Saturday, August 6, 2011

It's Finger-Pointing Season. Again.

The decision by Standard and Poor’s to downgrade the US government’s credit rating from AAA to AA+ has, unsurprisingly, led to a veritable feeding frenzy of finger-pointing, blame-assigning, and outright silliness.

This is serious business—the government’s credit-worthiness wasn’t thus questioned even during the Great Depression—but the prognostications of doom and gloom are no doubt exaggerated. For example, Edmund L. Andrews of the National Journal, hardly a bastion of liberalism, argues that:
Credit ratings, though hugely important, are only one of many factors affecting the cost of borrowing. The more important factors are broad forces of supply and demand for Treasuries, and the outlook for inflation and growth. That’s why Japan has been downgraded three different times in the past decade (it’s currently AA-) yet its long-term rates are lower than those on U.S. Treasuries.
And let’s face it, it’s pragmatic concerns like the cost of borrowing, not the symbolism of an official rating, that really matters. Moreover, as Andrews also notes
It’s also true that S&P is hardly some kind of Delphic Oracle. It and the other rating agencies were almost criminally negligent about the risks of subprime mortgages during the housing bubble. And it’s not as if S&P told investors anything about U.S. fiscal problems on Friday that they didn’t already know.
In announcing their move, S&P proclaimed “Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.” Moreover, the rationale also criticizes the recent debt-ceiling agreement for “[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.”

That said, the analysis by Judd Legum at ThinkProgress seems fairly accurate: “In explaining their decision Standard & Poor’s cites both the decision by Republicans in Congress to turn the debt ceiling into a political football and the [Republicans’] intransigence on tax increases.” He cites a series of quotations from S&P’s explanatory document to bolster his point:
The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.

[...]It appears that for now, new revenues have dropped down on the menu of policy options.

[...]The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

[...]Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.
Most notably, Legum points to the “revised upside scenario,” which
incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021 [vs. 79% in 2015 and 85% in 2021, as predicted if the Bush tax cuts are not allowed to expire].
Andrews concurs:
The big new element on Friday was an official outside recognition that U.S. creditworthiness is being undermined by a new factor: political insanity. S&P didn’t base its downgrade on a change in the U.S. fiscal and economic outlook. It based it on the political game of chicken over the debt ceiling, a game that Republicans initiated and pushed to the limit, and on a growing gloom about the partisan deadlock. Part of S&P’s gloom, moreover, stemmed explicitly from what a new assessment of the GOP’s ability to block any and all tax increases.
In other words, the GOP’s willingness to play political games with something as serious as extending the debt ceiling—up to and including allowing the Donald Trumps, Pat Toomeys, and Michele Bachmanns to say remarkably stupid things without repudiation—is the real cause of the downgrade. Congressional Republicans’ puerile and petulant insistence on no new sources of revenue introduced a new element into the mix: the idea that government might be unable to meet its obligations because it chooses not to. No one serious believes the budget can be stabilized, much less balanced, without revenue enhancement: call it a tax increase, call it eliminating loopholes, call it asparagus for all I care, but more money needs to be brought into government coffers, and it needs to come mostly (not exclusively) from the people who have benefited most from tax breaks, subsidies, and loopholes: the rich.

When even S&P recognizes that, when 4000 millionaires pay no federal income tax at all, when the Balanced Budget Amendment that Rand Paul and his libertarian goon-squad wanted as a pre-condition to raising the debt ceiling is described by even Bill Kristol as “a pointless and embarrassing gimmick,” when Congress sets new records for disapproval, the GOP has a problem. The rank and file understands it. It’s the politicians themselves who can’t bring themselves to acknowledge reality.

They babble about how “the American people demand…” whatever they choose to ascribe to John Q. Public. Witness John Boehner’s proclamation that “Republicans have listened to the voices of the American people and worked to bring the spending binge to a halt.” All of which would be convincing indeed if that is in fact what the American public wanted (even if they were wrong). Except, of course, for that whole “not being true” thing that seems to haunt the GOP leadership.

Nate Silver’s analysis a couple of weeks ago is trenchant: even GOP voters favored a roughly 3:1 ratio of spending cuts to revenue enhancement as their ideal debt ceiling deal. Independents were at about 2:1, Democrats essentially 1:1. There was, as Silver points out, “a larger ideological gap between House Republicans and Republican voters than there is between Republican voters and Democratic ones” [emphasis his]. President Obama offered a mix of 83% cuts and 17% revenue—a position well to the right not only of the American people, but of Republican voters, and the GOP rejected it out of hand. Sooner or later, the public is going to recognize the adolescent posturing for what it is, especially since the Tea Party—whose political fortunes have been in decline since the population began to figure out just how crazy they really are—is now at just 18% in the latest New York Times poll, the lowest figure since the question started being asked.

Indeed, when we put that NYT poll (taken August 2-3) alongside the one from CNN (taken August 1), we get some pretty interesting numbers. In the chart below, I list the approval vs. disapproval ratings for a variety of political figures and groups. A + indicates an overall positive rating, a – means an overall negative rating. So, for example, a approval of 50% and a disapproval rating of 40% would result in a +10.
President Obama: +1 (NYT), -7 (CNN); specifically on debt ceiling negotiations: -1 (NYT), -7 (CNN)
Congress: -68 (NYT), -70 (CNN)
John Boehner: -27 (NYT)
Specifically on the debt ceiling deal: Congressional Republicans/ Republican leaders: -51 (NYT), -38 (CNN).
Specifically on the debt ceiling deal: Congressional Democrats/ Democratic leaders: -38 (NYT), -28 (CNN).
Debt deal should have included revenues: +6 (NYT), +20 (CNN).
Also, how about these figures from the New York Times poll: “Who do you think is mostly to blame for the federal budget deficit?” The Bush administration outpolled the Obama administration, Congress, and “someone else” combined, by 44-40%. Obama was blamed by only 15%, with “all of the above” and “combination” (neither of which was one of the prompted responses) chosen by 12%. A huge majority regarded the negotiations over the debt ceiling as an attempt to gain political advantage (82%) rather than doing what was best for the country (14%). Republicans in Congress were blamed for the difficulties in reaching an agreement by 47%, Obama and the Democrats by 29%, both (again, a volunteered response) by 20%.

The negotiations made 66% of those surveyed more pessimistic about Congress’s ability to “deal with future issues,” vs. only 12% more optimistic. Allowing the Bush tax breaks for the $250K+ crowd to expire: favored by 29 points. Impression of the Tea Party: negative by 20 points, with a huge (39 points) collection of variations on the theme of undecided. [Really?] The Tea Party has too much influence? 43%. Too little? 17%.

So… yeah… which brings us to the Republican response to all this, which is predictable in the extreme. Ultimately, I needn’t spell out all the variations on the same theme, which is basically that although Republican intransigence caused the problem, it’s all Obama’s fault, anyway. TARP was Obama’s fault. The Iraq War was Obama’s fault. The kidnapping of the Lindbergh baby was Obama’s fault. The sacking of Constantinople was Obama’s fault. John the Baptist’s halitosis was Obama’s fault.

I’d be remiss, however, if I didn’t provide at least one specific example of a GOP Presidential candidate’s take—the MSNBC article on the subject (linked above for the Boehner quotation) has this: “Republican presidential candidate Tim Pawlenty, former Minnesota governor, said the downgrade is ‘a reflection of the failed leadership of President Obama. He really is inept when it comes to the economy. He's had over three years of being president. Barack Obama has had his chance and it's not working.’” Given the fact that President Obama has been in office about 31 months, which is not, in fact, “over three years” in my universe, perhaps we ought to leave the accusations of ineptness to those who can handle 3rd-grade arithmetic, eh, Tim?

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