“To me, this is just more vindication of our actions. We passed a budget which, according to somebody from S&P yesterday, would have prevented this downgrade from happening in the first place.”
--Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, Aug. 7, 2011
The Fact Checker missed the high drama of the debt ceiling debate, having long ago scheduled a vacation in the high mountains of Peru. (When we made our plans, Treasury Secretary Timothy Geithner had claimed the debt ceiling would be breached in May or June.) We’re sorry to have missed an opportunity to examine the hot air surrounding that showdown, but we are back in time for the blame game over Standard & Poor’s downgrade of U.S. government bonds from its AAA rating.
The S&P report on the downgrade is certainly interesting reading. It is less a financial analysis than a mordant commentary on what the rating agency sees as a broken political system — an inability by both parties to overcome their rigid positions and come to compromise.
Ryan appeared on “Fox News Sunday” and declared that S&P said the House Republican plan — vehemently opposed by Democrats — would have prevented a default. To his credit, host Chris Wallace asked whether this was like saying, “I did the operation perfectly but the patient died.”
Given that Ryan received a lot of ink for his claim, we decided to ask S&P whether it said Ryan’s plan would have prevented default.
The S&P downgrade should not have come as a surprise to anyone who had read its report issued in April, “Fiscal Challenges Weighing On the 'AAA' Sovereign Credit Rating on the Government of the United States.” That report warned that the growing divide between the parties was making the agency nervous about the prospects of a budget deal that would actually contend with the nation’s rising debt load, especially when compared with the handful of other nations with AAA ratings.
The report listed four ways that deficit-reduction prospects could improve: The economy could perform better than expected; lawmakers could allow the Bush 2001 and 2003 tax cuts to expire, resulting in more revenue; the wars in Afghanistan and Iraq could end more quickly and cheaply than expected; and proposals made by President Obama and Ryan could form the basis for a bipartisan solution on the deficit.
Fast-forward to last week. S&P looked at the debt-ceiling collision and concluded that the parties were further than ever from an agreement on the deficit. That would mean, in part, that the tax cuts would not expire, and some sort of compromise deal was further out of reach. On top of that, the economy appeared to be running off track again. Thus S&P decided the nation’s debt was ripe for a downgrade.
The April report took no position on either Obama’s or Ryan’s plans for dealing with the deficit.
“Both President Obama and Congressman Ryan presented far-reaching proposals for reining in long-term growth in expenditure on entitlement programs. These two plans presented very different paths towards reaching this goal, the former focusing more on making health care spending more efficient, the latter on significantly reducing the scope of federally funded health care programs. Still, the two proposals at least appear to imply agreement, on both sides, that the U.S. needs to soon begin to address long-term cost drivers.
“Nevertheless, one contributing factor in our negative outlook decision is our view that there has, as yet, been no significant progress in addressing these long-term cost drivers nor any consensus developing among the Obama administration, the Senate, and the House of Representatives regarding the specifics of a comprehensive plan to address the long-term challenges.”
The report last week also took no position on any particular plan. Instead it focused on how the extended wrangling had called into question the ability of the U.S. political system to deal with economic challenges: “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.”
Asked about Ryan’s claim, John Piecuch, director of communications for S&P, said: “We did not comment on any of the proposals which may have circulated — just the Budget Control Act which passed and was signed by the president.” He added that as general policy, S&P does not endorse any particular mix of revenue and spending changes needed to reduce the deficit and would not comment on the effectiveness of a plan until it was passed into law.
So how does Ryan make this claim?
Kevin Seifert, a Ryan spokesman, pointed us to this statement by John Chambers, the chairman of the S&P sovereign ratings committee: “If you get to $4 trillion mentioned by the president in an April 13 speech, by the Bowles-Simpson commission and by Congressman Paul Ryan, that along with economic growth would’ve done the trick.” Chambers made the comment during an interview on Fox News.
“Of the three items referenced by John Chambers in the quote above, the Path to Prosperity is the only budget and only legislative proposal with specific numbers and estimates of future deficits and debt,” Seifert asserted. “It puts the federal budget on a path to balance, does so without job-destroying tax hikes, and advances pro-growth reforms to get the economy growing again. It meets a benchmark that other proposals do not — as the president and Senate Democrats have yet to lay their cards on the table and introduce a credible plan to reduce our debt and address our looming fiscal challenges.”
Under a "reasonable man" test, we think most viewers would have thought that Ryan suggested that S&P endorsed his plan, but Seifert disagrees. "You are declaring S&P's political metric to be inseparable from its fiscal metric. Chairman Ryan was clearly referring to S&P's fiscal metric. To say otherwise, is putting words in Paul's mouth," he said. He claimed the Ryan budget is "a plan rooted in ideas that have garnered bipartisan support in the past, and — to the point we are discussing — it's a plan that according to S&P would yield enough savings to avoid a downgrade. According to S&P's fiscal, not its political, metric, our plan would have solved the problem."
The Pinocchio Test
Ryan is being too cute by half. Even taking Ryan’s claims about his budget at face value — which we have found dubious in the past — Chambers did not endorse the Ryan plan specifically but also mentioned Obama’s proposals and the Bowles-Simpson commission. All Chambers endorsed was the notion of a $4 trillion deal, not a particular plan.
In fact, Ryan appears to be missing the point about S&P’s bombshell.
The agency warned in April that political compromise between the parties was necessary to make a deficit plan viable in the long-term, whereas a GOP-only or Democratic-only plan would not have credibility. The House budget plan never made it past the Senate because it had virtually no Democratic support.
As S&P put it: “Some compromise that achieves agreement on a comprehensive budgetary consolidation program — combined with meaningful steps toward implementation by 2013 — could lead us to maintain the rating where it is.”
In other words, it was the failure of Republicans and Democrats to demonstrate they could work together that led directly to the downgrade. That is not a “vindication of our actions;” it is a repudiation.