The United States will probably not face the same kind of crisis as
Greece, but the basic problem is the same. Both countries have a bigger
government than they can pay for.
We blame the appalling regulations, the greed-driven insurers, banks,
lenders and waste. But such features are always present when the
economic system is twisted by ignorance of politicians who aspire to
replace market with huge government. They make us live in the world that
spends more than it takes in -- like in Greece.
Leading economist Paul Krugman had dismissed such a problem: "These
problems are 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." He stated:
"The key to our fiscal future is improving the efficiency of our health
care system."
GROSSLY INEFFICIENT
In short, Krugman agrees that the state economic sector is grossly
inefficient and that we may thus share Greece's tragic fate. But wait,
we can improve the efficiency of that sector!
Unfortunately, the millennia of human civilization have past, and yet,
no one was able to devise an efficient state economic sector.
But Krugman expresses the hope that in the future our health care will
be efficient and that capitalism will thus be proved false. When such
trust is expressed, it is similar in logical structure to the statement:
We trust that it will later turn out that 2 x 2 = 5 for this would be
of great advantage for our finances. As the Greeks discovered, such
mathematics was indeed used in government accounting but with little
help to their finances.
Paul Krugman is right that "we're not Greece." Greece doesn't have its
own currency, so it cannot print money. It can no longer borrow the
money. It cannot, thus, pay the bills -- they hit the wall. The debt is
so high that to rescue the economy and financial system from near-total
meltdown the EU and IMF created unprecedented financial bailouts. Greece
now faces decades of crushing poverty and zero economic growth. It can
survive but it cannot succeed.
Unlike the Greece, we can pay the bills. We have been flooded with easy
money: federal grants, loans, subsidies, stimuluses and bailouts. But
this is the money that the U.S. government doesn't have. As a result
Greece and the United States have budget deficits comparable as a
percentage of GDP.
Fortunately (according to Krugman) our government doesn't have to
balance the budget. It can print and borrow. It can devaluate the
currency. It can buy time and survive. These facts made Paul Krugman
very happy. He concluded that "we're not Greece" and stated, "We should
ignore those who pretend to be concerned with fiscal responsibility but
whose real goal is to dismantle the welfare state ...." Why doesn't he
get it?
Europe and the U.S. are managed by Keynesians. They see everything as a
liquidity problem. But we have a debt problem. And one cannot cure debt
with more debt unless the strongly growing economy makes its way out of
the debt. There could not be a strong economic growth with the grossly
inefficient, huge, state economic sector. We continue in the environment
that produced deflationary recession and high unemployment.
GOVERNMENT ECONOMIC SECTOR
What government economic sector does is takes money from good credit and
gives it to weak credit. It crowds out private capital that goes into
private enterprise (which is where good-paying jobs come from) and puts
it to unproductive uses in the government debt. We therefore live in an
age of money value depreciation and a monetary system that is drifting
towards falls and has no constraints. If it is not fixed, the economic
instability, the Greek way, will be a way of life.
We will have to increase taxes. But we already have growth-inhibiting
high tax rates.
Socialistic government can increase employment. Soviet Block, for
example, had full employment. But these are low-income jobs and they
will not turn the economy around.
There are only two ways to grow a strong economy: grow skilled labor
force and increase productivity. That's it. We should increase
productivity by investing private capital into businesses, the way the
Germans have done, which is why their labor unit cost is low compared to
their competition. But we don't do this. TARP almost mandates that
capital be misallocated into non-productive local infrastructure
projects, government programs and debt.
REDUCE GOVERNMENT SECTOR
We must reduce the size of the government economic sector. We should
dismantle the government health care sector and replace it with an
efficient private sector. We should, at the same time, substantially
increase direct financial support to the poor so they can afford health
care coverage. Eliminating the government health care sector will
substantially reduce the cost of health care which will make it
affordable to most. It would solve the liquidity problem. At the same
time, a direct health care subsidy will make it affordable to the
low-income households.
By eliminating the wasteful and inefficient government economic sector
we can put our fiscal house back in order. At the same time the role of
government in providing direct financial assistance to the poor could be
strengthened.
From Greece to the Mad River Valley the same economic laws govern. Why
don't some people get it?
Jarosinski lives in Waitsfield.
