Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Sunday, August 7, 2011

That Downgrade Thang

Amidst all the hoopla over the $2 trillion math error, and "Who are these S&P People, anyway?" it's easy to lose sight of the underlying issue that caused THE DOWNGRADE.

· More broadly, the downgrade reflects our view that the effectiveness,  stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

· Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

The entire situation is the result of political intransigence of Rethugs, due to their need to placate the Teabagger base, which is in thrall the Koch brothers.

The Atlantic Wire article linked above makes a centrist game of refusing to assign responsibility to any party.  The actual S&P report (Pg 4) is a bit more direct (emphasis added.)

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.

OK - the S&P report does also prattle on about the oh-so-awful debt situation, which does muddy the waters a bit.  However, the only mention of Democrats in the report is here:

Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options.

Not exactly a blistering indictment of the Dems, so I don't want to hear any falsely equivalent claims from Rethug supporters.

My cynical take is that the downgrade is a coded message to the Rethugs from their Wall Street Masters that sinking the economy - even in the short term - is not good for the interests of the rich - or at least not all of them.   A stock melt down evaporates a lot more of their wealth than it does yours and mine, and low real interest rates do little to enhance the wealth position of coupon clippers.  (And I'm not talking about these.)  Besides, Wall St. OWNS Obama, and its interests do not necessarily line up with those of Texas oil billionaires whose family fortune originated with developing the Soviet oil industry for the Bolsheviks! Well, practical money-making opportunities will trump pure libertarian ideology every time - no?

By the way, despite the use of the phrase "any time soon" the S&P downgrade is still pure bull shit.  If I'm wrong, interest rates on T-Bonds will skyrocket.  Don't hold your breath.  Despite what S&P says, discretionary spending is almost totally irrelevant to the budget situation, and what are erroneously called "entitlement programs" (we pay for the god-damned things IN ADVANCE via the payroll tax) have no place in the discussion.  Eric Cantor can go straight to hell.

· The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

I'm not going to be like the MMT guys or (from another perspective) Face-Blaster Cheney and say that deficits don't matter.  I will say they don't matter very much, that in the medium term they matter very, very little, and that a current focus on them is severely counterproductive, possibly destructive.  The key to debt dynamics is economic recovery, which means jobs, which means undoing 30 years of Rethug tax, regulation, and union busting policies.

Alas -- I don't see that happening any time soon.

UpdateA couple of years ago I posted a graph of Federal Debt/GDP over time.  After WW II we spent on the interstate highway system, the space program, the Great Society, wars in Korea and Viet Nam, etc. etc.  And we brought the National Debt/GDP ratio from over 120% of GDP to something in the low 30% range.

Meanwhile, we had the golden age of prosperity, and the only time in history when the American Dream was a realistic expectation for the typical American family.  How did this happen?   Simple - we had steeply progressive taxation, robust regulations ( specifically anti-trust enforcement) and strong unions.

It's important to realize that we didn't pay down the national debtThis grew almost every year of the post war golden age.  We simply grew the economy faster.   

It's not that god damned difficult 

ReupdateThen again, maybe it is.

1 comment:

Jerry Critter said...

"Simple - we had steeply progressive taxation, robust regulations ( specifically anti-trust enforcement) and strong unions."

Then we got Reagan, and over the next 30 years the economy went to hell.