Greece is in economic meltdown. Its economy has become so biased towards the public sector that it is now literally unsustainable. It cannot afford to pay its bills and will surely default soon, unless Germany can be persuaded to bail it out. Unfortunately for America, the principles that got Greece into this mess are the same ones that President Obama wants to use to supposedly get America back to work. If he has his way, we’ll head down the Greek road, with the added problem that there is no Germany waiting to bail us out.
Let’s see where Greece is today. It has a GDP of $310 billion, enough to place among the world’s top 25 economies. That’s where the good news ends. Greece has public debt of $470 billion, and spends about 50 percent of GDP on government, while raising only 39 percent in revenues. Over the past year, it lost 7 percent of GDP as a result.
The International Monetary Fund has told Greece it needs to significantly reduce its bloated public spending, but that it should not try to make up the gap with new taxes. Yet that’s exactly what the Greek government is trying to do. Rather than close or privatize loss-making public enterprises like the nationalized railroads, it has attempted to raise money by selling gaming licenses and increasing property taxes — measures the newspaper Ekathimerini described as “appalling.”
As the government attempts to shore up its collapsing public sector, the private sector has been paying the price. Every day in August, 1,000 Greeks lost private sector jobs. Meanwhile, the government has hired between 15,000 and 20,000 new public employees since 2010. Attempts to raise income taxes resulted in massive tax evasion, so the government has decided to levy a property tax paid via electricity bills. The electricity employees union has already said it won’t help collect this.
This is a Greek tragedy, but in a comic move worthy of Aristophanes, President Obama is following this particular Greek play. His American Jobs Act aims to shore up the public sector, paying for it by tax rises.
The President wants to keep public employees in jobs, particularly teachers, whose generous pay and benefits are causing problems for states and localities across the nation. He also wants to expand the number of public works projects via a national infrastructure bank, bringing the failed financial principles behind Fannie Mae and Freddie Mac to spending on high speed rail and green energy investments. Solyndra is just the beginning.
Obama says he wants to increase taxes on unpopular targets, like “millionaires and billionaires” and oil companies. If you don’t believe these people won’t employ enough accountants to find new loopholes, I’d like to sell you the Corinth Canal. As for electricity bills, the President has already said that he wants electricity bills to skyrocket, in order to close down coal-fired power plants.
None of this worked in Greece, and it won’t work here.
The right solution for America is the same as for Greece — end public sector obesity by putting the state on a revenue-controlled diet. In addition, reduce the burden of bureaucracy, ending uncertainty, and empowering the private sector to make the investment it needs to get the economy working again.
Greece’s prime asset is its history, which could be the basis of a thriving tourism industry. Instead, Greece invested in an unsustainable public sector and became famously rude to visitors. There’s a lesson for America in that.
Our prime asset is our innovative genius. Yet we have also invested in an unsustainable public sector and made the country less nurturing to innovative industry. We need to turn back before we go as far down as Greece already has.
As Virgil put it, beware of Greeks bearing gifts. He might have added, especially when the gift is an economic plan.