Freedomnomics

Article published Monday, May 7, 2010, at Fox News.

Greece Offers a Frightening Glimpse of the Future

Greece is a warning sign that the market doesn't like what it sees. What is really spooking international markets is the glimpse of the future that other countries face.

By John R. Lott, Jr.

Greece is a small share of the world market, and Athens is almost 5,000 miles from New York City. Yet, the wild swings in the stock market on Thursday stem not from Greece’s size, but from what it tells people about the future for other countries. On American’s current path, Greece’s current woes will be our future. From slower economic growth to having less money for their retirements, Americans have a real stake in learning from Greece’s errors. Hopefully, the 347 point drop in the Dow Jones Industrial Average yesterday and the over 700 point drop since Tuesday will get Washington's attention.

The violent demonstrations in Greece are showing how incredibly hard it is to control government spending once programs are started. Even just cuts in the growth in spending are meeting stiff opposition.

The country has been offered what should be a very attractive deal. The European Union and the International Monetary Fund will give Greece below market interest rate loan of $141 billion in exchange for restraint on spending, but that is proving too much for many Greeks.

Greece is simply confirming investors worst fears. It was so easy for politicians to give benefits to voters and put them on credit so the tab could be put off for years. But when countries start having problems paying back their debt, they are a greater credit risk and the interest rates that they have to pay will rise. With that increase in rates, what were once difficult loans to pay back suddenly appear impossible.

The World Bank lists Greece's external debt at $582 billion, an amount equal to about 170 percent of their GDP. By contrast, the U.S.'s external debt is $13.8 trillion, but our GDP is much larger, so our debt equals about 96.5 percent of GDP. Our problem is that the Obama administration plans on increasing our federal government debt over just the next ten years by another $10 trillion. And this is likely to be an underestimate. For example, recent government estimates also indicate that President Obama's health care program will cost significantly more than what was estimated just a couple of months ago. Given current trends, we could be in Greece's league before much more than a decade goes by.

There are real costs to this debt burden. Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard showed in a study earlier this year that countries whose gross public debt exceeded about 90% of GDP grew about one percentage point slower each year than countries whose debt was below that level. They grew about two percentage points slower each year than countries whose debt was below 30 percent of GDP.

Greece is a warning sign that the market doesn't like what it sees. But what is really spooking international markets is the glimpse of the future that other countries face.

John R. Lott Jr. is a FOXNews.com contributor. He is an economist and the author of "More Guns, Less Crime (University of Chicago Press, 2010), the third edition will be published in May.".

Make your own free website on Tripod.com
Home

Johnlott.org (description of book, downloadable data sets, and discussions of previous controversies)

Academic papers:

Social Science Research Network

Book Reviews:

For a list of book reviews on The Bias Against Guns, click here.

---------------------------------
List of my Op-eds
---------------------------------

Posts by topic

Appalachian law school attack

Baghdad murder rate

Arming Pilots

Fraudulent website pretending to be run by me

The Merced Pitchfork Killings and Vin Suprynowicz's quote

Ayres and Donohue

Stanford Law Review

Mother Jones article

Links

Craig Newmark

Eric Rasmusen

William Sjostrom

Dr. T's EconLinks.com

Interview with National Review Online

Lyonette Louis-Jacques's page on Firearms Regulation Worldwide

The End of Myth: An Interview with Dr. John Lott

Cold Comfort, Economist John Lott discusses the benefits of guns--and the hazards of pointing them out.

An interview with John R. Lott, Jr. author of More Guns, Less Crime: Understanding Crime and Gun Control Laws

Some data not found at www.johnlott.org:

Updated Media Analysis of Appalachian Law School Attack

Since the first news search was done additional news stories have been added to Nexis:

There are thus now 218 unique stories, and a total of 294 stories counting duplicates (the stories in yellow were duplicates): Excel file for general overview and specific stories. Explicit mentions of defensive gun use increase from 2 to 3 now.

Journal of Legal Studies paper on spoiled ballots during the 2000 Presidential Election

Data set from USA Today, STATA 7.0 data set

"Do" File for some of the basic regressions from the paper