U.S. Is Becoming Too Much Like Greece

NEW YORK (TheStreet) -- This weekend, Greece goes to the polls but the winners will not likely be able to form a government that can solve the county's intractable economic problems. Americans should pay close attention -- the U.S. is becoming too much like Greece and could easily end up in the same place.

Greece's troubles began with an uncompetitive private sector instigated by unrealistic labor market policies and a single currency with Germany. Exports became too expensive, domestic industries could not adequately compete with imports, the private sector grew too slowly and unemployment rose. Youth unemployment and underemployment became endemic.

In the U.S., huge trade deficits on oil and with China are slowing growth -- both are caused by government policies. With more offshore drilling and better use of abundant natural gas, the U.S. could cut oil imports in half.

Regarding China, the U.S. could take action against China's undervalued currency and protectionism, but doesn't. Consequently, unemployment is stuck above 8% and too many college graduates are waiting on tables or at counters at Starbucks.

To tap down unemployment, Greece permitted workers to retire too young and spent too much on pensions, and the government spent lavishly on education, health care and other services to create jobs.

In the U.S., state and local governments are spending too much on Social Security and employee pensions. Federal government spending has permanently increased, under the guise of temporary stimulus, to create government jobs and to subsidize a very inefficient health care system. States are spending too much on inefficient educational and transit systems, and other services, and on skyrocketing Medicaid mandates and health care benefits for employees and retirees.

The federal deficit has rocketed from $161 billion in 2007 to about $1.3 trillion, and has been above $1 trillion for four years. The U.S. has lost its prized AAA credit rating, and its creditworthiness will continue to fall if the huge federal deficit is not curtailed. President Obama has no credible plan to bring down the deficit.

As federal and state debt mounts up, the U.S. credit rating will continue to be downgraded and investors will become reluctant to hold U.S. bonds without receiving much higher interest rates. As in Greece, high interest rates on government debt will drive federal and state governments into insolvency, or the Federal Reserve will have to print money to buy government bonds and hyperinflation will result. Calamity would result, either way.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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