired in a two-decade long stagnation, has seen little in the way of massive austerity (although that might have helped things) or civil unrest. Canada’s Debt-GDP ratio, in the early 1990s, also flirted with Greek-type levels and that country didn’t collapse either. Italy, as of mid-2009 (the last period for which there are comparable numbers) actually had more per-capita debt than Greece and still hasn’t faced a major crisis as a result. Debt levels like this lead to all sorts of problems. But they don’t necessarily lead to massive unrest or even permanent crisis. Similar debt crises in all of these countries would likely precede one in the United States and, quite possibly, lead to public consensus on measures to pull the country back from the brink.
4. The Fed can print money. (Although that isn’t necessarily a good thing.)
The United States economy isn’t at the mercy of outside forces. The European Central Bank isn’t going to further relax Europe’s already loose policy in order to help Greece alone. Although long-term interest rates near zero leave the U.S. with a paucity of tools, the Federal Reserve Board has at least some monetary tools it could use to try to ease a crisis. This could well result in very significant 1970s-style inflation that the European Union has so far avoided. While it might delay a crisis, indeed, this could make the ultimate collapse even worse than the one in Greece.
5. The U.S. government has more legitimacy
Greece has a continuous tradition of democratic rule that dates back only to 1974. Greeks over fifty have clear memories of press censorship, military coups, and the like. Although Greece holds free elections and has a free press, the current system isn’t very representational. The current Greek Government of Prime Minister George Papandréou received only 43 percent of the vote but has an absolute majority of seats in parliament and thus, can pass any law. The current electoral law, furthermore, almost guarantees a majority to the party that gets a mere plurality of the vote. Until last year, furthermore, laws weren’t even published online before they actually took effect. Although votes of “no confidence” could bring down the government, no prime minister has actually been brought down by one since the current constitution went into effect. A typical Greek thus has many more reasons to hit the streets than a typical American.
An economic crisis in the United States certainly isn’t out of the question. Debt could play a role in sparking it. Civil unrest is possible. But if an economic crisis comes, it won’t look much like the one in Greece.