January 26, 2011
During the presidential primaries, then Senator Obama gave a talk at fundraiser in which he referred to people in small town Pennsylvania as “bitter.” The media highlighted this “gaffe” and made it a major theme over the next few weeks of the campaign. In other words, it was big news that Obama had said something that the media viewed as inappropriate.
Last night, in the official Republican response to President Obama’s state of the union address, Representative Paul Ryan suggested that the United States could be like Greece if it did not change its current budget path. This comparison was either dishonest or reflected an extraordinary degree of economic ignorance.
Briefly, there are three big reasons that the United States is very different from Greece:
1) The United States has its own currency — this means that we can always buy our own debt. That could lead to inflation, but insolvency is not an issue. So the story of no one being willing to buy U.S. bonds is not even a theoretical possibility. Of course the people who actually have their money on the line are very willing to buy U.S. bonds, demanding an interest rate of just 3.4 percent on 10-year Treasury bonds.
2) The United States collect taxes. The OECD puts tax evasion in Greece on the order of 35 percent. This of course encourages corruption in all aspects of Greek government. If the rich rip off the government by not paying the taxes they owe, why shouldn’t everyone else try to rip it off too?
3) The United States has a huge diversified economy. If you want to find an economic illiterate, look for someone who warns that the dollar will plummet in value if we don’t get our debt under control. If our dollar plummets in value (e.g. 2 dollars = 1 euro, 3 yuan = 1 dollar), the U.S. would suddenly be hyper-competitive. We would buy nothing from the countries who rely on the U.S. market. And our exports would be wiping out competitors around the world. For this reason, China, Germany, Japan and everyone else would make sure that the dollar did not just plummet. This would not be the case with Greece if it did have its own currency.
This is why we give politicians who compare the U.S. to Greece a nice lollipop and balloon and pat them gently on their little head. And if they are important politicians, we give them a big helping of ridicule.
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