Friday, May 14, 2010

The US is Not Greece

Let me say it again: The US is not Greece. I say that because deficit hawks everywhere are raising the specter of Greece at every available opportunity to scare the bejesus out of people about our spending. Krugman's column today takes this head on.

The short version is this: Greece's structural problems are far more severe. Our short-term deficits are caused by the recession and as the economy picks up, our finances will look much better. In the medium-term, drawing down the wars in Iraq and Afghanistan and letting Bush's tax cuts for the rich expire will help a lot. We do have a long-term problem. It's entirely because of health care costs. Obamacare was a start, but more needs to be done, especially on the provider side. If we get health care costs under control, we have our borrowing problem under control.

If there's one statistic I can leave you with to illustrate why we're not Greece, it's this: towards late April, Greece's two-year bond yields were over 12%. By way of comparison, today US Treasuries range from 0.15% for a 3-month bond to 4.36% for a 30 year bond. Clearly, investors are not worried. As long as the US can still borrow cheaply, we're not Greece. We're not even in danger of becoming Greece. Our debt problem is a long-term one. So next time someone screams about deficits and Greece when debating a couple billion in spending, ignore them. If you really want to work on our deficits, long-term work on health-care costs is the way to do it.

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