Tea Party downgrade? Here’s what S&P actually said
Beltway media has offered the usual pox-on-both-political houses analysis of Standard & Poor’s downgrade of U.S. debt and this week’s market meltdown. The two parties spent Monday blaming one other side for the debacle. According to this narrative, both sides must bear equal guilt.
But what does S&P actually say in its downgrade report?
Politics: The downgrade analysis is very political. S&P issued the downgrade even though we avoided default — and even after the Treasury pointed out S&P’s $2 trillion math error. S&P went ahead with the downgrade due to its concerns about political dysfunction in Washington, which has created “greater policy uncertainty.”
Which political party does S&P fault? Let’s go to the memo (emphasis added):
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. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.
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.
So, brinksmanship and refusal to discuss new revenue are critical reasons for the downgrade. Does that sound to you like bipartisan blame?
Granted, S&P also talks about the extraordinary difficulty of bridging political differences between the two parties, shortcomings of the debt ceiling deal and its concerns about Medicare spending. Yet Democrats are only mentioned specifically once:
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.
But here’s S&P’s essential point:
In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging…
One last point: Social Security is mentioned nowhere in this memo — unless you count two general references to “entitlements.” Perhaps S&P understands that Social Security isn’t a contributor to the deficit. Heads up, super committee.