For whom the downgrade tolls
posted at 6:20 pm on August 6, 2011 by Karl
Standard & Poor’s decision to downgrade the US government’s AAA credit rating tolls for all of us, of course. However, it tolls for the left in ways they have not fully grasped.
The partisan left — and the establishment media supporting it — naturally seeks a short-term advantage from the event. They will cherry-pick S&P’s explanation of the downgrade for the comments about taxes and Republican opposition to higher taxes in an attempt to place all the blame on the GOP. They will ignore S&P’s rationale for the downgrade is their judgment that “further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed” as well as their criticism of the debt deiling deal as envisioning “only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.” They will hide behind S&P’s curious refusal to identify the Democrats as the chief obstacle to entitlement reform, despite the House GOP’s passage of a bugdet containing serious structural reforms. The undisputed fact that Pres. Obama blew up a larger budget deal in which House Speaker Boehner agreed to $800 billion in revenue will be thrown down the memory hole. The blame battle will have to be fought to blunt the short-term advantage the partisan left wants.
However, the reaction of the Obama Administration and the ideological left is more telling. The first reaction of the administration was not to blame the GOP, but to attack S&P’s math, as though a couple of trillion makes the difference in this context. My initial hypothesis was that the administration took this tack to try to scare the Moody’s and Fitch — the other major credit ratings agencies — away from following S&P into issuing downgrades. Certainly, there are real-world effects off a downgrade on interest rates, economic growth, and employment that would motivate the administration to this end. Upon further consideration, I would suggest the reaction against S&P have deeper ideological roots.
Consider the hysterical atatcks launched by Democratic National Committee communications director Brad Woodhouse, and lefty pundits like Paul Krugman and Robert Reich, echoed in establishment media coverage from people like TIME’s Massimo Calabresi. This bit from Reich encapsulates them nicely:
Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?
If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.
S&P’s intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P’s failures (along with the failures of the two other major credit-rating agencies — Fitch and Moody’s) to do their jobs before the financial meltdown.
Even shorter: How dare they!? How dare they judge our government’s fiscal irresponsibility, especially after they gave Wall Street a pass!?
Of course, it is simply childish to attack the credit agencies for doing their jobs now because they failed in the past. It is equally childish to expect that assessing sovereign credit risk can somehow exclude political assessments. To be sure, the political judgment of Standard & Poors is not immune from legitimate questioning. For example, before the downgrade, IHS Global Insight Chief Economist Nariman Behravesh argued S&P was making unrealistic demands because lawmakers were unlikely to agree to a major deficit reduction package until after next year’s elections. Lefty pundit Kevin Drum may quibble that S&P “shouldn’t be in the business of commenting on a country’s political spats unless they’ve been going on so long that they’re likely to have a real, concrete impact on the safety of a country’s bonds.” The right may question whether S&P’s explanation over-emphasized the political conflict over taxes, in light of the fact that entitlements are the much larger problem (indeed, even Krugman concedes the real problem is health-care costs, though I suspect he differs with the right on the appropriate reforms necessary).
However, what the infantile, illogical, ad hominem attacks on S&P from the DNC and the ideological left reflect is that anyone can debate the political assessments made by the credit rating agencies, but it is difficult to campaign against them — and even more difficult to campaign against the judgment of global financial markets generally. Perhaps in the future, community organizers will bus hoboes to chant outside the houses of credit agency employees. Or perhaps Big Labor will organize rallies on Wall Street to rail against the evil bond market. But such efforts will be largely futile. Moreover, the DNC and AARP are not going to waste money running issue advocacy ads against our creditors, even though it would be vaguely amusing to see them roll out actors dressed as aristocratic bond vigilantes for demonization. It might be easier to run ads attacking our largest creditor, China, but it is a fair bet that the PRC would not care all that much, either.
In sum, the S&P downgrade marks a post on the road where progressive demagogy loses its power. The downgrade marks a post on the road to extinction for 19th-20th century progressivism. That’s why the Obama administration — and true progressive ideologues — made S&P their first target, however futile the gesture.
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