It’s common conservative campaign rhetoric in the US: If unsustainable public debt continues to grow, America will end up in the same boat as Greece.
But in fact, Congress is already way ahead of the curve in this respect. Absent new action, next year the U.S. government’s budget footprint will contract more rapidly than those of Greece, the United Kingdom, Spain and Italy, all countries where post-crisis austerity measures sent protestors into the streets and growth plunging.The so-called “fiscal cliff,” an automatic fiscal consolidation that Congress agreed to last year in a so-far-vain attempt to force itself to reach a more sensible deal, will start to take effect on Dec. 31, 2012 without government action. It resembles the programs of budget cuts and tax hikes that the International Monetary Fund often imposes on the troubled countries it rescues, or that are adopted by countries facing pressure from sovereign-debt markets. The Congressional Budget Office estimates that, unless another deal is reached, the US will see deficit reduction equal to 5.1% of gross domestic product in 2013, the steepest consolidation since 1968, when tax hikes lead to deficit reduction equal to 3.2% of GDP, and the 1969-70 recession.
How does that compare to both contemporary budget cutters and the bailouts of yore?