Jack Mintz: U.S. Worse Than Europe!

• Jack Mintz: U.S. worse than Europe! 
  by Jack M. Mintz, http://opinion.financialpost.com/
  EU is dealing with its fiscal crisis, but U.S. seems paralyzed 
  At a European conference on the sovereign-debt crises that I ­attended this week, my overwhelming conclusion, after listening to many experts, is that the U.S. is in far more trouble than Europe.
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  This was brought home by calculations presented by Larry Kotlikoff of Boston University at a lecture held at the International Institute of Public Finance, the biggest gathering of public-finance experts in the world. Greece may be bankrupt, but the U.S. looks like a giant Ponzi scheme.
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  Kotlikoff’s calculations show that U.S. unfunded liabilities total US$222-trillion, the highest of all major OECD countries (12% of the time value of U.S. GDP) once accounting for monetary public debt, Social Security deficits and public-health-care unfunded liabilities. One can quibble with some of the calculations, but no one can doubt that the U.S. is in serious fiscal trouble, more so than any other developed economy.
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  The U.S. reflects the most extreme case of intergenerational inequality. Generation after generation has participated in a Ponzi game, leaving younger taxpayers to pick up the tab for money effectively borrowed by older generations to spend on unfunded benefits. Kotlikoff labelled such practices as “child fiscal abuse,” a rather strong term but not far from the truth.
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  Euroland is in a fiscal crisis too, but it is trying harder to deal with its debt problem. As another speaker pointed out, market interest and credit default rates suggest more than a 50% probability that one or two countries will leave the euro within the next three years. An unmanaged exit from the euro, especially by a large country such as Spain, could result in a global credit crunch, since sovereign debt held by banks would be sharply marked down in value.
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  Yet, the answer to the fiscal dilemma is not another fiscal stimulus that adds to a mountain of public debt, as pushed by some economists like Paul Krugman. Instead, debt-ridden economies must embrace structural reforms to the public sector that will lead to better economic growth without pushing economies into a recession.
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  The Europeans are slowly addressing their problems by undertaking significant and painful reforms, including cuts to pension benefits, better tax structures, labour-market policies and significant cuts to public-sector costs. Ireland has been the best example of structural reform that is having some positive impact, despite its record deficits. Italy has been cutting spending and deficits and now runs a significant primary surplus, unlike the United States.
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