Nov. 5, 2011 – 12:29 p.m.
Political Economy: It’s Greek to Us
By John Cranford, CQ Columnist
As Greece burns, threatening to ignite a financial conflagration across Europe, many Americans respond in one of two ways. We either smirk and dismiss the problem as the consequences of a socialist society and a lazy populace that is over-reliant on government to do for them. Or we shrug and say, what they’re going through can’t possibly have anything to do with the United States. (And, by the way, will this crisis interfere with my Mediterranean vacation?)
Both responses — not surprisingly — ignore a few fundamental realities. To begin with, Greece’s fiscal woes are not all that different from those affecting most developed countries, the United States among them. Greece’s situation is just much more acute. Moreover, that nation’s response hasn’t been particularly comforting to the rest of the world.
But public demands for government services in the United States among all demographic and even ideological groups are growing, not abating. And the use of credit as a tool for managing cash flow — by households, Main Street and Wall Street — is permanently entrenched, and it accounts for an enormous sum that dwarfs the federal government’s obligations.
Athens has little on Washington, except that Washington still has an acceptable FICO score. People will still lend to the United States, because they have to. Greece, not so much.
Nothing proves the point more clearly than the American public’s view of the deficit debate in Washington. How to find $1.2 trillion in budget savings may be the talk of Capitol Hill, but voters, frankly, don’t really care.
They will care, of course, when lawmakers finally offer prescriptions to produce those savings, and then it will probably turn out that people care quite a bit.
Pollsters tell us repeatedly that a majority of Americans worry most about the economy and jobs and that only a fairly small number ever mention the budget deficit at the top of their list of concerns. To an open-ended question about the country’s “most important problem” asked by CBS News in mid-October, 57 percent volunteered that the economy and jobs was their top issue. No. 2 was the budget deficit and the federal debt, at 5 percent.
Even in midsummer, at the height of the debt limit debate, when a potential government default was staring lawmakers in the face, a bare 31 percent told pollsters for Bloomberg News that the deficit, government spending or taxes was their chief concern. And 42 percent listed unemployment and jobs.
We’ve all seen the sadly humorous posters from tea party rallies that protested government efforts to “take away my Medicare,” but that sentiment also shows up in polling. A Kaiser Family Foundation survey in early September asked where the joint deficit committee ought to look for savings. Majorities were opposed to any savings at all from Social Security (58 percent) and Medicare (51 percent), and only a slim majority would accept even minor savings from Medicaid (52 percent). But that’s where the money is.
The public doesn’t want austerity. If Congress were to actually try to balance the books — at least given the current state of the economy — the outcry might rival the Grecian protests.
The Truth About Debts
Then there’s the matter of the federal debt itself. Accepting the notion that the government is on a path of long-term unsustainable borrowing is not the same thing as agreeing to eliminate the debt. Yet it feels necessary to remind the loudest advocates of fiscal constraint that debt is merely a 21st-century economic lubricant.
Political Economy: It’s Greek to Us
It is said that Greece is in trouble because it cannot repay its debts, but the reality is that nobody can. What happened is that Greece’s creditors concluded that the country’s economic, political and social conditions make it improbable that other lenders might take on a portion of the load.
That’s the unspoken truth about debts today. They aren’t ever repaid. They are merely rolled over, refinanced, passed from creditor to creditor. Americans don’t pay off their mortgages — except when they sell one house and buy another — effectively, if not technically, rolling the first debt into a loan on the new house. If you lease a new car every three years, you are just transferring one loan to another. Credit-card balances declined in the past few years — but Americans still owe almost $800 billion on their plastic, plus $1.7 trillion in auto and school loans. In fact, households owe more than the federal government. So do non-financial companies. Financial enterprises owe the most by far. Washington is, by comparison, a piker.
The federal government, too, rolls over its debt constantly, to the tune of tens of billions of dollars every week. It does so because it can, and only when the creditors balk — which they show no signs of doing — will the merry-go-round stop.
But it’s a big mistake to presume that the public wants to really change the course of fiscal policy now to prevent that future long-shot possibility. That, more than anything, explains why the deficit committee can’t seem to cut a deal.
In the end, probably, we’re all just a little bit Greek.