America Will Be the Next Greece if Washington Doesn't Fix the Debt

Washington must wake up. If debt and deficits continue to grow at their current levels the American dream will devolve into a nightmare.

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By Brandon Greife, Thomas Jefferson Street blog

Every college student dreads the screech of the alarm clock. The high-pitched beep-beep-beep clangs around our heads, demanding that we get up and face the day. Many of us ignore its call. With our eyes still closed, we grope for the sleep button to put off reality for another 10 minutes. Eventually we must wake up, often rushed, sometimes frantic, in order to make up the time we traded for those wonderful few moments of sleep. Like college students, Washington has proven a little too trigger-happy with their snooze button. But our nation cannot sleep through its debt and deficit problem. It’s time to wake up and face the harsh reality of the day.

Greece should have been the alarm clock.

From 2000 to 2007 the Greek economy was one of the world’s strongest. In those seven years the economy grew at an annual 4.2 percent rate--one of the fastest in the Eurozone. Lurking below the sterling statistics were increasing public deficits, the result of the Panhellenic Socialist Movement’s (PASOK) strategy to equalize Greece’s economic classes. The government established the National Health System, drastically increased the size and scope of the public sector, and created a profligate pension system. The collapse of the global economy stripped away the veneer of a flourishing economy. Now, despite having received a bailout from the European Union and International Monetary Fund, the country is flirting with default.

America faces many of the same problems. Our nation’s healthcare costs continue to grow at unsustainable levels. In July 2009 the CBO wrote:

[R]educing overall government spending relative to what would occur under current fiscal policy would require fundamental changes in the trajectory of health spending. Slowing the growth of outlays for Medicare and Medicaid is the central long-term challenge for federal fiscal policy.

Unfortunately, the recently enacted healthcare bill makes this problem worse. Following passage of the bill, Douglas Elmendorf, director of the CBO, said that “the health legislation enacted earlier this year does not substantially diminish [the] pressure [of health spending]. “

[ Check out our editorial cartoons on healthcare.]

We mirror Greece in other ways as well. Our public sector is growing beyond the private sector’s ability to fund it. Since the recession began in 2007, the federal government has added almost 9,000 jobs a month and the federal payroll increased by 10.5 percent. Since 2008, average spending by federal agencies has risen by more than 50 percent. Pensions for the 22.5 million-strong public sector are also putting an enormous weight around the neck of our nation. On average the public sector receives $13.65 worth of benefits per each hour they worked compared to $8.02 dollars for private sector workers. Moreover, four in five public sector workers have lifetime pensions, compared to only in five in the private sector. It is little wonder then that the average pension plan is 35 percent underfunded.

The Greek alarm clock has been blaring incessantly but America keeps hitting snooze. Democrats signed a $787 billion stimulus package leading to record year-end deficits. Beep! The president then announced a “fiscal responsibility summit” that turned out to be nothing more than a PR move. Snooze. Democrats propose a healthcare package, which the CBO and Center for Medicare and Medicaid Services now agree will raise healthcare costs. Beep! Obama announces a deficit panel to discuss the debt issue and come up with recommendations. Snooze. The White House pushed for a $50 billion package of state-based aid and a $140 billion “tax extenders” bill to extend unemployment benefits and pay for the Medicare “doc fix.” Beep! To deflect criticism, Obama proposed a modified line-item veto to remove individual items from spending bills. Snooze.

It’s time to quit hitting the snooze button and wake up to our fiscal reality. For too long our government has been happily drifting through a wonderful dream. A utopia where the government can spend its way through any problem and cost is no object. Unfortunately, we’ve got to wake up sometime. It had better be soon. Moody’s Investors Service, one of the leading credit-rating agencies, warns that the United States’ credit rating faces a downgrade if 18 to 20 percent of federal revenue is being spent to pay interest on our debt. Under the budget presented earlier this year by President Obama, interest payments would exceed the 18 percent threshold as soon as 2018. Eight short years.

Washington must wake up. If debt and deficits continue to grow at their current levels the American dream will soon devolve into a nightmare.