Special Report

Democratic Ceiling Wax

Applying Orwellian logic to S&P's warning.

By 4.19.11

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Monday's outlook change by ratings agency Standard & Poors (S&P) for U.S. federal government debt -- going from stable to negative while affirming the current AAA rating -- brought Democratic responses that would have made George Orwell proud.

S&P's rationale is that despite a "high-income, highly diversified, and flexible economy, backed by a strong track record of prudent and credible monetary policy" (the latter being a characterization certainly up for debate), "the U.S.'s fiscal profile has deteriorated steadily during the past decade." This deterioration has led the U.S. to have higher deficit/GDP and debt/GDP ratios than most other AAA-rated nations and S&P is skeptical of the ability of Congress and the Administration to reach agreement as well as the potential of any agreement to have substantial impact within a few years. Thus the change in outlook which means at least a one-in-three chance of the debt rating itself being lowered within two years.

House Minority Whip Steny Hoyer (D-MD), aiming for a gold medal in logical gymnastics, interpreted S&P's warning about potentially unmanageable debt as meaning that "Republicans cannot hold the debt limit hostage over partisan, divisive issues" (such as reducing government spending, apparently).

White House Press Secretary Jay "Anyone but Gibbs" Carney chimed in similarly: "The issue here is the debt ceiling has to be raised."

And far-left Representative Peter Welch (D-VT) reiterated a call he made on Friday in a letter that 114 House Democrats signed calling for "a Democratic position in favor of a clean extension of the debt ceiling" by which Welch means allowing the U.S. to borrow more money without requiring any progress on spending cuts (or even the Democrats' favored tax increases) to reduce ongoing deficits.

One might have been tempted to debate the Democrats using (wait for it!) logic to explain that taking on more debt hardly seems like the first best step toward dealing with concerns that the nation has too much debt. But we don't even have to resort to such below-the-belt tactics as reasoning to dispense with Democrats' arguments. Instead, we can listen to S&P themselves. In a "FAQ" about their outlook change entitled "A Closer Look At The Revision Of The Outlook On The U.S. Government Rating," S&P offers this Q&A, which not only lays waste to every Democrat claim above but also to their ongoing boy-crying-wolf pleas about the "full faith and credit" of the U.S. government being at risk in this debate:

Do the debates about passing Congressional continuing resolutions or raising the debt ceiling influence your decision to revise the outlook?

The congressional debates did not, by themselves, prompt us to revise the outlook. But we believe that these debates do highlight the political challenges in reducing the U.S.'s government's fiscal deficit. That said, we do not expect the U.S. government to default because of a Congressional refusal to authorize the government to borrow additional funds.

Others on the left, including the Democrats' useful idiots in the media, gunning perhaps for the silver medal after Steny Hoyer's performance, are desperately seeking other ways to use S&P's revision to attack Republicans and particularly House Budget Committee Chairman Paul Ryan's budget plan which passed the House on Friday.

The Washington Post blogger Ezra Klein looks to blame Ryan for -- well, for everything from disagreement to deficits to dead senior citizens -- by trotting out the Democratic talking-point-du-jour that Ryan's plan "cuts taxes and makes sweepingly ideological changes to Medicare and Medicaid." Ryan's plan cuts tax rates. But by eliminating loopholes and deductions it is intended to be revenue neutral; it specifically does not cut taxes. As for changes to Medicare and Medicaid, if it is "sweepingly ideological" to propose the first serious plan in decades that might allow market forces to nudge down health care inflation and keep these entitlement programs from bankrupting the nation, then I (and I presume Paul Ryan) plead guilty.

But then Klein is known for saying that Senator Joe Lieberman's early opposition to Obamacare meant that Lieberman was "willing to cause the deaths of hundreds of thousands of people," so why anybody other than DailyKos readers and MSNBC viewers would find him credible is beyond me.

Slate's David Weigel offers his own version of moral equivalence by omission: "Left unsaid here (by S&P) are the inconsolable issues: Republicans won't give on tax increases, and Democrats won't give on entitlements." Weigel thus implies that the Republican and Democrat intransigence on their particular issues are economically and morally equivalent. This despite it being rather obvious (both from data and from common sense) that no amount of tax increase will prevent entitlements from bankrupting the country. And further that tax increases take the earnings of citizens while refusing to reform entitlements redistributes those earnings to others based on the fundamentally Marxist premise that the others "need" it more. (That's the same premise a mugger might use to redistribute your income.)

But then Weigel is the guy who had to resign from the Washington Post after insulting Republicans, calling Matt Drudge an "amoral shut-in," and suggesting that the media is wrong to air "'real American' views, no matter how f***ing moronic." (Weigel's favorite expression to denigrate Republicans is not fit for publication on these pages, but if you're interested you can find it here.) So, why anybody other than Keith "nothing better to do these days" Olbermann would find Weigel credible is beyond me.

Democrats, who are so fond of arguing that the U.S. should be more like Europe, might look at S&P's analyses of certain foreign economic policies. In particular, both the UK and France have implemented budgets that border on being "austerity plans"; indeed S&P called France's an "austerity program." In both cases, S&P believes the plans will reduce those country's deficits primarily through the discipline of reduced government spending, though both countries did implement tax hikes as well. You know the tide has turned against government's being all things to all people when even the French favor spending cuts over tax increases by 80% to 8%, according to a recent poll by the Economist. And Canada, which unlike the U.S. substantially decreased the size of its government relative to GDP in the 1990s, is expected to "return to (a deficit) of less than 0.5% of GDP by 2013."

In other words, while not taking a position on the relative merits of tax hikes and spending cuts, and even with a passing shot at the Bush tax cuts, S&P's examples of successful tackling of deficits are nations that have cut or are cutting the cost of government far more than they're digging deeper into their citizens' pockets.

Moody's, another key ratings agency, reacted to S&P with a very different take on the current political debate over the federal budget: "This potential change in the direction of fiscal policy is credit positive for the U.S. federal government (Aaa stable), although it remains uncertain what sort of budget will actually be adopted." Anyone want to bet on when you'll hear a liberal giving Paul Ryan credit for that?

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.