Monday, May 24, 2010

Cowen on Countries Living Beyond Their Means

In this interesting NYT article (HT Escolhas e Consequências), Tyler Cowen explains how the citizens of countries such as Greece, the UK, Italy and the US will need to accept sooner or later that they are poorer than they think they are:
GREECE is not the only country that suddenly feels poorer. Britain faces budget deficits at about 12 percent of G.D.P., and Italy has a debt-to-G.D.P. ratio of 110 percent. In the United States, the housing and job markets are recovering only in fits and starts and we face significant future Medicare liabilities. This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot of countries, most of all Greece, aren’t as rich as we used to think.

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