In a post at The New York Times, Jared Bernstein argues that the United States is not, in fact, "spending like a drunken sailor," noting that federal spending has fallen to $3.45 trillion a year, down from $3.91 trillion in 2009, when adjusted for inflation and population growth. He then concludes that this means that the U.S. will not be "doomed to Grecian levels of insolvency."
Kudos to Bernstein for underscoring that the U.S. is actually cutting the deficit, a point that is consistently lost in the debate over the size of government. But in so doing, he unintentionally bolsters the fallacy that the U.S. could ever become Greece in the first place.
Republicans and Tea Party politicians are particularly fond of this comparison, claiming that President Obama's alleged runaway spending could result in the kinds of soaring borrowing costs that forced Greece to enact crippling austerity measures.
Sarah Palin once said that Obama has pushed the U.S. into "Greek-style debt." In the run-up to the 2012 election, Mitt Romney warned that the U.S. is "on track to face a debt crisis like Greece." Michael Tanner of the Cato Institute used the bogeyman of Greece to call for entitlement reform, saying, "Unless the United States learns from the failure of Europe's welfare state and acts now to reduce spending, reform entitlements, and reduce the growing burden of government, we will eventually find ourselves in the same situation as Greece." Rachel Alexander in the Tea Party Tribune was blunter, declaring, "We're the Next Greece."
But none of this makes sense, and betrays a fundamental misunderstanding of how debt markets work. The issue goes far beyond a comparison between levels of Greek and American debt as a proportion of GDP. Greece's borrowing situation is totally different from that of the U.S., because Greece's economic system is totally different.
Greece does not have its own currency. Its currency — the euro — is controlled externally by the European Central Bank. This means that Greece's government can run out of money, unlike the U.S., which can "print" as many greenbacks as it wants. The possibility of running out of money can spook money lenders, and is a huge drawback for countries bound into currency unions.
This means that countries in the eurozone like Greece, Spain, Italy, Portugal, and Ireland are much, much more vulnerable to interest rate spikes. Evidence shows that the countries that experienced the highest interest rates in recent years weren't the ones with the most debt. They were the ones in the euro zone that could (and, in Greece's case, did) run out of money.
Furthermore, the U.S. is not just a country with its own currency. It is the issuer of the world's reserve currency, which is in global demand as the main medium of exchange to buy energy and resources. U.S. government debt securities are are the world's savings vehicle of choice. And the U.S. plays a unique role in global economic and trade security, with more than 900 bases overseas, troops deployed in more than 130 countries, and hundreds of ships helping keep global shipping lanes open.
These facts basically mean that the U.S. government can borrow as much money as it wants to invest in infrastructure, education, and basic research for the foreseeable future. The economists Carmen Reinhart and Kenneth Rogoff famously claimed that government debt above 90 percent of GDP was injurious to growth, but that claim has now been just as famously debunked. Previous world-leading superpowers have sustained far higher debt loads than 90 percent — the British Empire, for example, in the early 19th century racked up and paid down a national debt of above 250 percent of GDP.
The United States continues to benefit from being a global superpower, and one of those privileges is access to the credit needed to become the first nation to land on the moon, to win World War II and the Cold War, to build the world's fastest broadband network, or develop energy independence. Those who say that the United States is in danger of becoming the next Greece have forgotten what being America means.
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