What we’ve seen recently is a perfect example of how NOT to run a country, or an economy.
First, the country gets access to cheap money and goes on a borrowing spree.
Second, with all that cheap money the government dramatically ratchets up spending, whether the “investments” are worth it or not, in a desperate attempt to prove that massive government spending will boost economic growth.
Third, as part of that spending spree the government expands big entitlement programs and pensions.
Fourth, efforts to cut government spending and embrace fiscal responsibility are denounced as “austerity” that hurts people and so must be resisted.
Fifth, the government lies about how much it really owes because if investors, markets and lenders—not to mention citizens—knew they might start withdrawing their money, which would exacerbate the financial problems.
And, sixth, the government proposes raising taxes on the rich as the only real and “fair” solution—although that action almost always leads to capital flight and less government revenue.
What’s that? You think this is another examination of the Greek financial crisis? Or Puerto Rico?
Not at all. This is a discussion of what the U.S. has been doing for years, but especially the last six years.
Greece got cheap money when it joined the Euro; the U.S. got cheap money when the Federal Reserve Bank decided under George W. Bush to lower rates to near zero—and keep them there for years.
Greece used its money to grow government and increase pensions. Washington went on a spending spree, starting with Bush but especially beginning in 2009 with President Obama’s stimulus package and later Obamacare. Artificially low interest rates have made the borrowing politically sustainable. But those rates will end some day and the government’s balance sheet will explode.
When the Greek prime minister proposed cutting government workers and spending in 2009, he got hooted down. When U.S. conservatives try to cut spending, Obama blasts them for trying to ruin the economy, as he did when Republicans tried to abide by the sequester spending limits. He even referred to it as “austerity.”
Greece deceived EU officials about how much it owed. And even as total U.S. federal debt (the total amount of money owed) continues to rise, Obama points to the shrinking deficit (the difference between annual revenue and spending).
And, of course, we know Obama’s solution to every problem is to raise taxes on the rich—ditto Greek Prime Minister Alexis Tsipras.
So if the U.S. situation sounds a lot like Greece, that’s because it is.