George Santayana famous quote about those who do not learn from history are condemned to repeat it, should be taken very seriously by our federal government and our economic situatiion. The economie disasters in Greece and Puerto Rico are analogous to looking in the mirror. Both have piled debt upon debt, have low labor participation rates, have unsustainable entitlement systems, governments that bestow favors and don’t trust markets, and an unwillingness to make tough but necessary decisions.
We should not be so myopic to think that the economic tragedies in those two countries can’t happen here. Greece and Puerto Rico should be viewed as canaries in our coal mine. Like them, we are damaging our economy by spending beyond our means, accumulating an unsustainable national debt– primarily as a result of entitlements–, maintaining a bloated bureaucracy, expanding corporate welfare, and ignoring a flawed tax system. Ours has become a government too big to succeed but not too big to fail.
According to a Peter Peterson Foundation analysis of CBO’s long term budget analysis, federal debt will easily reach and exceed 100% of GDP and could rise to 190% of GDP in a couple of decades. We are on an unsustainable path and most of our elected leaders, like those in Greece and Puerto Rico, show little interest in doing anything about it. CBO in 2013 issued the warning, “To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies”, but there is no evidence that Congress and the Administration have the courage to do anything about it. Candidates for a Profile in Courage award are nowhere to be found.
Economic growth is stagnant and so is productivity. Without much higher economic growth and spending restraint, there is little hope of avoiding a situation similar to Greece and Puerto Rico. The long-term level of federal spending has run between 18% and 20% of GDP. It is now above that and CBO doesn’t see it returning to those prior levels, which even if it did would still be too high. For our long-term economic health, a plan is needed to begin reducing the national debt to a level that is sustainable. Once that has been determined and a time frame for achieving it set, a realistic spending level—as a percentage of GDP– can be derived. Since government has an insatiable appetite for spending, higher and robust economic growth should be the means to satisfy it, not by raising taxes.
Problems don’t get easier when they are ignored and clearly our economic problem will get harder the longer it is ignored. While no one can be happy for the plight of Greece and Puerto Rico, they are providing us with an important lesson. The canary is whistling. Are we listening? Are we learning? Our greatest debt is to future generations and we are reneging on it.
This article appeared on the FuelFix website at http://fuelfix.com/blog/2015/07/20/greece-and-puerto-rico-looking-at-the-future/