Media conservatives cite crisis, attack progressive policies

Hayes: “There is a great irony” in International Monetary Fund and others asking Greece to privatize health care system as “we are moving in the opposite direction.” On the May 6 edition of Fox News' Special Report, Hayes said:

HAYES: There was a report in The New York Times over the weekend that was widely overlooked, in part because I think the significant detail of it was buried. But the report said that in -- as part of these austerity rules that Greece had agreed to in order to get this bailout from the IMF and from Europe, one of the things that they had to do was move to privatize their health care system. It was too statist, their health care system. So at the same time that the IMF and others are demanding that Greece move to privatize or at least spin off part of its state-run health care system in order to make it more efficient, liberalize the economy, we are moving in the opposite direction. I mean, there is a great irony there.

Gasparino: "[S]ophisticated investors ... worry that in the midst of massive debts, that we have just signed onto a massive new entitlement in health care." On the May 6 edition of Fox News' Hannity, host Sean Hannity said, “So, they had set up almost, like, the perfect nanny state in Greece. ... It seems to me this is the direction America is now headed." Gasparino replied:

GASPARINO: I can only tell you what sophisticated investors say, and they do worry that in the midst of massive debts, that we have just signed onto a massive new entitlement in health care. And that is from not just Republican, conservative money managers. People that would consider -- that voted for Obama have told me that this is crazy. And they are extrapolating from Greece a certain extent to here. They're saying, “This is where we're going.”

Cafferty claimed that “we have a growing welfare state” and added, “Look at Athens. Look at Washington. Do the math.” On the May 6 broadcast of CNN's The Situation Room, Jack Cafferty declared: “Greece is a world-class welfare state. People retire in their 50s. They're accustomed to government handouts at every turn.” He then compared Greece to the United States, saying: “Here in the United States, we have a growing welfare state. We have food stamps and aid to dependent children and unemployment insurance and Medicaid and rent subsidies and welfare and, of course, tens of millions of illegal aliens. We have a $12 trillion debt that we're unable to pay. And while it ain't going to happen tomorrow, at some point, we're going to be faced with the realization that we can't do it this way anymore, something has got to give.” He concluded: “Look at Athens. Look at Washington. Do the math.”

Carlson responds to GOP rep.'s claim that “social programs” to blame for Greek crisis by saying, “How fortuitous, because she could be talking about the U.S.” On the May 7 edition of Fox News' Fox & Friends, co-host Gretchen Carlson aired a clip of Republican Rep. Cathy McMorris Rodgers saying of the crisis in Greece: “At some point, I think Europe needs to evaluate whether or not they can continue the type of social programs that they have had for a number of years.” Carlson responded: “How fortuitous, because she could be talking about the U.S.” Fox Business' Jenna Lee told Carlson, “You're absolutely right,” but went on to warn that people should be “careful” in comparing Greece with the U.S. because there is a “different dynamic.”

Economists and experts call comparisons between U.S., Greek economies “absurd” and “overblown”

Baker: "[A]bsurd to imagine the same sort of crisis that Greece is seeing hitting the United States in any near-term future scenario." In a March 15 column, economist Dean Baker, co-director of the Center for Economic and Policy Research, wrote: “The headlines about Greece's financial problems have provided a great backdrop to renewed attacks from the deficit hawks on Social Security and Medicare. Never mind that none of it really makes any sense.” Baker noted key differences between the U.S. and Greek economies and concluded, “That is why it is absurd to imagine the same sort of crisis that Greece is seeing hitting the United States in any near-term future scenario.” From Baker's column:

The headlines about Greece's financial problems have provided a great backdrop to renewed attacks from the deficit hawks on Social Security and Medicare. Never mind that none of it really makes any sense. Not making sense is virtually a prerequisite for being taken seriously in Washington policy debates. This is the reason that the characters who could not see an $8 trillion housing bubble dominated debate in the years leading up to the crisis, and still do today.

[...]

If we get serious, we see that the US and Greece have almost nothing in common. Greece has a small economy that is still largely dependent on tourism and agriculture. It also has a horribly corrupt government. The Organization for Economic Co-Operation and Development estimates that more than 30 percent of its GDP consists of gray market activity that escapes taxation. Even if this figure is exaggerated, the size of the underground economy is certainly much larger in Greece than in the United States.

Greece also has the huge disadvantage of being tied to the euro. This matters for its crisis because currency devaluation, the most obvious mechanism for restoring international competitiveness, is not open to Greece.

By contrast, in spite of the loss of more than one-third of its manufacturing jobs since 1998, the United States remains a manufacturing powerhouse. It's manufacturing sector produced $1.4 trillion in 2007, the last year before the crisis. The United States also has a vibrant high-tech sector and has huge agricultural and tourist sectors.

Suppose the deficit hawks' horror story (dream) comes true and investors lost confidence in the United States. The deficit hawk gang tells us that people will flee the dollar and interest rates will go through the roof.

Does this make sense? Which currency will they opt to hold instead of dollars, euros, yen? As we know, many of the countries in the euro zone have debt burdens that are comparable to those in the United States, and Japan's is actually much larger. If the problem is the debt burden, investors will be going the wrong way in leaving the dollar.

Furthermore, how will these countries feel about a plunging dollar? Will they let the euro rise to be worth two dollars, three dollars? Will the yen be allowed to double in value against the dollar? How many imports will we buy from Europe and Japan if their price doubles or triples to consumers in the United States, which is the direct result of a falling dollar? How much more will we be exporting if the price of US exports falls 50-60 percent?

It is ridiculous to imagine that the governments and central banks of other major countries would allow for the dollar to go into a free fall. Precisely because we are not Greece, but rather the world's largest economy, a sharp plunge in the value of our currency poses more of a threat to other countries than it does to the United States. That is why it is absurd to imagine the same sort of crisis that Greece is seeing hitting the United States in any near-term future scenario.

Auerback: “Gutting this social safety net because we extrapolate the wrong lessons from the euro zone's ... predicament constitutes the height of economic ignorance.” In a May 6 column, financial analyst Marshall Auerback wrote that "[t]he key distinction" between the United States and “euro zone” countries including Greece “remains user vs. creator. The euro zone nations are part of the former; Canada, Australia, the UK, Japan and the US are representatives of the latter.” Auerback stated that those comparing the U.S. economy to those of euro zone nations are making a “faulty analysis com[ing] as a result of the deficit critics' failure to distinguish between the monetary arrangements of sovereign and nonsovereign nations.” Auerback later wrote: “Gutting this social safety net because we extrapolate the wrong lessons from the euro zone's particular (and self-imposed) predicament constitutes the height of economic ignorance.” From Auerback's column:

The key distinction remains user vs. creator. The euro zone nations are part of the former; Canada, Australia, the UK, Japan and the US are representatives of the latter.

Using “PIIGS” countries as analogues to the US or the UK, as Rogoff, Ferguson and countless other commentators do, is wrong. Their faulty analysis comes as a result of the deficit critics' failure to distinguish between the monetary arrangements of sovereign and nonsovereign nations. Any sovereign government (none within the EMU enjoy that status any longer) can deal with a collapse in revenue and an increase in outlays from a financial perspective without invoking the sort of deadlocks that are now crippling the EMU zone. That is why, for example, the Japanese yen is not in freefall against the dollar, despite having a public debt to GDP ratio in excess of 200%, almost 2.5 times that of the US. In fact, over the past few days the yen has actually appreciated against the dollar. Now why would that be, if the lesson we were supposed to learn was the evils of “unsustainable” government deficit spending?

Fiscal sustainability has no relevance in a system where there are no operational constraints on the ability of a government to spend. US Social Security checks will not bounce. Nor will the Canadian or Japanese equivalents. Similarly, their bonds will always be able to pay out interest.

[...]

Why do we have huge budget deficits across the globe? It's not because our officials have all suddenly become Soviet-style apparatchiks. It is largely because the slower global economy has led to lower revenues (less income=less taxes paid, since most tax revenue is based on income, and lower tax brackets) and higher spending on the social safety net. Gutting this social safety net because we extrapolate the wrong lessons from the euro zone's particular (and self-imposed) predicament constitutes the height of economic ignorance.

New Yorker's Surowiecki: Comparison between American, Greek economies “has been overblown.” In an April 12 New Yorker article, financial writer James Surowiecki noted some similarities between the Greek economy and debt-stricken U.S. state governments but concluded that “the comparison has been overblown.” As Surowiecki explained: “Our states' debt burden, while sizable, is far more manageable than that of the PIIGS [Portugal, Italy, Ireland, Greece, and Spain], which owe three times as much relative to G.D.P. as American state and local governments. ... Most important, the states have a fundamental advantage over euro-zone nations: they're part of a country, not an ill-defined union, so they can count on help from the federal government.” Surowiecki later explained that U.S. “federal government is able to borrow money at exceptionally cheap rates, and, at a time like this, when the economy is still trying to find its feet, forcing states to cancel building projects and furlough teachers and policemen makes little economic sense.” From the article:

While American states are typically required to balance their budgets annually, that hasn't stopped them from amassing a pile of long-term debt by issuing municipal bonds. And, like Greece and other E.U. countries, states have used accounting legerdemain to under-report the amount they owe, even while accumulating huge, unfunded pension obligations. Just as a default by Greece (whose bonds are held by many big European banks) would have nasty ripple effects across the European economy, a state-government default would have all sorts of unpleasant consequences, as state bonds have traditionally been considered a thoroughly safe investment.

For all this, though, the comparison has been overblown. Our states' debt burden, while sizable, is far more manageable than that of the PIIGS, which owe three times as much relative to G.D.P. as American state and local governments. And though states will certainly have to cut their budgets again this year, the cuts will be smaller (and therefore more politically palatable) than those of, say, Ireland, which is cutting government spending by almost nine per cent. Most important, the states have a fundamental advantage over euro-zone nations: they're part of a country, not an ill-defined union, so they can count on help from the federal government.

[...]

Countries like Greece and Ireland need to learn to live within their means, of course. But in the middle of a severe recession steep spending cuts and tax increases can be disastrous. The refusal of European countries (especially Germany) to bail out profligate neighbors, although perfectly understandable, has increased the chances that Europe as a whole will suffer a double-dip recession. In the U.S., by contrast, federal aid to the states softened the impact of the recession, allowing the economy to start growing again; while states still had to cut thirty-one billion in spending, the stimulus aid saved hundreds of thousands of jobs.

All this aid comes at a price, of course: it increases moral hazard, and it increases the national deficit. But the federal government is able to borrow money at exceptionally cheap rates, and, at a time like this, when the economy is still trying to find its feet, forcing states to cancel building projects and furlough teachers and policemen makes little economic sense.

Romer: “At a most fundamental level, the United States is clearly completely different.” On February 12, The Christian Science Monitor reported that Christina Romer, chair of President Obama's Council of Economic Advisers, said in response to a question about the “possible lessons for the US” from the economic crisis in Greece: “At a most fundamental level, the United States is clearly completely different. ... I think the important thing is the United States is the most credit-worthy country in the world.” The Monitor further quoted Romer as saying: “No, I don't think there is actually a lesson for the United States. I think, for all of us, what we always knew is countries have to get their budget deficits under control, and the United States and the president certainly have a plan to do that. ”

This item has been updated from its original version.