California Is Not Like Greece; Greece Is Like California

By now, political observers have grown tired of the facile comparisons between the United States and Greece (they have a debt; we have a debt; exactly the same!). And that comparison is even more pronounced here in California, where I think it was part of the job description for our half-dozen remaining columnists to draw a parallel between the state’s budget woes and that of the European nation. Of course, these played out along the familiar lines (for high Broderist columnists) of “runaway spending” and “overwhelming debt.”

Now, it’s not going to surprise anyone that these columnists know nothing about Greece. Because if you actually study what got them into their debt problems, you’d find that spending is a lesser concern. The Center for American progress report on Greece shows that their problems are more on the revenue side of the equation:

Before turning to the central problem facing the Greek government—its woeful lack of revenue—it is important to first cast aside the inaccurate claim that it was profligate spending that brought the Greek budget to its current state of disrepair. In 2009, government expenditures in Greece totaled 50.4 percent of GDP. While that is definitely high compared to the United States—we’re at about 38 percent of GDP, including state and local government spending—it is absolutely average among countries in the European Union.

In fact, total government spending for the European Union as a whole equaled 50.7 percent of GDP, actually a bit higher than Greece. Ten of the 27 countries in the European Union spent more than Greece did in 2009, several by as much as 5 percentage points of GDP […]

Greece’s location in the middle of the pack on spending is not some artifact of the massive recession. Over the past 10 years, Greece has consistently spent less, as a share of GDP, than the European Union as a whole. During the last economic cycle, from 2001 to 2007, Greek government expenditures totaled an annual average of 44.6 percent of GDP. Over the same period, the European Union as a whole spent an annual average of 46.6 percent of GDP. Germany, for example, spent an average of 46.7 percent of GDP over this period. Indeed, from 2001 to 2007, Greek average annual spending ranked precisely in the center of all EU countries, with 13 countries spending more, and 13 countries spending less.

By contrast, Sweden spends close to 56% of GDP, but had a minor budget deficit of 0.5%. The difference can be found in the collection of tax revenues. Greece simply does a poor job of revenue collection, and there are many reasons for this. One is that they have a large shadow economy, accounting for close to one-quarter of all economic activity. Second is that they have an unusually high number of tax evaders, and their collection programs haven’t been able to crack down on them (unreported swimming pools are apparently a major problem). And third is their tax rates are simply too low to match their middle-of-the-road spending (at least for Europe).

Basically, this sounds like California in many respects, but not in the typical sense seen in newspapers and on talk radio. In fact, like California, Greece has a structural revenue problem. Both locations suffer from an underground economy, whether from immigration or deliberate tax evasion (which is why a path to citizenship would only boost the economy and reduce the deficit by bringing that underground economy out of the shadows). And both have tax cheats. But at the root, both Greece and California do not collect the revenue to finance the goods and services their populations demand. Nor are these demands out of line relative to those similarly situated – at this point, California spends less on K-12 education than any other state in the union; they are the only state without an emergency poison control center; they have the second-lowest amount of public employees per capita in the nation; and so on. This year they may end their welfare-to-work program. In both cases, the rich refuse to pay their fair share; in Greece, they basically shelter it, and in California, they are protected by legislative rules that allow a small majority to veto the budget and tax increases.

So yes, Greece and California are alike, but in exactly the opposite fashion that commentators typically opine. And so this drive to austerity misdiagnoses the real issue, whether in Sacramento or in Athens.


[This article originally appeared on FireDogLake]