Could America become the next Greece (or Detroit or Puerto Rico)? The answer is “an unequivocal no,” writes economist Stephen Moore. The private sector of the U.S. economy is structurally very healthy. Business and family balance sheets have shown stunning improvement following the debt binge from 2000 to 2008.
The story is simple: Over the past seven years American companies have become hyper- and even ruthlessly efficient, which has meant shedding unproductive operations and reducing employment, cutting debt burdens, and focusing on profitability. It’s the reason the stock market has soared since 2008. Companies are now sitting on $1 trillion to $2 trillion of reserve cash, according to The Wall Street Journal, and balance sheets are generally pristine. Households have cut their debt, too.
But there is bad news. As Mr. Moore highlights, one sector of the U.S. economy has been largely immune from deleveraging—the government.
We have here a tale of two economies. At a time when private-sector debt burdens have flattened out and even fallen, the government debt has soared frighteningly from $8 trillion to $16 trillion. If there is a fundamental structural weakness in the economy holding back growth, this is it.
As the private sector has become lean and cost-conscious, government has become flabbier and more dependent than ever on debt. The numbers are even worse for government when including trillions of dollars of unfunded liabilities in pension and health care obligations.
Mr. Moore is an advocate of government austerity and private-sector expansion. In order to obtain higher growth rates of 4 percent or more, the U.S. government needs to tighten its belt and borrow much less. Read Moore here.