In a piece called “Austerity and National Character,” Anne Applebaum compares the pursuit of austerity in Latvia and Greece. In Latvia, she reports, the Latvian government responded to the crash of 2008 by slashing public spending, firing a third of its civil service, and reducing the salaries of those who remained. GDP fell by 24 percent in two years, but is now growing at more than 5 percent. Meanwhile, the budget deficit has been reduced dramatically.
According to Applebaum, there were no protests or strikes during the two year downturn. In fact, the Latvians reelected the prime minister who imposed austerity.
In Greece, of course, things have proceeded differently. Smaller budgets cuts led to strikes and riots. And the country has gone through several governments. The immediate drop in GDP was less than in Latvia (18 percent), but there has been no recovery.
Applebaum acknowledges differences in the nature of the two countries’ austerity program. Latvia hit bureaucrats hard and pensioners less so. And the government made its cuts right away. Greece protected its bureaucrats and made cuts slowly, without ever convincing creditors it was serious.
But Applebaum insists that history, culture, and national psychology were also at work in both nations. Latvians are used to hardship and fiercely independent. Greeks, she says, are politically divided and used to being bailed out. Then too, one country is Northern; the other Southern, which may make a psychological difference.
With the U.S. massively in debt, we might ask whether, in terms of psychology and character, we are more like Greece or more like Latvia. Once, it would have been clear to me that we are more like Latvia. Now, I suspect we are more like Greece.
Consider the recent “fiscal cliff” episode. A mechanism designed to force Congress to reduce significantly the national debt produced legislation that will increase it. Why? At root, as I argued here, because the public isn’t willing to sacrifice anything in the name of debt reduction.
The left wants to tax the public more, not in order to reduce the debt but to finance big government. But the public won’t accept higher taxes except on the wealthy. That’s why Obama had to announce in advance that he would not increase taxes on those making less than $250,000.. . .[T]he president basically lost the game before it began.
Conservatives want entitlement reform and spending cuts. But the public wants Medicare and Social Security to remain as it is. That’s why Republicans are so reluctant to propose specific cuts to these programs without Democratic cover which, of course, isn’t forthcoming.
The public favors spending cuts in the abstract, but politicians reasonably fear that any resulting reduction in services will carry a backlash. And they fear that cuts in defense spending will result in lost jobs and (at least as far as Republican politicians are concerned) reduced national security.
In short, we are more Greek than Latvian.
Fortunately, unlike both of these European countries, we are too big to fail for a while — perhaps a long while. But if we were more like Latvia, this fact might be less consoling.