Downgrading democracy

August 8, 2011

By Paul Smalera
All views expressed are his own.

The Washington debt ceiling debate over these past months was the throwing open of the doors to the democratic slaughterhouse — let’s please not ever complain again about not being able to watch the sausage get made. Though our media window onto the killing floor surely contributed to the S&P’s downgrade of U.S. debt, that’s not an entirely bad thing, as I’ll explain in a moment.

The preemptive downgrade of U.S. debt breaks a disturbing ratings agency pattern: Too-late downgrades from S&P and the other ratings agencies in the cases of Bear Stearns, Lehman Brothers, AIG, Greece and Ireland among many others. In the econoblogosphere, reliably hind-sighted ratings-agency downgrades, whether of sovereign debt or a teetering company’s bonds, have come to be something of a dark joke. It’s overdue that S&P got itself back into predictive rather than reactive mode. Yet the company’s sovereign debt committee surely chose the wrong target in U.S. Treasuries and broke the late-downgrade pattern for all the wrong reasons.

The ratings agency’s decision reads like nothing other than a fit of pique towards the government institutions and American people that had come to blame it as a prime enabler of the global financial crisis. The agencies, as my colleague Christopher Whalen just wrote, “prostituted themselves and their special position of trust with respect to mortgage-backed securities and exotic derivatives.” To get a little more anatomical, executives at the ratings agencies churned out AAA ratings on CDOs and other risky debt — debt that their analysis should have shown to be junk-bond quality at best — because they risked losing business if they were too critical. (Call it the, “every John is the best lover ever” theory of credit rating.)

The S&P’s biggest blunder here is that the U.S., thanks to the debt deal everyone hates, will continue never missing a debt payment. A close second is that even if the U.S. had run out of borrowing power, Timothy Geithner and the Treasury Department surely had a “Plan B” that would’ve prioritized debt payments to avoid a default, probably for at least a few more months before its cash-on-hand situation became truly dire.

But the real reason the S&P was wrong to downgrade the U.S. is because what we all just witnessed in D.C. was, as the famous quote goes, the sausage being made. It was an open, democratic process. The Tea Party Republicans who blocked more moderate debt ceiling legislation are duly-elected representatives who were fighting hard for their constituents and beliefs, however radical. It may frustrate moderate or liberal voters to no end that Tea Party governance appears to be little more than obstruction, but that’s been the prerogative of minorities in divided governments for centuries. In the end, as analysts conceded, they were brutally effective in swaying the Obama administration and Senate Democrats much closer to their preferred, fiscally constrictive debt ceiling deal. Since when are political compromises supposed to be pretty?

While Americans, and indeed the world, would’ve surely preferred a smoother debt deal, our divided viewpoints on the country’s proper economic direction forward produced the only deal that all sides could begrudgingly sign onto. And that’s how democracy is supposed to work. What S&P downgraded then, as it admitted when it tossed out its own $2 trillion error and went full speed ahead, was the democratic political process and the representative form of government as it currently exists in the U.S. (Aside: Has the S&P boxed itself into reaffirming its rating based on the results of every national election from here on out?)

When investment banks and insurance companies presented unified fronts and financial pressure on ratings agencies in demanding AAA, the agencies willfully acquiesced. But when the U.S. government, in unprecedented fashion thanks to the 24×7 media climate, opened its doors on the strife, division and battling that goes into shaping the single largest component of the GDP, well, the ratings agencies would respectfully request that democracy get its PowerPoint slides in better shape next time.

While the debt ceiling debate was painful to watch, it was the delivering on of a promise that President Obama made as a candidate with regards to the health care debate. He promised to hold negotiations over that legislation in the clear light of day, and never did. In the debt ceiling debate, the political players had little choice but to throw open the slaughterhouse doors. If we didn’t like what we saw, it’s now up to us as voters to change things for next time. But sunlight has lit up the political process as never before. It’s no one’s fault but its own that the S&P seems to prefer the boardroom or the backroom to the family room when it comes to keeping the nasty bits of governance out of sight.

I’m reminded of Joel Salatin, a farmer chronicled by Michael Pollan in “The Omnivore’s Dilemma.” Salatin  has a slaughterhouse on his radical, which is to say, highly traditional, farm. It’s an open-air shed — no walls, lots of sun, nowhere to hide what happens there. His customers can even come by and watch the proceedings. Government food regulators were extremely squeamish when it came to his methods — why not use a traditional slaughterhouse with a cow-sized hole at one end and an idling tractor-trailer at the other? Why grow meat outside the industrial system at all? In his own book, “Everything I Want To Do Is Illegal,” Salatin writes, “The stronger a culture, the less it fears the radical fringe. The more paranoid and precarious a culture, the less tolerance it offers.”

Not only have we seen the radical fringe of fiscal politics, we’ve seen, in the S&P downgrade, the fear of the radical fringe of open, sincere dialogue around issues like the national debt. But thanks to debt ceiling debate, everyday Americans know more about the precariousness of our fiscal situation and the power of voting for their elected officials than ever before, and not a moment too soon. For that alone, the U.S. deserves a big upgrade.

16 comments

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We don’t have a democracy, we have a blameocracy. The entire goverment is a failure and we just blame the other party. The whole world is peeing their pants laughing at us!

Posted by minipaws | Report as abusive

Interesting analogy…. but minipaws is right. We cannot upgrade democracy if it doesn’t exist. Using one of the author’s own quotes from Salatin, ‘The more paranoid and precarious a culture, the less tolerance it offers.’ If there is a less tolerant society than America at this stage, please point to it….

Posted by edgyinchina | Report as abusive

Actually, because of the diddling of our national economic statistics by successive governments, the failure of out-sourcing, war and the swollen defense establishment, and much else I agree, S&P did it right.

Posted by ChrisHerz | Report as abusive

The United States has, by continuously (and heretofore “routinely”) increasing it’s “debt limit”, shown itself to be fiscally insane well beyond “unsustainable. Both parties participated in this political debauchery.

There is something bizarre that “Tea Party” freshmen Representatives, who were the “whistleblowers” on our house of cards, are loudly and conspicuously reviled by those in both parties who genuinely believe a return to past practices is possible. America should be ashamed of itself.

We need to get through “denial”, “negotiation” and “acceptance” quickly if we are to timely map out a workable course back to a stable and promising economy. Failure is not an option. Peter Pan must finally grow up.

Posted by OneOfTheSheep | Report as abusive

“If there is a less tolerant society than America at this stage, please point to it . . . .”

Sure, Edgy, I’ll point to it . . . it’s called CHINA!

My complements to Paul for a well written piece. S&P is zigging and zagging from one extreme to the next, and as Paul points out they really did pick the wrong target to get ultra conservative on first. The S&P downgrade looks more like a fit of pique than anything else.

Posted by PapaDisco | Report as abusive

“Has the S&P boxed itself into reaffirming its rating based on the results of every national election from here on out?”

They haven’t boxed themselves into anything at all if the class of trans- and post-national rentiers who own them have sovereignty, and the nation states whose budgets they control don’t.

Posted by lambertstrether | Report as abusive

I don’t know how other nations do things, but here in the USA we are taught that our Founding fathers were all of pure and noble intent, our generals all honorable and our industrialists all bound on the increase of their country. That’s rubbish. We are likewise taught that our government’s checks and balances are somehow run in a collegial manner by people never tempted, never yielding to the lures of power, privilege and the world spread out beneath their feet. Also rubbish. But anyone who gets hold of our ACTUAL history will have learned that politics, that most human of activities, is necessarily messy, nasty, and even corrupt and dishonest. And that the Founders, who together wrote the Constitution we follow, were wise enough to see that in themselves and recognize its antidote: The more the merrier.

We can still recognize when we’ve painted ourselves into a corner. Our political structure allows us to make running for office a test of ideology instead of practicality, and gives fanatics and ideologues an advantage over those merely willing to make the politics work. We have just had that demonstrated to us. Given that advantage, a majority Party need only not care what happens to the country to do as it pleases. And we’ve had THAT shown us as well. It is a valuable lesson, if we can learn from it.

Posted by RET_SFC | Report as abusive

“What S&P downgraded then, as it admitted when it tossed out its own $2 trillion error and went full speed ahead, was the democratic political process and the representative form of government as it currently exists in the U.S.”

Not quite but close in my view.

Our form of government is just fine. But those in the leadership roles simply are channeling stupid.

Posted by tomwinans | Report as abusive

Whatever that “debt ceiling debate” demonstrated, Smalera, it most certainly did not demonstrate “democracy” in action. One effect of the past couple of years, however, is that I have discovered an amazing trend in that progressives and reactionaries — in the society, not the government — are learning to talk to one another. We are seeing broad agreement on the ground that our government is entirely dysfunctional.

Our government is not serving the people, as a democratic process would. Rather, our government has been captured by money-interests. This is why taxpayer monies are used again and again to “increase liquidity,” shorthand for a hand-over of the public’s production to the financiers. This is why the nation’s leaders are willing to continue printing money, creating inflation, and thereby dishonestly taxing the productive members of the society behind their backs.

This very website, a powerful component of the MSM, is a tool of that process. Your words are furthering that process. This obfuscation will continue until it can’t anymore, until the entire ponzi scheme collapses.

Then we’ll see democracy. I do agree, though, that it won’t be pretty when we get there.

Posted by BowMtnSpirit | Report as abusive

Why are we not seeing stories about what our specific choices may be on reform? What are the options that the super committee will have to choose from? What are the pros and cons? Which choices do ordinary folks want to see their reprentatives choose? When do we finally roll our sleeves up and reform our long term entitlement programs? And immediately afterward, or at the same time, infrastructure spending this and next year to provide jobs, even if it helps Obama.

Posted by threeRivers | Report as abusive

S&P has sold out so many times in the past it has no virtue left to lose. As a result anything it does seems forced and unbalanced

The real issue, as some commentators have pointed out, is structural reform and not just cutting a few dollars here and a few dollars there.

The source of the crisis is the vast, opaque market in complex financial instruments whose mathematical models only hold in a very limited domain of convergence. This market is vastly larger than the assets that underpin it. The derivatives market needs to be transparent and the financial institutions need to be responsible for the results themselves. Even if banks collapse the government can handle their liquidation and reestablishment of the sector, just as they did with General Motors. The too big to fail mentality is a license to steal, and steal they did and still are, the same people.

Institutional reform is needed in medicine and pensions, trade and intellectual property. The lawyers and accountants are good at keeping a system going, but they aren’t good a designing a system that can maintain a national consensus and credibility. The present systems are legalistic casinos that are collapsing of their top heavy weight and internal necrosis.

Posted by jobardu | Report as abusive

This is a well-written piece, but I strongly disagree. You give credibility to the abuse of a process that had formerly worked well, though imperfect, for America. What we witnessed wasn’t democracy in action, but the abuse of democracy, a grinding of the boot heel on the spirit of US representative democracy and all of its intents.

The US Republic has been toward a political/social/economic rupture for a quite some time now, one could argue since the implementation of supply-side economics and the beginning of mass manipulation through media propaganda in order to divide and conquer. This debt debacle is the manifestation of the planting of those early seeds. I would even argue that the first clear demonstration of the faux-izing of America’s democracy came with Bush’s bogus march to war in Iraq.

The Iraq War was a political folly that was pulled off with a reliance on propaganda and political pressure. Those Democrats who dared to even question the Bush Administration’s motives were publicly branded as unpatriotic, anti-American, and terrorist sympathizers. These charges alone would have placed the responsibility of their effectiveness on those who caved to the pressure, but coming on the heels of the 9/11 attacks it became more than a mere political tactic. I think the term fear mongering is apt. Such charges were successful in manipulating large swaths of the population to direct their animosity toward those who were trying to do the job they were elected to do–analyze known facts about Saddam, Iraq, and the possible threats they really posed to the US, and make a clear determination as to whether or not war is the prudent course of action–forcing them, mostly Democrats, to either give the Bush Administration their way by signing on to the war scheme or letting the Bush Administration have their way through their replacement by hawkish Republicans in the next election. Anyone doubting this need only look at what Saxby Chambliss did to Max Cleland, a true war hero who had earned a silver and bronze star during the Vietnam War and lost both legs and an arm during that same military service to our country. Bear in mind that we had midterm elections in November of 2002 and the vote to authorize military use in Iraq conveniently took place in October, 2002, just a month before midterm elections. Historically, midterm elections usually favor the party not holding the White House, but in 2002 the Republicans, with Bush in the White House, gained seats in both the House and the Senate, and for Saxby Chambliss’s immoral attacks on Max Cleland, he has been rewarded with the Senate seat from Georgia going on 20 years now. And it’s no coincidence that Chambliss is a favorite among the Tea Party crowd.

Perhaps you consider the way we were taken into Iraq to be clever, if not ugly, democracy in action. I see it as the first clear sign that our democracy, in the spirit intended by our Founding Fathers, is being undone. US democracy, backed by our Constitution, has become a nuisance, an obstacle to be circumvented by those unscrupulous enough to do so, driven by their unwillingness to compromise. That’s what the Bush White House and, more recently, the Republican Tea Party have attained, circumvention of our democracy. It worked like a charm, so expect to see more, much more.

Posted by ginchinchili | Report as abusive

Political “leaders” have been rushing to bankrupt this nation by funding freebies to the non-productive at the expense of the productive.  No one will like where that eventually leads. To stop the current speed at which we approach national financial suicide will be a jolt.

The first and continuing duty of our federal government is to properly prioritize and efficiently budget for a SUSTAINABLE level of spending. Instead, America has demonstrated ever increasing incompetence.  ONLY by returning to sound fiscal policies will the United States earn back the AAA rating recently squandered.

To give Congress additional revenue at this time would be like trying to extinguish a fire with gasoline. Additional tax revenue is the drug of choice of every politician, regardless of party.

This fall, for the first time, all parties must accept that instead of merely slowing the continuing growth of government, we must eventually shrink it if our economy is to again become sustainable.

The necessary process is essentially unprecedented. Every bureaucrat on the hill will be screaming bloody murder.
Harry Truman said: “I don’t ‘give ‘em hell’. I just tell them the truth and they think it’s hell!” What goes around, comes around.

Posted by OneOfTheSheep | Report as abusive

OneOfTheSheep: The way that our debt has grown is a symptom of the real problem, which is that the American people are no longer being represented by our government. Only special interests have a say-so in how we’re governed. It’s our government’s adherence to the will of special interests while ignoring the priorities of the American people that has gotten us in our current fiscal hot water, not “funding freebies to the non-productive at the expense of the productive.”

If you are defining “the productive” as those with the greatest amounts of wealth, then I see little that has been at their expense; they are doing marvelously well both in income and in the historically low taxes that they are paying. The effective tax rate for America’s wealthiest is around 18% on average, despite being in the 35% tax bracket. That’s low. Only well-connected special interests could get that accomplished. Nice going, guys.

How is an unfunded, unnecessary war in Iraq considered a “freebie”? Or the Afghanistan war? Or even our participation in Libya? How do you consider the cost of the Department of Homeland Security a freebie? No Child Left Behind? The TARP bailout? (Yes, that was a freebie, but not for the people you’ve cynically labelled “the non-productive”. That was a freebie for the people on the other end of the spectrum. I guess their freebies are acceptable.) The Bush tax cuts that went into effect just as we were going to war, what non-productive people received a freebie from that? Certainly not the poor and Middle Class where most of our soldiers come from. I hardly think our soldiers would consider those wars “freebies”, certainly not for them (though those wars are manna from…well, not heaven, for military contractors, i.e., special interests, making huge profits for their companies and their stockholders. So, freebies for them?) These are the kinds of things that have gotten our budget so out of whack.

What specifically are you referring to when you use the reference “freebies”? Social Security and Medicare aren’t exactly freebies since we pay into them, at least those of us who work. Has there been mismanagement? Of course.

No one likes to say it, but the primary problem with Medicare isn’t that it’s a bad program. It’s made healthcare affordable for millions of elderly Americans, healthcare that would otherwise be unaffordable. Despite the talking points we hear over and over and over again, helping Americans when they need help really is a good thing for America. Most countries do this for their citizens, at least countries with effective governments.

No, the problem with Medicare is that the cost of healthcare in America has risen beyond what the average American can pay. FICA taxes haven’t kept up because it would require too much of a person’s pay check. So the government makes up the difference, but government tax revenues aren’t keeping up with the rising cost of healthcare either. No one can keep up the rising cost of healthcare except the wealthy. They’re the only one’s who can afford it without having to worry about it bankrupting them. They are also the ones who own our healthcare systems and who are reaping enormous profits from that very expensive system. Once again, special interests to the rescue.

Rather than just cut millions of elderly Americans off from their healthcare we have to make healthcare more affordable. Our incomes are not increasing while medical costs have been skyrocketing. Again, there are few with the political spine to say it, but the only way we can effective save Medicare is to find a way to lower the cost of healthcare, or increase what people get paid, which is probably impossible because special interests don’t want to pay workers more because that would leave less for the special interests. Raising workers’ pay is something the labor unions had fought for and now that is being attacked as a bad thing for America. (It seems as though any idea that involves helping the average American working stiff gets attacked as bad.)

So how do you lower the cost of healthcare? You either have to place limits on the amount that can be charged, which would involve price controls, or cut the costs in other areas, like administrative costs and profits. To do that, we would have to design a universal healthcare program, though something tells me you would be opposed to that.

A government-run healthcare program for the elderly is expensive because the elderly require more healthcare than the rest of us. But if Medicare was opened up to everyone, a lot of money would be saved because younger people wouldn’t be using it nearly as much. But at some point in time our elected representatives will have to deal with the bloated cost being charged for our healthcare. Whatever the solution is, it must involve giving all Americans access to affordable healthcare because healthcare is a necessity.

But this is exactly why every developed nation with the exception of the US has some type of government-run healthcare system. Because they had the political courage and wisdom to face the fact that healthcare costs will continue to rise beyond what the average citizen can pay. These other countries determined that the answer isn’t to just say “too bad” to those who can no longer afford healthcare. They, instead, approached this challenge as ‘what can we, the government, do to help our people?’ because that is their job, to serve the people they govern.

Giving people access to something they need in order to live is not handing out freebies. It’s good governing. After all, if too many people are unable to have access to necessities, like healthcare, food, clothing, shelter, and education, while a few enjoy those things in abundance, the greater numbers will force the change one way or another. That’s an aspect of human nature that shouldn’t be ignore by today’s politicians.

Posted by ginchinchili | Report as abusive

ginchinchili,

Excellent, thoughtful post. I will attempt to respectfully respond in kind because many of our apparent differences may be more in perspective than fact.

The same words increasingly mean entirely different things in unbiased conversation, and that can prevent the understanding essential to the balance point between seeing something as “right” and “wrong”. Few honest people are genuinely unreasonable.

The “American people” are not a single point of view any more than “our government” has the slightest hope of “representing them” in a generic sense. I must agree that
this IS why our debt has exploded. I also agree that the best hope any individual has of “being represented” is to tag onto the “special interest” most likely to win a Congressional vote.

For simplicity and clarity let us define Peter as a worker and/or taxpayer (the “productive”) and Paul as representing all who don’t. In this context, any politician or party, or special interest that takes revenue originating from Peter’s activities and gives to Paul to fund his can always depend upon the support of Paul.

Those that believe that all men are equal has never observed the difference in how “life” treats a lovely young girl whose tire goes flat and when that happens to anyone else. Life isn’t fair, and if we did nothing elase but try to make it so, we would still fail. Every time.

If you could wave a magic want and instantly make available to every American the same financial resources, I believe you would be amazed at how quickly the resources would, in a general sense, return whence they came.

It takes essentially the same “smarts” to keep money as it takes to make it. That’s why most poor people that win lotteries or receive large inheritances still die broke. This is less about “special interests” and more about understanding the rewards and penalties of the applicable tax system (which is ever a moving target).

My use of the term “freebie” was valid as a general concept. I agree it is useless for any debate in depth. Let’s dispense with it and take each issue you would address. The term “unfunded” is another one I am uncomfortable with to the creativity of those who would prefer relevent relationships between federal “income” and “expenses” not be clear to one and all.

I see our wars in Iraq and Afghanistan as absolutely necessary. They, together with Hurricane Katrina, have unfortunately proved beyond doubt that our federal government has piss poor ability to efficiently or effectively administrate ANY complex task.

America was attacked by al-Qaeda on our own soil because the Taliban provided these terrorists safe haven. We are still there to prevent a repeat. The invasion of Kuwait by Saddam Hussein was but his first step to control the oil of the Middle East. We erred grievously in stopping the first Gulf War in a manner that allowed him to rebound. Soon we will be out. No one promised easy.

Department of Homeland Security? Bunch of clueless, overpaid idiots. Turn the duties, authority and appropriate funding over to our Department of Defense.

No Child Left Behind was an expensive, abject failure. The TARP bailout? A betrayal of every American, bar none.
The Bush tax cuts? I fail in hindsight to see any benefit whatsoever for those on NET annual income over $250,000.

Back to “unfunded wars”…the U.S. went to a volunteer military. That cost more in terms of higher pay and benefits…but each of these represented greater opportunity for those of humble origin as would better themselves. I see that as an “unfunded” equal opportunity program nonetheless worthwhile as an investment in the future of such Americans as EARNED those benefits… remember the “GI Bill”?.

As for military contractors, in Texas modern fighters are built by well paid blue collar workers and sold to other countries around the globe, as is the technology in them, spare parts and maintenance contracts. Every such dollar that comes back reduces the U.S. trade deficit.

Consider that all those Abrams tanks, personnel carriers, Hummers, ambulances, tanker trucks, personal weapons, drones, missiles, bombs, bullets, uniforms, and maintenance manuals are still made right here in the good ol’ U.S. of A. Don’t forget the firms and employees that provide food, water, distillation plants, tents, cooking equipment, cooling equipment, hydration equipment.

All of the above has stimulated our overall economy far more than Obama’s pathetic stimulus efforts. It’s much of what is keeping our economy from tanking right now. Cut with a scalpel, not an ax!

I’m going to stop here and continue later. Cheers!

Posted by OneOfTheSheep | Report as abusive

I fundamentally agree with you on Social Security and Medicare…good (in concept) for America. The unfortunate reality is that in keeping Senior’s costs down, it has the effect of increasing everyone else’s medical costs.

If I had my way, all health care would be managed by non-profit entities, and there should be some common sense as to, say, not authorising new hips for people that statistically will never walk again, or multi-thousand dollar treatments for people that will statistically be dead very soon anyway. All would have to execute a Living Will and organ donation form before being admitted to a hospital.

Health care is way too important and complex for government to administer, it seems fundamentally immoral for shareholders to profit from another’s poor health. I would not be opposed to a “universal health care system” of common rules, checks and balances under which multiple regional non-profit entities would compete to serve individuals (similar to Medicare Pt. D). If pushed, I would view insurance companies similarly.

It is unfortunate that the only time unions and management are of common mind is when taxpayers are stuck with the bill for their agreements. Speaking strictly of today, the “average” take-home pay of a union worker IS higher that that of the “average” take-home pay of a non-union worker, but that tide doesn’t raise all boats.

The “average” non-union worker can’t join the union… he/she has to “know somebody”. Fact be known, the steward’s son or brother-in-law probably gets more hours than others of similar seniority; and seniority trumps skill and productivity in a union every time.

In that sense, I don’t think the “union privilege” helps the going rate in the trades at all…it’s supply and demand where contracts don’t require union help. It certainly doesn’t help the average American afford a house or government to work on infrastructure and get a dollar’s worth of effort for each dollar spent.

Our Uncle Sam was the crook that plundered the trust fund, and I’d like to neuter big Pharma’s lobbiests…they’re good. Really good!

Whaddaya think now?

Posted by OneOfTheSheep | Report as abusive