Americans should look on the economic crisis unfolding in Greece and the European Union with horror. As Greece slips further into chaos as a result of its profligate spending, we need to confront the fact that we share some of that nation’s underlying problems.
Because of its credit-card spending on social programs and public sector salaries, Greece made promises to future generations that they refused to pay for through taxation, choosing instead to finance the government by borrowing. Greece’s debt is 115 percent of its gross domestic product. In other words, the total income of everyone in Greece’s economy is exceeded by the amount of money that they owe.
America is not in that bad of a position—yet. But we are nearing a crisis point. Consider: America’s GDP is $14.6 trillion. With a national debt that has now passed $12.8 trillion, our debt-to-GDP ratio has reached a fearsome 87 percent. At a ratio of 90 percent or higher, economists Ken Rogoff and Carmen Reinhart have shown that economic growth stagnates. That means fewer jobs will be created, fewer paychecks will be earned, and less prosperity to go around.
Things aren’t going to get better any time soon, as the money that we spend on baby boomer entitlements continues to rise. When it was first enacted in 1965, Medicare was projected to cost only $9 billion by 1990; in reality, it wound up costing $66 billion by that date. Growth isn’t slowing, either: by 2020, Medicare is projected to cost more than a trillion dollars to fund each year.
You can expect something similar to happen with the new health care bill that will make millions more people in America reliant upon Uncle Sam for the cost of their health care coverage. Douglas Holtz-Eakin, the former director of the Congressional Budget Office, estimated that the health care bill will increase budget deficits by $562 billion over the next 10 years. As we’ve seen in Greece, entitlement debt is the worst kind of debt: Once people get used to receiving something from the government, they begin to feel, well, entitled to it. Cutting spending on entitlement programs requires acts of courage rarely seen in Congress.
Defeat the Debt billboards posted in New York City’s Times Square, the Crossroads of the World.
Who is going to end up paying for all this largesse? Your children and your children’s children, who will spend their lives paying down the debt we rack up today. Of course, we’ll be paying for it as well since borrowing more means higher taxes and interest rates on consumer debt.
We are now accumulating over $2 million in debt every minute of every day. In 2009, we paid $187 billion in interest alone on the debt. If you think that’s bad—and really, who doesn’t—hold on to your hat: By 2020 we’ll be paying $916 billion a year in interest because of the borrowing to pay for these new entitlements. Paying for all of this will require more than cosmetic cuts to the budget. Eliminating earmarks and pork-barrel spending won’t put much of a dent in this mountain of debt.
Instead, it’s going to take some serious austerity on the part of the American people. This brings us back to the Greeks: faced with the chance of national default, what did they do?
They took to the streets. Government employees were demanding that their pay not be cut, that services not be suspended, and for the status quo to continue.
Will things be much different in America if we continue upon the path we are traveling?
Michael Saltsman is Research Fellow at the Employment Policies Institute (EPI), a nonprofit research group studying public policy issues that affect the U.S. economy. One of the EPI’s projects is Defeat the Debt, a program dedicated to educating Americans about the size, scope and consequences of America’s rapidly escalating debt.