Photo by: John Carney

When conservatives worry about the size of the federal government’s budget deficits and the national debt , liberals tend to point out that “America is not Greece.”

This is certainly true. The U.S. economy is far healthier than the economy of Greece. We aren’t locked into a currency union that deprives us of monetary flexibility. Our government can never run out of money to service its debt because the debt is denominated in currency the government creates.

The most important difference between the U.S. and Greece, however, is not where we are in our economic cycle or our monetary system.

It’s the gap between the productivity of the American economy and the Greek economy.

The core reason why Greece is unable to service its debt without aid from its neighbors is that its economy does not generate enough wealth. Even if Greece somehow put an end to the habitual tax-avoidance of its people, it could not service its debt without truly impoverishing its citizens through unsustainable wealth confiscation.

The dearth of productivity and competitiveness explains, ironically, why Greece’s debts got so large to begin with. It’s people and government wanted to live beyond their means, to spend more than they produced. This is only possible if someone is willing to lend you the money to buy the excess goods and services.

Most Greeks never really realized how unproductive their economy had become. In some sense, access to debt had concealed their long-running economic slump. It seemed that things were humming along just fine.

This is one of the reasons Greeks are so shocked by what is being required by their creditors. It feels as if they are being looted, bossed around, sent orders from German and French bureaucrats. The Greeks just never internalized how dependent their economy had become on the capacity and willingness of more productive economies to lend to them.

The productivity gap, of course, is not the result of nature or the wrath of some angry gods. It is the result of years of policies that made investing in productivity — both through capital investment and increases in skills — irrational. The generosity of the Greek government and the regulatory burdens placed on businesses made the relative rewards from business investment meager.

This is important to keep in mind when considering the proposition that “America is not Greece.” It tells us we must zealously guard our productivity, protect our culture of competition and enshrine market processes almost as if they were the gifts of benevolent gods.

America is not Greece. But if our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand, we can become Greece.

America can never be forced to default for lack of money. But our debt burden can become unsustainable — requiring either inflation or voluntary default — if our productivity does not improve as our debt grows.

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