Why the Greek Crisis is Not America's Future

If there’s a major debt-driven crisis in the U.S. within the next decade it’s going to look very different than the one now unfolding in Greece.

In a recent FrumForum piece, Napoleon Linardatos argued that the crisis in Greece could happen in the United States as well.  I’ll give him this: the United States could one day face a crisis very much like that Greece is facing now. But if there’s a major debt-driven crisis in the U.S. within the next decade it’s going to look very different than the one now unfolding in Greece. Indeed, Linardatos notes himself that: “American governing majorities seem very eager to follow the European path while ignoring the consequences of such a choice.” So far, America hasn’t yet gone very far down the Democratic-socialist path. For a similar crisis to erupt here, the United States would need to experience a serious decline in its economic power, build a “middle class” welfare state, and probably make some changes to the fundamental rules of government.

To start with, the economies of the U.S. and Greece just aren’t comparable and never have been. Greece, up until the end of its civil war in 1949, was basically an economic basket case with enormous untapped potential. The combination of Marshall Plan loans and its intrinsic attractiveness as a tourist destination (great islands, good weather, and history that everyone learns in school) helped the Greek economy take off.  But, Greeks never figured out how to reinvest tourism profits into something else. Putting aside some monopolistic banks with strong political connections, the largest company in Greece, Hellenic Telecom, remains partly government owned.  After that, the largest companies in Greece are the local Coca-Cola bottler and a casino operator. Not a single Greek company ranks of the world’s 300 largest.  No Greek universities appear on any list of top research institutions I could locate. Aside from its EU membership, there’s little reason to invest in Greece unless you’re interested in developing tourism. The U.S., by sheer population mass and spending power alone, is a much better place to invest. For a Greek-style crisis to happen in the United States, the country would have to cede its economic leadership in virtually everything. Higher taxes, higher debt, and greater restrictions on economic freedom could do that. For now at least, America’s overall tax burden remains lower and its economy freer than most of the rest of the world.

As Linardatos points out, many Greeks of his generation saw the best future in government jobs. This happened because Greece, like most of the rest of Europe, developed a welfare state for the middle class. People who didn’t strictly need help from government got it anyway and thus became natural supporters of a larger state and plusher government benefits. The major existing middle class “welfare” programs in the U.S.—Social Security and Medicare—are both older than Greece’s constitution, available only to limited numbers of people, and require significant payments from people who take part in them. This makes them seem a lot less like welfare. A typical middle class family in the United States gets almost nothing for free from the federal government. Some things, such as the existing COBRA subsidy for health insurance and, to a lesser extent, subsidies in Obamacare may change this. And, if it turns out that Americans like these plusher benefits, the demand for more “free” stuff from the government may increase. This, could, in time, lead to a Greek-like situation. But, if that happens, it will take the better part of a generation.

Most importantly, however, the U.S. government system is a lot different from Greece’s. Greece’s oddball constitution allows an almost pure “tyranny of the plurality.” Parliament can even amend most parts of the constitution itself by a simple majority and the party getting the most votes is almost guaranteed that majority. The government can’t fall over a single bill the way it can in a Westminster-style parliament and the coalition/co-habitation agreements common in Germany and France have rarely been necessary. Anybody who controls the levers of power in Greece can hand out an almost limitless number of goodies. Even though they’ve accomplished a good deal—major healthcare and student loan reform—it is almost certain that the Democratic supermajorities in both houses of Congress won’t deliver key left-wing priorities like card check and massive new energy taxes. Much as some American elites may want a European-style welfare state, the current system makes it very hard for them to build one. (And a free-market New Zealand/Hong Kong style reform plan is just as unlikely.)

The United States could, one day, turn into Greece. But, even if a debt-driven crisis does erupt soon, it’s going to be a lot different than the one currently afflicting the Hellenic Republic.