As the Greek debt crisis threatens the eurozone, one of the reactions of US conservatives has been to use the Greek example as a talking point in US political disputes. Take, for example, Mark Steyn’s use of the Greek example to attempt to defeat Obama’s health care proposal.
While Barack Obama was making his latest pitch for a brand-new, even-more-unsustainable entitlement at the health-care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split-screen — because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is farther upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter Twenty (total societal collapse): The Greeks are at Chapter Seventeen or Eighteen.
There are a couple of problems with this argument. One is that Steyn’s implied argument that universal health care inevitably leads to long term structural deficits, and from there to economic disaster and riots, doesn’t seem to line up with the actual economic facts in Europe. Consider how the conflict within the European Union has played out. Will responsible Germany have to rescue feckless Greece? Some version of this question can be seen in article after article. If Germany rescues Greece, there’s a risk of moral hazard, as countries like Greece have no incentive to clean up their own houses. If Germany (and other more financially sound eurozone countries) fails to rescue Greece, then the eurozone unravels, as Greece’s default spreads uncertainty to other weaker eurozone countries, such as Italy, Spain, and Portugal.
Now, not being an economist, I’m not equipped to say just why Germany is so much better off, in terms of structural deficits, than Greece. But I know one factor that isn’t in play: a lack of a universal health care system. Germany, you see, has a universal health care system, the oldest one in Europe, one that has been present since the days of Bismarck.
In Germany, statutory health insurance, which covers 90 percent of the population, is financed by a payroll tax. The individual’s premium is not a per-capita levy, as it is in the United States. It is purely income-based. Ostensibly, about 45 percent of the premium is contributed by employers, although economists are persuaded that ultimately all of it comes out of the employee’s take-home pay (See this and this).
An employee’s non-working spouse is automatically covered by the employee’s premium.
Unemployment insurance pays the premiums for unemployed individuals, and pension funds share with the elderly in financing their premiums, which are set below actuarial costs for the elderly.
Finally, premiums for children are covered by government out of general revenues, on the theory that children are not the human analogue of pets whose health care should be their owners’ (parents’) fiscal responsibility. Instead, children are viewed as national treasures whose health care should be the entire nation’s fiscal responsibility.
The health insurance premiums paid by Germans are collected in a national, government-run central fund that effectively performs the risk-pooling function for the entire system. This fund redistributes the collected premiums to some 200 independent, nongovernmental, competing, nonprofit “sickness funds” among which Germans can choose.
This system isn’t exactly the same as either the House or Senate bills recently passed, or Obama’s attempt to bridge the differences between the two bills (for one thing, German insurers are obliged to be nonprofit). But it does have a few things in common with those proposals: It provides universal coverage, does so by applying taxes sufficient to pay for that coverage, and uses private insurance providers, rather than a single payer governmental system, to supply that coverage. And yet, Germany seems to be weathering the existence of this “even-more-unsustainable entitlement” with far less debt than Greece.
Again, I’m not an economist, so I confess to a limited understanding of exactly when entitlements are sustainable and when they aren’t. But I do know this: Deficits depend on two factors, the level of taxes, and the level of spending. Tax cuts without spending cuts are unsustainable. Spending increases without tax increases are unsustainable. Entitlement with sufficient taxes to cover them may be sustainable, likewise for tax cuts with sufficient spending cuts to cover them. I also know that the thing to be concerned about is long term, structural deficits. A policy of regular short term deficits may be sustainable, if you follow proper Keynesian discipline and run surpluses during the high points in the economic cycle, to cover deficits in the low points of the cycle. So, addressing jobs now and deficits later can be a viable policy during an economic downturn, provided you actually follow through later on addressing those deficits.
The other thing I would say is that Steyn’s argument about a “brand-new, even-more-unsustainable entitlement” implies that the current US health care system is more sustainable than the alternative proposed. That seems questionable to me. The current US health care system is hardly a utopia of government noninterference, and it is headed for trouble over the long haul, and health care costs continue to skyrocket and more and more people lose their employer-provided health insurance. The House and Senate bills were both scored by the Congressional Budget Office and found to be deficit reducing, once you take into consideration the tax increases and cost control provisions in the bills.
So what are the lessons that the US can take from the Greek debt crisis? I’m not sure, being, as I’ve said, limited in my economic knowledge. Certainly we can take away some warning about the dangers of not addressing your deficits, and about the dangers of dodgy statistics. It’s possible that there’s also a lesson here about not growing your public sector too large. Greece does have a large public sector, and Mark Steyn may have a point about some of the current entitlements built into the Greek system.
So you can’t borrow against the future because, in the most basic sense, you don’t have one. Greeks in the public sector retire at 58, which sounds great. But, when ten grandparents have four grandchildren, who pays for you to spend the last third of your adult life loafing around?
I think it’s fair to ask how low of a retirement age can be sustainable, and understandable if countries with higher retirement ages, like Germany, don’t want an EU rescue to amount to their paying money so Greeks can retire earlier than them. (Yes, I know, Germany also occupied Greece and basically looted it during WWII; my family suffered under that occupation, too, and it’s also understandable, given that circumstance, that Greek pride is now offended by German cartoons of Venus de Milo giving Greece the finger. But for the moment my concern is whether there are elements in the Greek model that don’t work over the long haul, and need fixing, whether an EU rescue attempt is forthcoming or no. And early retirement age is a plausible candidate.)
And it’s fair to take this low retirement age as a lesson in what the US does not want, as we consider how to keep Social Security and Medicare sustainable over the long haul. Our country will probably on more solid footing if more people retire at 67 than 62. But, as we in the US make our various choices between one mixture of public and private sector and another, I’m no prepared to conclude that what conservatives see as a “brand-new, even-more-unsustainable entitlement” is always less sustainable than what we have now. Especially when it comes to health care, where the current system is really not all that sustainable.
Now, turning from the US to Greece, I have been trying to chase down a few questions about just why Greece, in particular, is in such crisis now. One fact that’s frequently being cited these days, in articles about the Greek debt crisis, is a statement that, since its independence in the nineteenth century, Greece has been in default half the time. It took me a little while to Google through all the articles that were making this claim with no reference and finally find the source, but Google is my friend, and I finally found a relevant NPR article.
The prospect of Greece defaulting on its sovereign debt is a big deal these days. But in the long view, a default wouldn’t be remarkable. Greece has been in default on its debt for more than half the years since 1800, according to Kenneth Rogoff, a Harvard economist.
Other European countries, including Russia, Poland an Hungary, have also spent significant chunks of modern history in default.
A chart accompanies the article, showing how often various countries have been in default. (Interestingly, Portugal, one of the countries often mentioned as one to which the debt crisis could spread, actually has a quite low default rate historically, lower even than Germany’s.)
Just why Greece historically has such a high default rate, I am not sure (though it certainly doesn’t help that Greece’s twentieth century history seriously sucks, including as it does German occupation and subsequent civil war – some time I may want to port over to Alexandria a pre-Alexandria post that I wrote summarizing that history). But I did find a couple more net resources on the Greek economy. One is the Greek Economy Watch blog. It’s not a daily blog – the last post was two weeks ago – but on the other hand, it’s been following the Greek economy for years, and so has some background on the issue. An example post: Just What Is The Real Level Of Government Debt In Europe?
Second, the web site of the Bank of Greece has information about the Greek banking system.
Third, here’s the home page for Eurostat.
