South By North Strategies, Ltd.

In recent days, the idea that the United States has economic problems similar to those of Greece has gained traction in the mainstream media. The only problem with this comparison is that it is wrong.

Writes Marshall Auerback:

Let’s repeat this for the 100th time: the US government, the Japanese Government, and the UK government, among others, do NOT face a Greek style constraint — they can just credit bank accounts for interest and repayment in the same fashion as they would buy some helmets for the military or some pencils for a government school. True, individual American states do face a fiscal crisis (much like the EMU nations) as users of the dollar. That is why some 48 out of 50 now face fiscal crises (a problem that could easily be alleviated were the US Federal Government to undertake a comprehensive system of revenue sharing on a per capita basis with the various individual states). But, if any “lesson” is to be learned from Greece, Ireland, or any other euro zone nation, it is not the one that Mr. [Meryn] King [of the Bank of England] is seeking to impart. Rather, the lesson is the futility of imposing arbitrary limits on fiscal policy devoid of economic context. Unfortunately, few are recognizing the latter point. The prevailing “lesson” being drawn from the Greek experience, therefore, will almost certainly lead the US and the UK to the same miserable economic outcome, along with higher deficits in the process. As they say in Europe, “Finanzkapital uber alles”.

Adds Free Exchange:

Do you see how these situations are different? Greece needs to make massive, immediate budget cuts all without plunging its economy into a recession so deep that the cuts generate a larger deficit as revenues tumble. It’s quite possible that there is no way to make this happen without massive external assistance. America, by contrast, simply needs to slow the rate of growth of government spending. That’s it. An increase in revenues would help, too, but what we’re basically talking about is slowing spending growth by enough that economic growth can generate the revenues to fund the government’s budget.

Explains Paul Krugman:

In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.
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That said, we do have a long-run budget problem. But what’s the root of that problem? “We demand more than we’re willing to pay for,” is the usual line. Yet that line is deeply misleading.
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Meanwhile, when you look under the hood of those troubling long-run budget projections, you discover that they’re not driven by some generalized problem of overspending. Instead, they largely reflect just one thing: the assumption that health care costs will rise in the future as they have in the past…..
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So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.