By Sen. Jim DeMint
Everyone knows that that Greece is a fiscal basket case, forced to adopt severe and unpopular austerity measures to stave off national bankruptcy. But not everyone seems to understand that today the United States is following that same Road to Serfdom, just a few steps behind the Greeks.
Look at how Greece got into this mess.
Greece adopted the Euro in 2001, but only after they first agreed to adopt economic reforms to get inflation and interest rates more in line with the rest of the Eurozone countries. The Greek government and Greek consumers immediately began borrowing huge sums of money, taking advantage of the suddenly lower interest rates offered to a full-fledged Euro economy.
Unfortunately, it soon came out that Greece had cooked its books to make those 2001 reforms look better than they actually were. The Greek government continued to borrow and spend reckless amounts of money to pay for a growing welfare state that was simultaneously suffocating its private economy.
That debt was of course unsustainable, but times were good so everyone looked the other way as artificially low interest rates temporarily protected Greece from the consequences.
So, unsustainable borrowing and spending were masked by dishonest government accounting and recklessly ignored during a debt-fueled economic bubble.
Sound familiar? It should. The same mistakes led America into our current economic malaise.
But as bad things are today, what awaits us further down Greece’s Road to Serfdom will make the last three years look like a Clemson tailgate.
Greece today is €366 billion in debt, with a €221 billion economy. To turn that ratio right-side-up, the Greek government is being forced to adopt drastic “austerity” measures to cut government spending and raise taxes.
Greece is slashing government spending on defense, social security (including raising the retirement age by four years), health care, and government salaries. They are in the process of selling off airports, highways, banks, real estate (including whole islands!), and closing or merging almost 2,000 public schools. The Greek government is also furloughing tens of thousands of public employees.
Now, you might say large scale spending cuts and government downsizing is necessary and potentially very beneficial. But what kind of economy are these former government services and employees being transitioned into?
A broken one, getting broker.
In addition to spending cuts, Greece is also being forced to raise its income tax, its value-added tax, excise taxes, and impose all new taxes on profitable businesses, homeowners, high-income earners, cars, yachts, swimming pools, and pretty much anything else you can think of.
Note that the Greek government is not being forced to do this by the Greek citizenry, but by its foreign creditors as a non-negotiable condition for its bailout money. Self-government is disappearing in the country where democracy was born.
Today, nearly half of America’s publicly held debt is owned by foreign nations like China, Russia and France.
What if the United States, with an economy nearly 50 times larger than Greece, suffered a similar crisis?
Would we be prepared to cut current Social Security benefits by 10 percent, and raise the retirement age by four years overnight? Or to pay higher taxes on everything from income to housing to the food we eat and the clothes we buy?
If the United States saw its GDP drop by 7 percent in a year, as Greece is expecting in 2011, that would mean the U.S. would lose almost one trillion dollars in a year. Do we really have an extra 19 million $50,000-a-year jobs lying around that we can afford to lose?
That is the future we’re looking at if we don’t change course. The long-term deficits for our entitlement programs are already north of $100 trillion. Yet rather than reforming those programs and averting the looming catastrophe, President Obama added another unsustainable entitlement, Obamacare, on top of the old ones.
Keep in mind that the only reason we call the debt crisis “looming” is because we don’t know precisely when it will strike. For Greece, crisis came when its debt reached 137% of its economy. For Ireland, it was 74%. For Portugal, it was 82%. Every country and every crisis is unique, but with the United States debt-to-GDP ratio at 102%, there is no question we are already well within the debt “red zone.”
If doing the same thing and expecting different results is insane, then doing what the Greeks did and expecting different results is suicidal.
There is still time to act. If changes are implemented now, we still have the flexibility to implement them gradually and not break promises to current and near-beneficiaries of entitlement programs. We will not always have this flexibility if we continue to sugar coat the needed medicine.
Two-hundred and thirty years ago, our Founding Fathers learned from the Greeks how to create a democracy. Today, our generation must do the same, and quickly, to learn how save one.
Sen. Jim DeMint is a Republican from South Carolina.