Downgrading Democracy

Published on The Nation (http://www.thenation.com)

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John Nichols | August 6, 2011

The decision of Standard & Poor’s [1] to remove the United States from its list of risk-free borrowers—by shifting the country’s rating from AAA to AA-plus—was a predictable enough play out of the absurd debt-ceiling debate. The job-killing agreement reached by the Obama administration and Republican Congressional leaders reads as if was written with the goal of stalling out whatever fragile recovery might have been taking place, and that has effectively been recognized by both the markets and the S&P report, which explicitly refused to endorse the GOP strategy of addressing debt and deficit challenges merely with cuts.
Senate majority leader Harry Reid, D-Nevada, noted as much [2] when he said: “The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners.”
California Congressman George Miller Jr., the ranking Democrat on the House Education and Workforce Committee, was even more pointed—and even more scathing—in his assessment. “[The Standard and Poor’s] downgrade should be a wakeup call to Republicans in Congress who have manufactured this political crisis in order to push their reckless ideological demands, and the media that have largely bought into their dangerous rhetoric.”
Reid’s point is well taken, and Miller’s is even more well taken. But both men give S&P too much credit as an honest—let alone legitimate—arbiter when it comes to fiscal matters.
Vermont Senator Bernie Sanders [3] came far closer to the mark when he said: “I find it interesting to see S&P so vigilant now in downgrading the US credit rating. Where were they four years ago when they, and other credit rating agencies, helped cause this horrendous recession by providing AAA ratings to worthless sub-prime mortgage securities on behalf of Wall Street investment firms? Where were they last December when Congress and the White House drove up the national debt by $700 billion by extending Bush’s tax breaks for the rich?”
S&P is part of the problem, not the solution. It is an unelected and unaccountable international agency that has made so many mistakes that Bruce Bittles, chief investment strategist for Robert W. Baird & Co. says: [4] “The ratings agencies don’t carry the clout today that they did prior to 2008.They made so many mistakes during that period. I think they lost a lot of credibility.”
S&P, Moody’s and Fitch—the big three international credit-rating firms—can hardly be treated as serious analysts after they gave AAA ratings to the mortgage equivalent of junk bonds. And S&P shed any remaining credibility Friday [4], when the US Treasury Department discovered that the firm’s economic rationale for the downgrade of the country’s credit rating was based on a dramatic error—S&P imagined discretionary spending levels that were $2 trillion higher than those identified by the Congressional Budget Office.
S&P’s miscalculation suggested a much higher growth rate of the nation’s debt-to-GDP ratio than is correct. As the Treasury Department noted: “A judgment flawed by a $2 trillion error speaks for itself.”
But it did not speak to S&P, an entirely unaccountable firm, which went ahead with the downgrade even though it was based on a bad analysis.
The real reason for dismissing S&P’s intervention, however, is more fundamental.
The ratings firm has set itself up as an arbiter of American politics, arguing that it is “pessimistic” about the ability of American politicians to sort out differences.
“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 firm wrote in its announcement. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge.”
No doubt, recent developments in Washington inspire “pessimism.” Polls suggest that most Americans are fed up with politicians in both parties, and of just about every ideology.
But that frustration, that anger, is a good thing. It will, hopefully, inspire a political revolt against the real manipulators of the economic and political process—the hedge-fund managers and extremist billionaires who faked up the Tea Party movement and fund myriad anti-tax, anti–public education, anti–public services and anti-regulation “think tanks,” lobbies and “independent” political groups.
No matter what the election results may be in 2011, 2012 and beyond, however, they should reflect American sentiment, American ideals and American priorities—not the narrow political agenda and economic absolutism of a credit-rating agency. This goes for House Speaker John Boehner [5], who should not have to rely on S&P to make the case that Treasury Secretary Tim Geithner has reached his “sell-by” date. This also goes for Democrats like Reid, who should not require any prompting from S&P to make the moral and practical case for raising taxes on billionaires who have not paid their fair share.
The founders worried about those who would attempt to use supposedly neutral fiscal and economic policies to achieve political results, with Jefferson wisely warning [6] of “the selfish spirit of commerce [that] knows no country, and feels no passion or principle but that of gain.”
The notion that a credit rating firm could or should steer the direction of the American political discourse—and, potentially the politics of the country -- should be unsettling to Democrats and Republicans, independents and third-party activists, liberal and conservatives, socialists and libertarians -- even murky centrists.
If S&P can set the parameters of the debate in the United States, then it is not just downgrading a credit rating. S&P is downgrading democracy.