Three Lessons from Athens for Washington
Col Mike Walker, USMC (retired)
All
Lesson 1: A government can only run up so much debt.
At some unpredictable moment during a dramatic rise in the cost of borrowing, a government will hit a tipping point where it cannot borrow money will be forced in a helter-skelter fashion to live within its means.
As we are seening in Greece, that transition is painful and creates great hardship on those who rely on government spending.
Lesson 2: The combined efforts of the European Commission, European Central Bank and International Monetary Fund only managed to keep the Greek Government above water for five (5) years.
That was for a country with a population of about 11 million and a per capita GDP – below that of Mississippi, the poorest state in America. If the United States were in the same position as Greece is today, there is no earthly combination of financial institutions that could keep the U.S. Government above water for even a few weeks.
Like the ghosts’ warning in Dickens’ A Christmas Carol, unless we change our ways in America, what we are seeing in Greece is a harbinger for what we are likely to see in our future.
Lesson 3: The United States is NOT Greece.
Unlike Greece that embraced a large number of statist socialist forms of governance, the United States economy is not dominated by a central government. In Greece, government expenditures account for over 58% of the national GDP. In the United States, its is about 39% with just over 20% originating in Washington D.C. while State governments spend about 8% and local governments around 11%.
This is why America will fare far better than a Greece if and when a crash comes.
In Greece, as goes the government in Athens so goes the entire economy. In the United States, the private sector safeguards our economic strength.
Further, some state and many local government agencies are well run and on firm financial foundations. In tandem with the private sector, they serve as firewalls to contain the contagion of a collapse in Federal Government’s ability to borrow.
Nonetheless, for the millions dependent on Uncle Sam, the transition will be harsh.
How harsh?
Let us create a very (overly) simplistic model for demonstration purposes. In 2014, Washington spent about 14% more than it took in. An immediate 14% cut would be painful for all save those whose financial wellbeing is not tied to Federal expenditures.
A rapid 14% cut to Federal salaries and benefits would hurt tens of millions of Americans and while many would argue that a major cut to Government spending is needed for “bad” programs, it is equally true that many Federal programs to good and they would suffer as well. The economic disruption would massive but uneven and its duration unknown.
The wild card would be the number of people who lose their heads and panic. If that number is large, the damage will expand almost exponentially. If the large majority remains calm then the pain would remain for tens of millions but at a mitigated level.
The bottom line is that save a cowardly panic (especially on the part of those in Washington), the United States would re-emerge as an economic powerhouse, only with a diminished Federal Government.
Mike
