The decision by Standard & Poor’s to move U. S. government debt to a negative outlook is really a political intervention by a ratings agency into the country’s debt and deficit debate.
I truly doubt that any investor expects the United States government to default on its debt. The underlying assets of the United States — which is to say, the largest economy in the world — are rather formidable. And history says that we eventually get our act together on budget matters, even though the politics on the way there is usually ugly.
So I agree with Austan Goolsbee, the chairman of President Obama’s Council of Economic Advisors, who said that S&P’s “political judgment” should not be given “too much weight.” And the Financial Times’ John Authers was right to say that “the move is still more symbolic than anything else.”
What this should do is get Republicans off their genuinely dangerous strategy of using a vote on increasing the debt limit as leverage to win budget concessions.
It was already a dangerous time to play games with the debt limit, and now it’s even more dangerous. Hostage-taking is not the democratic way to make political decisions, and I agree with Greg Sargent that Democrats would be better off if they had drawn a cleaner, clearer line on this earlier. Let’s get the debt limit vote out of the way — Democrats in both houses should offer as many votes as they can to get it done — and then have our budget debate.
Unfortunately, the GOP took the S&P move as an indication that they are right to want to tie spending cuts to any increase in the debt ceiling. This is a willful misreading of what happened on Monday. The real problem is that markets don’t believe Congress will raise taxes enough to cover the inevitable costs our government faces over the coming years. It’s the Republicans’ aversion to any tax increases that has the markets spooked. The markets know full well that deep cuts in Medicare and Medicaid of the sort proposed in the Republican budget written by Rep. Paul Ryan (R-Wis.) can never become law (and, of course, they shouldn’t). They also know that Ryan takes decades to move us to balance.
One strong hint that the market watchers see the deficit as a revenue problem came from David Beers, S&P’s head of sovereign ratings. As Zachary Goldfarb and Lori Montgomery reported in the Post, Beers spoke to reporters in a conference call of “the gradual deterioration of the U.S. fiscal profile” and specifically noted that last December’s $858 billion tax cut deal had hastened that deterioration. The markets know that in the current political situation, bipartisanship comes easy on tax cuts, but not on tax increases.
It was thus nice to see President Obama stick to his guns on Tuesday, insisting that, at the very least, the wealthy need to expect to have to pay more in taxes. “We can’t just tell the wealthiest among us, ‘You don’t have to do a thing. You just sit there and relax, and everybody else, we’re going to solve this problem,’” he said.
The government simply needs more revenue. The inability of our political system to face up to this is creating wholly unnecessary problems for a very rich country that should easily be able to pay its bills. And, alas, by pretending that we can just cut our way out of the problem, proposals such as the Ryan budget only prolong the fantasy that there is an alternative.