Aside from thieves, no one can live beyond their means forever. Eventually notes come due, missed payments abound, interest rates skyrocket, and then expenses are trimmed. In other words, the debtor’s standard of live drops, and he or she is forcibly introduced to a more austere lifestyle.
Countries can have similar problems. If a country borrows too much money, lenders (i.e. other countries, large banks, investors, etc.) will grow concerned that full repayment is less likely than in earlier times. This uncertainty is expressed is through the higher rates of interest lenders require from the government. If a country fails to notice the warning signs, or fails to take the appropriate actions, interest rates can become so costly that the country can no longer afford to borrow. Greece is an excellent example of this predicament.
Unable to borrow at low interest rates, Greece asked the rest of the European Union for a bailout. Unfortunately for Greece, the bailout money came with strings attached: the Greek government would be forced to live within its means. Greek citizens, the happy beneficiaries of the government’s excessive spending, were unprepared for the shock. Essential government cuts to salaries, benefits, and programs (i.e. “austerity measures”), caused most Greeks to see a substantial drop in their standard of living. Personal and familial austerity soon followed. Needless to say, the cuts have been unpopular.
Some observers have blamed daft politicians for the Greek debt crisis. They shouldn’t have done so. While politicians may be superficially responsible, the Greek voters bear the ultimate responsibility. The voters chose politicians who would provide caviar when the budget could only afford humble fare. Now national credit has reached its limit, and the country must learn to live within its means once again.
Closer to home, there is no guarantee American voters would do any better. Federal politicians have added to the national debt 49 of the last 50 years, a trend that isn’t expected to end soon. Worse still, most politicians (and a great many voters) are unwilling to substantially revise the federal budget; certain expenditures are categorically off limits. Luckily, America still has time to learn from the Greek tragedy – and time avoid its foreseeable results.