Athens or Washington, It's the Size of Government
“The President of Greece warned last night that his country stood on the brink of the abyss after three people were killed when an anti-government mob set fire to the Athens bank where they worked.” – The Times Online
That “anti-government mob,” it must be understood, consisted of civil servants, tens of thousands of whom took to the streets to protest austerity measures. Greece is in the midst of a general strike. Airports are closed. Trains are not running. Classrooms are empty. Trash is piling up. The Wall Street Journal reports that “Angry youths rampaged through the center of Athens, torching several businesses and vehicles and smashing shop windows. Protesters and police clashed in front of parliament and fought running street battles around the city.” The Greek crisis, like a fraying rope on a footbridge, is also sending shudders throughout the Eurozone.
This is more than a financial crisis. This is a national meltdown. And while facile comparisons to the U.S. must be avoided, there are nonetheless lessons for us –particularly in light of the direction the Democratic Party wants to travel.
First, the differences. Greece is a small nation of 11.3 million people. Its GDP is estimated to be in the range of $333 billion (though with recent revelations of government dishonesty about deficit numbers, all figures must be viewed skeptically). Greece partakes zestily in the Mediterranean tradition of tax avoidance, and corruption is endemic. Many ordinary transactions are greased with “fakelaki” (little envelopes) or “rousfeti” (political favors). Daniel Kaufmann, a senior fellow at the Brookings Institution, compared 40 industrialized countries and concluded that “If Greece had better control of corruption – not to Swedish standards, but even at Spain’s level – it would have had a smaller budget deficit by 4 percent of gross domestic product.”
So Greece has cultural problems that contribute to its economic implosion. But there are similarities to the U.S. as well – and because we have elected Democrats, they are growing. By the end of 2011, Greece’s debt will be 150 percent of its GDP. According to a March report by the Congressional Budget Office, President Obama’s 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years – $1.2 trillion more than the administration projected – which will increase our debt to GDP ratio to 90 percent by 2020.
One in three Greeks works for the government. Government employees enjoy higher wages, more munificent benefits, and earlier retirements than private sector employees. Civil servants can retire after 35 years of service at 80 percent of their highest salary and enjoy lavish health plans, vacations, and other perks. Because they are so numerous, and because Greece is highly centralized, public sector unions hardly have to negotiate. They simply vote in their preferred bosses. Some civil servants receive bonuses for using computers, others for arriving at work on time. Forestry workers get a bonus for outdoor work. All civil servants receive 14 yearly checks for 12 months' work. And it’s impossible to fire them – even for the grossest incompetence.
Public sector unions are growing in the U.S. More than 50 percent of all union members are now public employees who have negotiated sweet deals with local, state, and federal governments. As economic historian John Steele Gordon points out, “Federal workers now earn, in wages and benefits, about twice what their private-sector equivalents get paid. State workers often have Cadillac health plans and retirement benefits far above the private sector average: 80 percent of public-sector workers have pension benefits, only 50 percent in the private sector. Many can retire at age 50.” While private employers were shedding jobs during the recession, state and local governments hired 110,000 new workers.
Obama’s new spending will result in a 14.5 percent increase in the number of federal employees in just two years. And he has looked after union interests with particular zeal, whether at General Motors and Chrysler, or by funneling one-third of stimulus spending to state and local governments, or by repealing the rule that required unions to disclose their spending.
And in a corrupt feedback loop that may not be so very different after all from the Greek practice, public employee unions give generously to Democratic candidates, both in cash contributions and by manning phone banks, getting out the vote, and so on.
It’s no coincidence that the states with the most powerful public sector unions – New Jersey, California, and New York – are facing the most severe budget crises.
Greece is in flames, but if you look around, you can smell the smoke here as well.
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