Uncomfortable Parallels With Europe in the Debt Crisis
CHRISTINE ROMANS, CNN HOST: Welcome to YOUR MONEY. I'm Christine Romans. Ali is off this week. The classroom your child is in today will not look the same next year. States are broke. School will pay the price. Education Secretary Arne Duncan will be here to talk about the future of your child's education. But first, take years of spending more money than you earn, add an ever expanding social safety net, throw in high unemployment and nervous investors. It's the recipe for a debt crisis. Think we're talking about Greece, Portugal, Spain, Europe? Well, how about a look right here at home. A $1.6 trillion budget deficit. Nearly 40 million people now being fed with food stamps. Up to 99 weeks of jobless checks for the 15 million unemployed. Uncomfortable parallels with Europe. Is the U.S. different, though, and why? Peter Morici is an economist and professor at the University of Maryland School of Business. Chrystia Freeland is a global editor at large for Reuters. Just as the U.S., Peter, is moving more towards Europe on social policy, Europe is coming unglued. What's the lesson here for American policy makers?</s>PETER MORICI, PROF., UNIVERSITY OF MARYLAND SCHOOL OF BUSINESS: Well, you have to pay for the things that you want and you have to buy them cost effectively. You know, we're building out this great big health care system now when we pay 50, 75 percent more than the Germans do for the same services, be it drugs and anesthesiologists or what have you. And we're not raising the taxes we need to pay for what we want. At the end of the day, the price of debts in the United States will soar. And, heck, there's one of the reasons people are turning to gold. There's a lack of confidence in the ability of the United States to manage its finances.</s>ROMANS: Chrystia, this is going to be something we're going to be talking about for months and years to come. The difference is that the U.S. -- investors still have a great deal of confidence in the U.S., in its flexible, political system, and the fact that we always pay our bills.</s>CHRYSTIA FREELAND, GLOBAL EDITOR AT LARGE, REUTERS: Well, that's right. And Peter is absolutely right, but there are big differences between Greece and the United States. The single biggest difference is the U.S. debt is issued in U.S. dollars. Greek debt was issued in euros. And Greece does not control the euro printing press. The United States does. That is a crucial difference, particularly now when the increasing volatility of global markets has actually made the dollar a safe haven currency. So even as we have seen increasing problems in America's fiscal situation, we've seen a pretty strong dollar and actually America, for now, being able to borrow money really cheaply. The question is, as Peter says, how long is that going to last? And a smart American government would start taking the measures right now to prevent a Greek crisis not next month, but in 2012.</s>ROMANS: Those are hard decisions. Those are political decisions as well. I want you to listen to something the president said in Buffalo on his main street tour this week. The president recognizing that American families get this idea of spending more money than you've got. Listen.</s>BARACK OBAMA, PRESIDENT OF THE UNITED STATES: It's like going through the family budget. You know, you started getting too many things you couldn't afford and then you're going to have to start making some decisions.</s>ROMANS: Except we've heard this before. We've heard this from a lot of different presidents before, Peter and Chrystia. Peter, tell me first, what kinds of decisions have to be made? The president has a fiscal -- you know, a fiscal forum that he has called. By the end of the year, they're going to give some recommendations. What can they do? And can they get it done?</s>MORICI: Well, the president runs a government, not a household. So, you know, a household can't say, gee, I'm going to tax the guy next door to pay for what I need. But this fiscal forum will do that. And I suspect they're going to tell us we need a value added tax, so that we'll have taxes in the United States very comparable to Europe. But, think of it, we'll have the value added tax, the income tax, sales taxes, corporate income taxes. But in Europe, ordinary citizens don't pay much for health care or higher education. Here, you'll still have to pay that big health insurance bill and that big college tuition bill. If he pushes through a value added tax to, quote, "set his priorities," then American households, homeowners, are going to have a tough time making ends meet. No, he's got to cut the cost of health care. I mean drive down the price of drugs. The sort of thing he wasn't willing to do when he expanded the safety net so much during his first term.</s>FREELAND: I think Peter is absolutely right, that the key issues are going to be as people focus more on the debt, on the deficit, are going to be, first of all, do you have a value added tax? The U.S. is the only big industrialized country that doesn't have one. I mean, is that going to be sustainable? And then the second thing is, although I think a lot of us maybe were relieved to put the health care debate behind us, really only half of the health care debate happened, and that was expanding coverage and putting some mechanisms in place, maybe in the future for cutting costs. The big question now is going to be, are those mechanisms going to start to bite? And are people, and not just people as patients, but also doctors, the insurance industry, the drug sector, are they going to accept ways of bringing costs down.</s>ROMANS: And health care reform, you're absolutely right, it was about access. I mean access to health care. There's still a lot of other questions to talk about. And they're still writing some of these rules. We're going to talk about that later in the hour. But I wanted to bring up Paul Krugman of "The New York Times," He made a good point that shouldn't be lost in this debate either about why the United States isn't necessarily like Greece. "The United States can expect economic recovery, he wrote, "to bring the deficit down substantially. Greece, which has a larger structural deficit and also faces a grading adjustment to overvaluation with the euro zone, can't." Peter, that's another part of this equation. We can cut waste and spending, we can cut unnecessary programs, we can raise taxes or change the tax structure, but if we get a blockbuster economy, God willing, that gives politicians some cover too, doesn't it?</s>MORICI: Yes, but we would need one heck of a blockbuster. You know, the president's budget assumes 4 percent growth. That is highly unlikely. Most economists looking at 3 percent growth over the next several years. Why? We have this huge trade deficit on oil, which is not likely to get resolved, especially after the big spill, and the huge trade deficit with China. Both of those things are a terrible drain on U.S. growth. This administration has shown a reluctance to deal with either. So my view is, that's kind of like wishing for, you know, a rich uncle to die and leave you his money. We're going to have to address this thing by doing a better job of running this government.</s>ROMANS: He mentions trade deficits too. And we had more numbers this week that show, well, it's almost -- we're back to pre-recession kind of behavior where we're importing way more than we're exporting and that deficit is surprising (ph) economists again.</s>FREELAND: For sure. I interviewed Peter Orszag, the budget director, the president's budget director, this week. And, too, I asked him the question, the Krugman question. I said, you know, look, Peter, maybe you don't have to worry about this. Maybe the economy is going to come back like a locomotive and that economic growth will take care of the deficit and the debt. And he said, you know, I don't think so. And the other point that he made, which I think is a really important one in all of these discussions is, we just don't know. We don't know how strong economic growth is. The prudent action, given that, is going to be to take care of the fiscal situation. And if we're surprised by growth on the up side, that's not going to be a bad thing.</s>ROMANS: Right. All right, Chrystia Freeland, global editor at large at Reuters. Also, who's going to stick with us, Peter Morici. We're going to talk about gold in just a little bit. So don't go away, Peter. All right. The school your child is in today will look vastly different next year. Programs are being cut. Stimulus is running out to keep teachers in their jobs. We'll ask the nation's top educator, Education Secretary Arne Duncan next.