I woke up early this morning to the sound of screams, which I'm now pretty sure were my own. I don't know exactly what kind of effect the S&P downgrade will have on the U.S. or world economy; Dylan Matthews says it could be trivial, as it was with Japan's recent downgrade. But symbolically, it's horrible. It's a (technically) neutral observer saying "We know you have debts, and we know you have the money to pay them, but we don't think you'll do it." And it's hard to counter that assessment given recent political events.
Ezra Klein has a good take this morning. He notes S&P's chutzpah -- they told us just a few years ago that all those financial products from a few years ago that turned out to be complete junk deserved an AAA rating, which contributed to the massive meltdown of 2008. Oh, and thanks to that meltdown, government revenues have dropped and outlays have increased, which is a large part of the reason our debt has spiked. But that aside, they're not wrong to question America as a solid investment. As Ezra says, quoting the S&P statement,
“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,” they explained in the statement accompanying Friday’s decision. After Republicans in Congress spent three months weighing whether or not to default on our debt and Senate Minority Leader Mitch McConnell said that paying our bills would never again be a foregone conclusion, can anyone really argue with that? After every Republican presidential candidate save Jon Huntsman either remained silent on, or flatly opposed, the deal to raise the debt ceiling, can anyone really say that U.S. debt is completely riskless? That there’s no chance of a political miscalculation, and if there is such a chance, that they can perfectly predict the outcome of the ensuing chaos?I'd like to think that such a sobering assessment from an ostensibly neutral observer would turn this into a cooperative game, that it would force members of Congress to reconsider some of their previously held beliefs. It won't. Republicans read this as evidence that the cuts in last week's debt ceiling deal weren't deep enough. Democrats read it as evidence that Republican recalcitrance on taxes is killing the country.
What might be more realistic to hope for would be a reassessment of how the U.S. structures its political institutions. For example, perhaps we should just do away with the debt ceiling, an unnecessary vote that just invites hostage-taking. More generally, perhaps we should do away with counter-majoritarian rules (like the filibuster) and just let the majority party govern as it wishes. If Democrats want to increase services and taxes to pay for them, let them, and let the voters decide if they should remain in power or not. If Republicans want to return us to 1920s levels of services and taxation, let them, and let the voters judge.
I recognize that such an ideal can never be quite achieved in a system where executives and legislators are elected separately, which allows for divided government. But moving toward this ideal would likely be better than our current situation, in which one party's top priority is to protect government services and the other's top priority is to not pay for those services and both have the power to see their top priorities enacted simultaneously.