What's responsible for the situation in Greece? Government.
The average government job pays almost three times the average private-sector job. Eventually things were so out of hand, they limited the monthly salary of government employees. To get around that the Greek government would simply invent a 13th and 14th month. They were inventing months.
Boomerang by Michael Lewis outlines the situation better than any book I've read on the financial crisis. It's well worth your time. Some highlights:
--In 12 years public sector wages doubled.
--Their Amtrak has revenues of 100m Euros. They spend 4 times that just on wages, along with another 3 times revenue in other expenses.
--There's a great quote from businessman/minister of finance Stefanos Manos noting it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true.
--Their education system employs 4 times as many teachers as Finland. Finland is 1st, Greece is near the bottom.
--The retirement age for Greek jobs classified as arduous as low as 50. What is an arduous job? There's more than 600 of them like "hairdressers, radio announcers, waiters, musicians, and on and on and on." (Authors note: radio announcer is really arduous.)
--I love this one: “The Ministry of Agriculture had created had created an off the books unit employing 270 people to digitize the photographs of Greek public lands,” the finance minister tells me. “The trouble was that none of the 270 people had any experience with digital photography."
-- "a projected deficit of roughly 7 billion euros was actually more than 30 billion. The natural question-how is this possible?-is easily answered: until that moment, no one had bothered to count it all up. 'We had no congressional budget office,' explains the finance minister. 'There was no independent statistical service.' The party in power simply gins up whatever numbers it likes, for it’s own purposes.”
It's a striking story, but is it really that different than us? Yes, Greece is further down the road-- but we can see the tail lights.
USA Today, WSJ, and the NY Post have noticed plenty of simularities:
-"Including the amount owed to Social Security, the U.S. Treasury is $18.2 trillion in hock. That puts the United States, along with Greece, in the select group of nations with debts exceeding 100% of annual economic output."
We're at 101%, Greece is at 177%. But our number is worse than France or Spain.
-"Like Greece, the driving force behind our debt is the growing cost of entitlement programs for health care and retirement. If one includes future unfunded liabilities for Social Security and Medicare, our real debt exceeds $90 trillion. That’s more than five times our GDP. Greece is still in worse shape — their unfunded liabilities top 875% of GDP — but we’re gaining."
-"Our government is far smaller than Greece’s today. Federal spending is just 20.5% of GDP. But, according to the Congressional Budget Office’s alternative fiscal scenario, that could rise to almost 34% by mid-century. Factoring in state and local government spending, which already accounts for roughly 14.4% of GDP, total government expenditure in the US could reach 48% to 50% in 2050, roughly Greek levels."
A lot of people mocked Greece for being in their situation and electing a leftist leader while rejecting austerity.
But, didn't we do the same thing in 2012?
Featured image: ATHENS, GREECE - JULY 07: A senior citizen leans against the door of a closed bank as he queues up to collect his pension outside a National Bank of Greece branch in Kotzia Square on July 7, 2015 in Athens, Greece. Greek Prime Minister Alexis Tsipras is working on new debt crisis proposals and is due to present them at a Eurozone emergency summit today. (Photo by Christopher Furlong/Getty Images)