“I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.”
President Obama probably regrets praising Greek exceptionalism.
Greece’s GDP shrunk 6.8% in 2011. Their unemployment rate stands just below 21%. Bondholders took a 70% loss on their holdings with the debt swap deal that was agreed upon last week. A transitional government now rules the country, which was formerly touted as the birthplace of democracy.
This did not come from nowhere. A quarter of their citizens pay no taxes whatsoever. Government spending on social protection and public services accounts for 61.6% of all expenditures. They engaged for years in irresponsible spending with no regard for the future consequences. Sound familiar?
The result of this behavior is that Greek citizens are so accustomed to their handouts that basic and necessary austerity measures, such as a 22% cut in the minimum wage that occurred earlier this year, are being met with violent protests.
Greece created its own destruction. They created a society of entitlement that values equal outcome rather than equal opportunity. Almost 12% of GDP is the government paying pensions. Unemployment benefits last for an entire year. These benefits help to make everyone equal (equally unemployed), but have resulted in growth halting tax rates. The government takes 16% of every individual’s paycheck to spend on social security, and employers have to contribute another 28% of the individual’s salary. These policies have shrunk income inequality by making everyone worse off and destroying a once great nation.
This entitled attitude pervades their culture and has made reforming the broken economy and government next to impossible. No one wants to lose their benefits. Greek citizens, instead of recognizing that the austerity measures will prevent a default and allow their economy to actually grow once again, have taken to the streets in protest. They argue that spending cuts during a recession will only make the situation worse. This is completely ignoring the fact that it was the lack of spending cuts that got them into the situation in the first place. There is no way around cutting them, if Greece is to stay afloat.
Unfortunately, the US, with our lack of entitlement and tax reform, could face a similar future. The amount of Americans dependent on government services has increased 23% under President Obama. Medicare, Medicaid, and Social Security are bankrupting us. This comes at a time when only 49.5% of Americans are paying federal income tax. These are the exact same problems that plagued Greece and have been their downfall.
Calls for using social programs to decrease the wage gap and shrink income inequality here, if heeded, will have the same results as it did across the ocean. The problem is not in the goal (who wouldn’t like less income inequality?) but how it is achieved. “When you spread the wealth around,” as the President would say, is not the way to do this. Taking money from the higher earning part of society and giving it to the lower income levels in the form of entitlement benefits (welfare, social security, etc.) is a disincentive to work, which has a negative impact on GDP. This idea has been ruining the American work ethic and bloating our debt. Instead, the gap can be closed by allowing for, and encouraging, greater economic opportunities and mobility with policies such as lowering taxes, slashing regulations, and improving public education through better teacher quality. Less wishful thinking and more personal responsibility for one’s economic situation will prevent us from becoming the next failed welfare state.
Everyone will keep watching as the ultimate Greek tragedy continues to play out on the world stage. The ending is still uncertain. Their government will receive an additional bailout package from the EU and IMF in exchange for the debt swap deal, but this does not mean their problems are anywhere near over. A default, or even an exit from the Eurozone, is still possible. It is also still unclear if they will be able to make the cuts needed to encourage growth. Without reforms, which they have been slow in implementing, when they are passed at all, Greece will fail. We cannot afford to watch idly as this plays out. The United States must look to Greece not as an exceptional nation, but as a warning. Otherwise, we might be next on stage.