Could U.S. Find Itself In A Greek Situation?
NEAL CONAN, host:
News of Europe's massive bailout to prop up the Greek economy may have helped boost stock markets around the world this week. But as deficits ballooned here at home, many wondered how long it's going to be before we find ourselves in the same leaky boat. New York Times columnist David Leonhardt says there are important differences, but like the Greeks, our government spends more than it takes in. Like the Greeks, Americans enjoy ever more generous government benefits, and nobody seems to be ready for the hard choices of less spending and higher taxes.
So how about you? What are you willing to pay more for, or willing to give up, to avoid a Greek-like crisis here in the U.S.? 800-989-8255, email us: firstname.lastname@example.org. David Leonhardt joins us now from the studios at the Christian Science Monitor here in Washington. You can find his front-page column from today's New York Times through our link at our website, npr.org, click on TALK OF THE NATION. Nice to have you with us.
Mr. DAVID LEONHARDT (Columnist, The New York Times): Thanks for having me.
CONAN: And you say that, for any number of reasons, the United States is unlikely to face the same crisis as Greece. But nevertheless, the trend is pretty scary.
Mr. LEONHARDT: That's right. So the reasons we're unlikely to face a Greek-like crisis, we can probably put into two different categories. One, our fiscal situation is not as bad as theirs, according to most testaments. There are some people who think it is, but I don't think it's as bad as theirs. And the second is that we have strengths, political and economic strengths. We control our monetary policy. We have a currency that a lot of people want to hold.
But having said all that, there really are parallels here. And the fundamental problem is the same, even if the degree of it is not. And that problem is that we essentially have created a government that we're not paying for. And we like to talk about the idea of, oh, well, if only we can get rid of waste, fraud and abuse...
Mr. LEONHARDT: ...of these terrible politicians and all the stuff. But the reality is, that's not the main problem. And the main problem isn't the war in Iraq, as expensive as it's been. It's not the stimulus program, as much money as that has caused. It's this long-term disconnect between the fact that, on the one hand, we like Medicare, we like social security, we like having a strong military, and on the other, we don't like paying the taxes to support all those benefits we want.
CONAN: Interesting article in USA Today, today, which reported that the tax rate last year, the end of last year, was the lowest since 1950.
Mr. LEONHARDT: That's right. The main reason for that is during a recession, tax collections go down because people's income goes down, and also the government put in some one-time tax breaks. But it's also a reflection of the fact that, essentially, every economic group has had their taxes cut over the last 30 years. The very rich have gotten the biggest tax cut in terms of tax rates. But really, everyone has gotten some kind of tax cut. And so that's why revenues are such a low percentage of GDP, combined with the recession. And the kind of government we have is not shrinking, by any means, it's growing.
CONAN: Your colleague at The New York Times, Paul Krugman, wrote a blog since your column came out today. Does he throw that into arguments - by the way, does he ever - Pulitzer Prize winner, excuse me, Nobel Prize-winning economist...
Mr. LEONHARDT: Nobel Prize winner.
CONAN: Nobel Prize-winning...
Mr. LEONHARDT: Even better.
CONAN: Did he throw that - every once in a while, settle the arguments he...
Mr. LEONHARDT: I mean he's based in Princeton most of the time.
CONAN: So you don't run into him much.
Mr. LEONHARDT: He's still a professor. I see him occasionally, but actually more not at the Times than at the Times.
CONAN: But anyway, he questions your calculation of how far the U.S. debt will - you say Greece's debt is about 115 percent of its gross domestic product today, that you projected that to equal, of U.S. debt, to equal 140 percent of gross domestic product within two decades. And he says, well, that's based on a lot of faulty and very pessimistic projections.
Mr. LEONHARDT: Yes. Although in the end, I think we actually agree - he may not agree we agree - but he basically said that he takes issue with the notion that we are similar to Greece. And so, to some extent, that is a matter of semantics. I agree, things aren't as bad in this country as they are in Greece. But I still think they're quite serious. And I apologize, my memory's off here. I think it's the very last sentence of that blog post, Paul says that we would essentially need a fiscal adjustment equal to more than 6 percent...
CONAN: That's what he says, yeah.
Mr. LEONHARDT: ...GDP. Yeah. That's a really big deal. I mean, more than 6 percent of GDP is getting close to a trillion dollars in today's terms. Now, we don't need to make that adjustment immediately, but that's a really significant adjustment. So I'm happy to - for the sake of the debate - agree that an adjustment of 6 percent of GDP would solve many of our problems, and then we can move on to the issue of: How do we actually get there? And we can leave aside the question of: Does an adjustment of that size makes us Greece or not Greece?
CONAN: Well - and let's get some input from listeners on how we get there. The two options seem to be cut spending or raise taxes. What would you be willing to give up? What would you be willing to pay more for to avoid a Greece-like problem if it something along the lines of a trillion - and do we say a trillion dollars? A trillion dollars a year, or a trillion dollars over the course of how much - how many years?
Mr. LEONHARDT: Well, it's a year - although, again, it's not something we need to start doing immediately.
CONAN: All right.
Mr. LEONHARDT: The really serious deficit problems - there are really two deficits. There is the short-term deficit that's been created by a combination of the recession, mostly the Bush administration policies, which are basically big tax cuts, two wars and the Medicare prescription drug benefit. And then, third on the list in terms of size is the stimulus program, the Obama stimulus. And so that's the short-term deficit. That starts to shrink over the course of the decade. But sort of just on schedule, we then get the real problem, which is we start to get the long-term Medicare - and to a lesser extent, Social Security deficit - growing. And so that's why, over the long term, we need to look at this kind of fiscal adjustment, as that's in the neighborhood of something like 6 percent of GDP. And that is every year.
CONAN: And when you're talking about the Bush tax cuts, they are set to expire. There are going to be a lot of people arguing to keep them in force. You don't cut - you don't increase taxes effectively during a recession. But, anyway, that's another argument, and I guess that's part of the argument. Let's get Clint on the line. Clint's calling us from Moultrie in Georgia.
CLINT (Caller): Yeah, that's right. What I'd be willing to give up is black budget, like defense spending, you know? What seems to me - it seems like, you know, we're spending undisclosed amounts of money to fight, you know, a Cold War era-style war, you know, when - you know, the truth is is that we're no longer - you know, we're no longer in that kind of like conflict, you know?
CONAN: When you're talking about black budget, you mean the stuff that we don't know about that's buried in - somewhere...
CLINT: Exactly. Yeah. You know, the stuff that, like, that's undisclosed, like defense spending is what I'm talking about.
CONAN: Well, it's buried somewhere. I mean, we do know about it. We just don't know what we're voting for or what we vote for it.
CLINT: Yeah. Exactly.
CONAN: Yeah. Well, defense spending, whether black or overt, David Leonhardt, can you get a trillion dollars a year out of that?
Mr. LEONHARDT: You can't, but it's big. It's now in the neighborhood of 650 billion. One of the real problems with defense spending is that it has already been shrinking quite significantly as a share of GDP. We have - I don't remember the numbers exactly off the top of my head, but it's a few percentage point of GDP down from where it was. So if it's 650 now, that is in the neighborhood of four to 5 percent of GDP, and that is way down. And so it's way down from the Cold War and the Vietnam War era. And I think we would agree that we need some kind of military, right? And we probably want a pretty strong military, based on the seriousness of the threats that there are around the world. So...
CLINT: Yes, but an appropriate military.
Mr. LEONHARDT: An - yes. So could you cut a hundred billion dollars out of the military budget, which would - I mean, be really quite significant? I don't know, but I'm open to that idea. It doesn't get us anywhere close to solving the larger...
CONAN: That's 10 percent.
Mr. LEONHARDT: ...gap. Oh, yeah. Absolutely. No, no. I think it's an important potential part of the solution.
CONAN: It's - Clint, thanks very much for the call. Here's from Cameron(ph), an email: I could do without two wars, cheap gasoline and excessive profits for business. One year of our nation's net profits might cancel our nation's debt. It would hurt bad, but a deep depression would hurt worse. And that seems to be more a philosophical stance than exactly what he is willing to pay more for or do less with. Let's see if we can get - this is James, James with us from Flagstaff.
JAMES (Caller): Yes, I am.
CONAN: Go ahead, please.
JAMES: I'd be willing to pay more for taxes. I think - my wife and I are both in social services in Arizona, which is kind of a difficult situation in the state right now. And both of us had been laid off in the past year because of budget cuts in the state. And I think you -yeah. I would definitely be willing to pay more for taxes, even though, you know, our measly, little short salary doesn't give much to give up. But I think - I mean, people just lack perspective of personal responsibility in economic crisis.
JAMES: And they look out for their personal peace and affluence in times like this.
CONAN: Well, David Leonhardt will certainly agree with you on that last point. People lack that sense of personal responsibility for the budget. You say, essentially, in your column, the problem is us.
Mr. LEONHARDT: I do think the big part of the problem is us, and I think part of the problem is politicians, as well. But I think the big part of the problem is us. And one of the things that we've forgotten is the idea that we get something for our taxes. We get schools. We get the military. We get Medicare and Social Security. We get a lot of things that, when you look at polling data and you just use common sense, are tremendously popular. There just aren't a lot of people who want to give up Medicare. Right?
Mr. LEONHARDT: One of the big parts of the health care debate were a lot of people in this country who have universal health care saying that they don't want to give up any of it so that other people can have universal health care, right?
CONAN: That's right.
Mr. LEONHARDT: The over-65 crowd talking to the under-65 crowd. And so I think it's important to remember that, yes, sometimes government revenue is spent poorly. But there are also lots of times in which it's spent well. It's these popular programs. It's the fact that the private sector didn't build the Internet, the government did. The private sector then built a lot of wonderful companies that the government never could have built, but the Defense Department built the Internet. And the federal government built the highway system. And local schools that people say in polls they really like, those are government entities. And this incredibly successful biotechnology industry we have needed a huge amount of government funding to get off the ground.
And there is a long history of societies, as they get richer, deciding that they want more services provided by the government. They want more health care. They want more education. They want more military. They want more of a safety net. And so it's actually quite natural and quite in keeping with history that as a society becomes richer, the share of its revenue that it devotes to government goes up.
Our problem is that we want to have it both ways. We do want to increase the size of our economy that goes to government. We just don't want to increase the size of our economy that goes to paying for that government. And that can't last. We either have to do things like get rid of Medicare in its current form and get tax - and keep taxes low, or we have to increase taxes. My sense is we have to do both. We have to increase taxes and also find ways to reduce the growth of spending in the future.
CONAN: And you can read about those calculations in David Leonhardt's column at - it was published on the front page of The New York Times today. There's a link to it on our website, at npr.org. Click on TALK OF THE NATION. David Leonhardt, New York Times' economics columnist, thanks very much for being with us today.
Mr. LEONHARDT: Thanks for having me.
CONAN: You're listening to TALK OF THE NATION from NPR News.
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