Greece is considered the birthplace of Western civilization and the Greeks have taught us many valuable lessons.
This week, Greece is offering another: a textbook example of what happens when politicians hand out too much to people more than willing to take it, with nothing required in return.
The United States, and New Mexico, should take note.
The crisis in Greece, where the government just defaulted on a billion-dollar debt and residents are now limited to ATM withdrawals of $67 a day, is rooted in a historically overly generous pension system that encouraged early retirements while decreasing contributions.
A minimum wage reduction in 2012 and high unemployment rates (25 percent overall, 50 percent among young people) mean entire families may be relying on one person’s pension that is being cut, and cut again, because it’s unsustainable.
In Greece, the struggling private sector has yet to alter overreliance on government jobs and largesse. And while tax rates in Greece are largely in line with the rest of Europe, Greeks have an aversion to paying them; an estimated more than quarter of the country’s GDP takes place via an underground economy. At the end of 2014, Greeks owed their government about $86 billion in unpaid taxes, accrued mostly since 2009.
It’s all a little too familiar as Medicare, Medicaid and Social Security are projected to account for 24 percent of the U.S. GDP – and that’s not even factoring in interest on the debt. By comparison, Greece spends 17.5 percent on pensions as a proportion of GDP.
According to the Social Security Administration, “neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers.”
In New Mexico, state pensions remain underfunded, though in better shape than a few years ago. The private sector is struggling to expand. Almost a quarter of the 2 million residents receive food stamps and one out of every 2.5 is on Medicaid.
New Mexico is scrambling to come up with $1.1 billion by 2020, when just shy of half of state residents are projected to be on the newly expanded health care program for the poor. And that’s with the feds still shelling out 90 percent of the cost – that’s taxpayer money, too. Now, the feds are paying 100 percent.
While an argument can be made for providing health care for all, there is little to suggest that, by itself, that will lead to a better economy and upward mobility. In fact, Medicaid makes our safety net even more of a trap.
According to Social Security, “if lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare.” According to the Government Accountability Office, “The sooner we get started the better. The miracle of compounding is currently working against us.”
Greece had a similar warning and ignored it.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.