Update on the credit rating agency vigilantes

by on July 27, 2011 at 10:52 am in Economics, Political Science | Permalink

It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade.

…what really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating.
Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.

The full story is here.  These vigilantes are real, but they are being scorned, dismissed, and moralized about rather than heeded.

The bottom line is that the nation’s long-run fiscal outlook matters now, even though you’ve had many top economists telling you for years that it does not.  I know all about the stability of Japanese bond rates following their credit downgrade.  In the American case, the mechanisms by which the long run matters can be as simple as Presidents seeking reelection and stubborn, irresponsible Republicans, not to mention spooked global markets latching on to scary focal points.

I see two lessons:

1. Moralizing about Presidents seeking reelection and stubborn, irresponsible Republicans does not remove their analytic impact.

2. The nation’s long-run fiscal outlook matters now.

Every time you see moralizing about #1, don’t let yourself be distracted from the truth of #2.  In fact, the more moralizing you hear about #1, the greater the import of #2.  Lots of moralizing about #1 is a sign that the overall political outlook, from the moralizer, is not robust to the truth and existence of #1.  Read the moralizing, but track the truth.

1 John Voorheis July 27, 2011 at 11:13 am

Wait, the guys that rated Toxic garbage CDO-squared as AAA? Those guys? You’re funny.

2 Njorl July 27, 2011 at 11:47 am

It isn’t their job to be right about bonds.

They have two jobs:
1. Collect tolls on commercial bonds that pass through them.
2. Manipulate govenment policies at all levels by threatening to downgrade municipal, state or, now, federal bonds.

3 Mark July 27, 2011 at 2:27 pm

You have a simple logic error.
The statement “Person X is stupid and has been proven wrong a bunch of times, so they don’t affect anything” is clearly incorrect.

To see this clearly, choose from the following:
“Democrats are stupid and have been proven wrong a bunch of times, hence, what they do or say has zero effect on anything”
“Republicans are stupid and have been proven wrong a bunch of times, hence, what they do or say has zero effect on anything”

Neither is true, and you know it. Please consider your logic more carefully.

4 dave July 27, 2011 at 11:25 am

Why do ratings matter? Does anyone really use them?

Only one things matters to treasury rates, inflation.

5 Dan Weber July 27, 2011 at 1:08 pm

CNN says that many entities are required to hold AAA bonds. So, yes, people still “use them.” http://money.cnn.com/2011/07/25/markets/bondcenter/treasuries/index.htm

(I would have loved to find, say, a Calpers policy requiring them to hold a certain percentage of their assets in AAA rated, but I couldn’t take that much time off my workday, so I had to fall back to something written by a financial journalist. Not my first choice.)

6 MP July 27, 2011 at 1:24 pm

Exactly my question and exactly my (initial) answer. But how big is that AAA-only market anyway? Is it enough to really drive rates?

I’m not saying this isn’t a mess. It is. But does the downgrade make it more of a mess or does it just reflect the messiness that is already on full display to the world? I looked a while back at the effect of rating actions on sovereign CDS and didn’t see much impact. Not a terribly rigorous analysis admitedly, so there may have been something there that I missed. But my impression was that the rating agencies trailed the market, they didn’t lead it.

7 dave July 27, 2011 at 2:20 pm

If Ts lose AAA the regulation will be re-written to say they can hold Ts.

8 Dan Weber July 27, 2011 at 3:14 pm

That would take time, and will be much harder in some places than others.

One can easily imagine a contract between two institutions where one party is contractually bound to invest some escrow amount only in AAA securities. As MP said, we have no idea how many of those there are.

9 Eddie July 27, 2011 at 3:41 pm

There are hundreds of thousands of bond offerings every single year. From your small hometown issuing a few hundred thousand in bonds to do road repairs to the state of California using billions to build large infrastructure projects, every bond needs to sell on the market for their issuers to get the money. 99% of rated credits aren’t CDOs or country level bonds, but these receive all the attention.

If ratings didn’t matter, issuers wouldn’t continue to pay for them, which they still are because investors still want the analysis.

10 MP July 27, 2011 at 7:20 pm

Sure, ratings have some information value, especially for lesser known corporates. And even with the well-known failures on structured credit, I think there’s still attention paid to those ratings. But for sovereign debt? For US sovereign debt? Is any investor our there unaware of what’s going on? Is any investor snoozing quietly until an alert from S&P comes along?

There are investment restrictions that would shrink the market for downgraded US debt, maybe a temporary situation but as Dan points out, not one that can be changed instantly. So there’s an effect, but it’s far from clear how big it would be. Lots of investors wouldn’t be impacted at all.

Don’t get me wrong, none of this would be good. It’s disruptive. It’s embarrassing. It’s a result of some serious problems in our government. But I’m not convinced that a downgrade does much that the existing circus isn’t already doing.

11 CBBB July 27, 2011 at 11:40 am

Yeah what dave said. Is downgrade REALLY going to have any effect on interest rates? Does anyone actually give a #&$^ what Moody’s says?

12 Tyler Cowen July 27, 2011 at 11:46 am

Obama seems to! And that’s enough for it to matter.

13 CBBB July 27, 2011 at 2:21 pm

Yeah…well I think the Washington Establishment believes that what Moody’s says matters and Obama seems to believe everything the Washington Establishment says

14 John Thacker July 28, 2011 at 10:59 pm

Obama does not seem to. If Obama seemed to, he might actually support Bowles-Simpson or the Gang of Six, or offer a real plan.

15 derek July 27, 2011 at 5:33 pm

Are you willing to try it and find out?

What is your rationale? What are you so eager to get in exchange, and is it worth the risk?

I’ll put it this way. Borrowing and spending at current rates continues funding entitlements and a number of other political initiatives. If you are right, then these can continue. If you are wrong, the money that would go to the poor and elderly will be going to pay interest on the debt.

Are you willing to bet on it?

16 Alex Godofsky July 27, 2011 at 11:50 am

So the long run matters now because a lot of politicians think the long run matters now?

17 Jason July 27, 2011 at 6:17 pm


As soon as we balance the budget, somebody won’t think the long run matters anymore and undo it. We’ll get deficits. The deficits will continue until we get a recession that causes deficits to suddenly look much bigger. Lather, rinse, repeat. The future will never actually see any budget controls we implement in the present, so how can the long term fiscal situation possibly matter?

18 rettals July 27, 2011 at 11:58 am

lmao @ america

19 Luis H Arroyo July 27, 2011 at 12:00 pm

I think you are right, but is not much more important in the short term #1 than #2?
-Due the supposed patriotics motives of the republican…
Is it not #1 a rapid and sure way to fall in #2?
will it not be much mor dificult to face #2 once #1 (downgrade) has happen?
I suppose that REP think it would be a good idea downgrading to say: I said you, now we must work harder to repay more debt, thank to us… and that is the Obama´s fault. Great. Brilliant.

20 TallDave July 27, 2011 at 12:05 pm

Oh yeah? How many tanks and planes do these ratings agencies have? Let’s see them downgrade a cruise missile!

You have to love the irony. After lambasting them for not seeing the risks in mortgage securities that the feds went to some effort to hide, the same feds are now aghast that the agencies are pointing out the risks in the U.S. fiscal outlook.

21 rettals July 27, 2011 at 12:08 pm

as a brit, has this been reported at all in america much? — http://www.guardian.co.uk/business/2011/jul/27/debt-crisis-republicans-plan-bungle — think i saw it in the WSJ and that’s it.

22 Andrew' July 27, 2011 at 12:17 pm

We are Americans: unembarrassable.

23 GinSlinger July 27, 2011 at 12:20 pm

Google News reports over 1200 hits for articles published in the last 24 hours with the key terms: Boehner plan rewrite.

As a Brit, is that “much”?

24 TallDave July 27, 2011 at 1:35 pm

It’s a technicality — the CBO is scoring on the March baseline rather than the January. Reid’s plan has the same problem, only it’s much worse because it has fake war spending cuts too. Not that the Guardian would tell you that.

And Obama’s plan… oh right, Obama doesn’t even have a plan.

25 Jim July 27, 2011 at 12:23 pm

A downgrade is the only way the USA will ever get its debt under control.

If it happens in the next year, Barry will try to use it as an excuse to grab more cash from the middle class, but the Republicans will tell him to go hang, and he’ll get crushed in 2012 as the GOP runs on spending as the main issue. We’ll get some of the serious spending cuts we need, and some new taxes too.

If it happens after Barry’s loss next year, the GOP will take the blame, and they will cave to Democrat/Union demands. You’ll see a lot of the fake spending cuts being floated today, increased spending to buy votes, and massive tax increases — possibly a VAT, or God help us all, a carbon tax.

Either way the deficit shrinks and the credit rating comes back. But in the second case, we’re all screwed.

So I say, bring on the rating downgrade ASAP.

26 Bill July 27, 2011 at 1:12 pm

Have you ever thought about the fact that if we increased taxes the downgrade would disappear?
You could have a downgrade and an impetus to increase taxes to remove it.
You know, that is what generally happens in the international context–the remedy is increase taxes and cut spending–to restore a rating.
Be careful for what you wish for.

27 Veridical Driver July 28, 2011 at 12:27 am

There is no possible tax rate increase that will balance the budget, let alone pay off the debt.

28 Bill July 28, 2011 at 8:18 pm

Who said taxes alone?

29 Bill July 28, 2011 at 8:19 pm

And, the comment was change the rating, not pay off all the debt. You would be foolish not to have debt.

30 Dick Slater July 27, 2011 at 2:19 pm

Yes and no. Governments, alas, tend to do the right thing only when their other options have been exhausted, and nothing short of complete loss of access to capital markets and of reserve currency status for the USD, or all reasonable doubt vanishing of the clear and present risk thereof in the very near future, is likely to push the US government towards real reform.

I just hope you live outside the US, though, Jim, because it’s not going to be a pretty sight. If you’re lucky you’ll see a huge drop in living standards and mass emigration from the US before things turn around. If you’re not, it could spell the end of the Republic in its current form–and when that happens you had better be far away, because if governments reflect what their peoples truly deserve, heaven help the subjects of whatever replaces it.

31 Rob July 27, 2011 at 12:25 pm

@ John Voorheis
“Wait, the guys that rated Toxic garbage CDO-squared as AAA? Those guys? You’re funny.”

Doesn’t this underscore Tyler’s point? He is not claiming that the ratings agencies are correct most of the time, but only that people believe them most of the time. Would the run-up to the ’08 financial crisis have been nearly as gluttonous if people didn’t believe the ratings agencies or if the agencies were better at assessing risk? For the record, I agree that the ratings agencies are lousy at best, but as long as market participants and presidents care, I care.

My problem with Tyler’s assessment is that he is making claims about the long run fiscal situation is twofold:
1. Economic evidence and theory suggests that the Reinhart Rogoff 90% debt/gpd consequences theory is not a hard stop and there seems to be little precedent for the current panic over the US fiscal position (Greece et al withstanding).

2. Point one does not mean there is little risk, but the risk is political and psychological not fundamental in an econ/business/accounting sense. Because political and psychological risks are difficult to quantify or model I have a hard time believing any statements beyond those along the lines of “The only thing we have to fear is fear itself,” which again, doesn’t mean there isn’t reason to be afraid, just that any claims being made are suspect.

32 Andrew' July 27, 2011 at 1:45 pm

We are already at the mercy of the interest rate. To me, that is the point of all this. It is what everyone keeps warning us about, so it makes little sense to deny. The risk is great even if the probability is low. And the Reinhard/Rogoff 90% may not be a singular cliff, but if we just keep blowing through the gates we get to one eventually. Gunning the gas over the cliff is not too swift. But the only reason one side thinks the other side is not compromising is that they have been getting things all their way for so long.

McArdle comments…

She mentions electoral backlash, but she does not mention the electoral backlash that got us here. Obama has his share of responsibility in getting us to this point of where compromise is seen as getting bent over by the other side.

33 Maurice de Sully July 27, 2011 at 12:29 pm

I’m having trouble squaring this post with the Krugman post. They seem to run counter to each other.

If the long-run fiscal outlook of the nation is a critical concern, why wouldn’t the party that insists that spending not be cut in any significant way be the “unreasonable” party? The truly frightening thing about the last month or two, in my view, is the amount of hyperventilating needed to secure even token cuts in federal spending. It seems to me that the current version for the Democratic Party simply can’t exist with the level of cuts necessary to bring the long-run outlook into a reasonable balance. The existing coalition simply doesn’t work well enough to compete with the Republican Party without the spending. If you’re looking at a real long-term problem, that’s the elephant in the room. It’s also the one that Krugman has to pretend doesn’t exist.

34 Finch July 27, 2011 at 12:47 pm

Meaning the existing coalition is buying support through spending?

35 Maurice de Sully July 27, 2011 at 1:10 pm

To some degree, of course. Both parties do that. It’s one of the downsides of democratic governance.

36 Bernard Yomtov July 27, 2011 at 2:58 pm

Why wouldn’t the party that insists that taxes can never go up, only down, and that no one’s tax bill must ever increase be the unreasonable one?

Note too that Democrats have proposed spending cuts.

37 Laserlight July 27, 2011 at 4:57 pm

Because the party that insists that taxes have to go UP wants to take my money instead of living within their budget.

38 txslr July 27, 2011 at 4:57 pm

And why wouldn’t the party that insists that there is no tax rate that is too high, as long as it’s levied on “the rich” be the unreasonable one?

39 Gabe July 27, 2011 at 12:49 pm

Was the “Paulson Plan” still “better than nothing” in your opinion? a financial debacle 3 years ago and we might be on a solid path of growth by now…instead we are knee deep in a big “soft patch” and it isn’t geting better anytime soon.

Guess what created the small group of “unreasonable republicans” that elites claim are causing all our problems now?

40 joshua the postlibertarian July 27, 2011 at 1:24 pm

“hit Americans with more than $100 billion a year in higher borrowing costs”

Been wondering about that number. A bloomberg article didn’t even give the courtesy of “financial analyists say” but just expressed it as fact. Is it because 10-year Treasury yields would rise by a whole percentage point a.k.a back to the 4.06% average of the last decade? Do they think 3% is going to last forever if we get a deal?

41 txslr July 27, 2011 at 5:00 pm

Good question! And who are those “financial analysts”? Are they all short Treasuries? Apparently they are outnumbered by the analysts who disagree, since the yields are still low.

42 Tomasz Wegrzanowski July 27, 2011 at 1:37 pm

Rating agencies have always been wrong. It’s hard to find any example where they had more clue than markets themselves. Why would anybody care what they say? Markets clearly don’t.

43 derek July 27, 2011 at 5:39 pm

Are you sure about that? Are you willing to impose upon the country serious and damaging consequences if you are wrong?

Maybe someone can correct me, but is there not one data point telling us that it isn’t a problem, and many many points telling us it is?

44 Dick Slater July 27, 2011 at 2:07 pm

I can’t blame them for being afraid. They know better than anyone–or ought to–why the Berlin Wall came down in 1989; the DDR had a huge debt it was almost certain to default on by 1991 without either (a) West German aid or (b) a sharp reduction in living standards, as in Romania, for example (figures mooted were a reduction of per capita consumption by 25 to 30 percent).

Aid was unlikely to be forthcoming without real political reform, and Romanian-style austerity was likely to be the undoing of the DDR, and not as peacefully as things turned out. With the USSR on its last legs politically and financially, Soviet troops were less likely to be forthcoming in the event of a serious revolt in the DDR, and the Volksarmee’s loyalty to the SED would waver more with each passing month of real hunger.

Unfortunately, the US doesn’t have a big, wealthy brother to bail it out and ease the pain of the economic restructuring the country desperately needs to have any hope of returning to full employment and sustainable growth. A huge fall in living standards and employment, mass emigration, and truly serious political instability become more likely with each passing year.

Is anybody with any influence in the US federal government worried about spending next Christmas or the one after in Bucharest? I hope so.

45 Right Wing-nut July 27, 2011 at 2:22 pm

So, something I just heard sparked a question: what do I want? Really? What could I live with?

1) I don’t give a #$^&#$@ #$#= #$#@ about 10-year numbers. Those numbers come in two forms: a) plucked from thin air (or someplace dark & smelly), b) the mind of someone intending to deceive the audience.
2) I DO care about TODAY’s budget. A LOT. So cut spending NOW by $10B/month. Right now.
3) I DO care about the process that got us here. I know full well that a balanced-budget amendment would be a complete joke. So here’s what I want: 900B$ debt limit increase today, then include the next debt limit increase in next year’s budget. Set it to run out 1 Nov of 2013. And so on. Talk about reducing spending by $20B/month in next years’ budget. (now)

That would make me happy. I expect it would make the ratings agencies happier as well.

46 Former Beltway Wonk July 27, 2011 at 5:40 pm

You’re wrong about the balanced budget amendment — that would put a very strong constraint against Congress further running up the debt. The vast majority of the Republicans and Blue Dog Democrats are strongly in favor of a balanced budget amendment, as is the electorate, so it should be the easiest thing for Congress and the President to agree to, and it is the most important reform we could possibly enact for constraining future growth of the federal debt.

But I quite agree that any debt ceiling increase should be _short term_ and applied substantial _cuts_ (not mere reductions below a baseline growth that is preposterously larger than economic growth) that occur _this year _ and _next year_ (since next fiscal years’ budget should be already in the works). . Ditto for debt ceiling increases in the future: they need to be short-term, six .months, one for the budget and one for a mid-year review of the budget so that any excesses in the previously passed budget, due to political exuberance or changing circumstances, can be revisited and trimmed.

No long-term laws, short of a Constitutional amendment, purporting to bind Congress itself are credible. They can be overturned by a mere majority in any future Congress at any time. The only merely statutory agreements that are (partly) credible are those that can be enforced by the electorate at the _next_ election.

“What we want”, in short, are to make fundamental changes that will constrain future growth of the debt. These are small-c constitutional reforms (e.g. making the budget ceiling and mid-fiscal-year budget review an important permanent institution instead of an automatic vote or a “crisis”) and Constitutional reform (requiring 2/3 vote to unbalance a budget).

47 Former Beltway Wonk July 27, 2011 at 5:42 pm

Errata: last sentence “budget ceiling” s.b. “debt ceiling.”

48 Bill July 27, 2011 at 8:33 pm

What you want with a balanced budget amendment is minority rule and constant fiscal crises so that when we have the next debacle as we did in 2008 we can stand by and be helpless.
Better save for your own unemployment insurance.

49 Bill July 27, 2011 at 8:43 pm

Oh, and Beltway, don’t forget that 58% of discretionary spending is for the military, and that is not including VA, DOE atomic or NASA or OPIC arms sales support, which probably kicks it up to 62% of the budget. Don’t plan on tax cuts, but tax increases, and forget about countercyclical policies to avert or mitigate against financial calamities. But, there would be an exemption for the military, so even budget cutting would not be credible under these constitutional scenarios, as everything would be defined as military, like interstate highways and defense education grants as they were in the 50’s.

Let me ask this question: Do you drive your car with the stearing wheel lashed to the armpost so all you can do is brake or use the acellerator to control your car? That may be a credible commitment if you say you are going to drive a straight line through town.

50 dirk July 27, 2011 at 2:55 pm

Here’s what I don’t get about the credit rating talk: raising the debt ceiling would have been a non-event but for the Republicans choosing to make it one. I don’t blame the Republicans for making it one (assuming they don’t manage to screw the pooch on it, which it looks like they are). They are behaving the way a corporate salesman would when a major client has what is called a “compelling event”, something important to the client that has a deadline to it. It gives the salesman/Republicans a chance to insert their agenda into the event and talk about how bad things could go if the compelling event didn’t turn out so well. If the Republicans had voted to raise the debt limit without inserting their agenda they would have missed a golden opportunity to push for reform. Yet unlike a corporate sales tactic, because the debate has become publicly rancorous, the Republicans don’t have the option to merely back off– because the rating agencies are now using the debate as a compelling event to push THEIR agendas, threatening that if sufficient reform doesn’t take place NOW they may downgrade the debt. But what if the Republicans had never started this debate? Wouldn’t the debt ceiling have been quietly raised and the ratings agencies stayed quiet on the sidelines?

51 Bill July 27, 2011 at 3:48 pm

If the ratings decline because of a threatened impass, the Republicans will be blamed for turning a non-event into a big event.

52 TallDave July 27, 2011 at 3:48 pm
53 txslr July 27, 2011 at 5:03 pm

I could support doing what Reagan did. Let’s raise the limit to $1.9 trillion. Oh, wait…

54 TallDave July 27, 2011 at 8:26 pm

Isn’t it odd there’s no mention of ratings agencies, though?

And note that Reagan actually told them to stop writing checks. Which is apparently impossible today.

55 derek July 27, 2011 at 5:40 pm

The rating agencies are worried about the level of debt. The debt ceiling is a mechanism to allow the level of debt to increase.

A straight up debt ceiling lift would be an indication that the US has lost it’s collective mind.

56 J Thomas July 28, 2011 at 8:53 am

Do you need more evidence that the US has lost its collective mind?

Now the question is whether we jump off the bridge, or whether instead we tear down the bridge.

57 Bill July 28, 2011 at 8:22 pm

derek, The agencies are concerned about not lifting the debt ceiling. As to the level of debt, you might look at some IMF reports which indicate that we should be raising taxes and reducing spending, but at later stages of the business cycle so as not to damage a turnaround. The IMF is no patsy, even relative to ratings agencies. You might also want to look at Prof Johnsons comments in todays NYT which makes the same point.

58 txslr July 27, 2011 at 5:16 pm

The rating itself matters very little beyond the political impact. There is ample evidence that the rating agencies follow the markets rather than lead them. This is particularly true of U.S. Treasury securities since there is virtually no chance that the agencies have any relevant information that the markets don’t already have. The idea that rates will be impacted by liquidation by funds who are required to hold AAA securities doesn’t make much sense either. That implies that the rest of the world will just let return sit around unclaimed. It also implies that, if there is an impact, the current market hasn’t anticipated it yet. Not likely!

The evidence seems pretty clear. The markets don’t believe that default is a realistic possibility. Neither, frankly, do the rating agencies. A drop from AAA to AA is not a drop from AAA to “default pending”. It is a drop from “really, really, really not going to default” to “really, really not going to default”.

59 Dan July 27, 2011 at 5:41 pm

“2. The nation’s long-run fiscal outlook matters now.”

This is a surprising post coming from you. Markets are clearly saying that the long-run fiscal outlook does NOT matter right now. The only ones who seem to be moralizing on this issue are House Republicans and the credit agencies.

60 Jim July 27, 2011 at 5:51 pm

>>”the fact that if we increased taxes the downgrade would disappear?”

That’s a fact? Really?

The US Government spends every single dollar it brings in, then borrows another 20-50 cents, and spends that too. As it has zero intention of doing otherwise, ever, no matter how much money they take from us.

When Obama asks for more money to “trim the deficit,” the best we can hope for is that he keeps the additional reckless borrowing down closer to the 20-cent figure. This is insane, and it is not going to end well.

61 Bill July 27, 2011 at 6:11 pm

So, Jim, do you like your stock portfolio takin’ a hit because of this man made crisis? Maybe we can make the market dropped 759 points like on the day that the House failed to pass Tarp.

62 Bill July 27, 2011 at 10:36 pm

If the stock market continues to drop from this phoney game of man made crisis, or if there is some short term financial crisis from threatened default, members of Congress had better be prepared to confront their constituents during the August recess.

Might be fun to see if they can hide in their district from the seniors who don’t get a social security check. Might be better to be away from the district and work in hot and steamy DC instead.

63 mulp July 28, 2011 at 1:59 am

“2. The nation’s long-run fiscal outlook matters now.”

Why didn’t it matter in 1992 when conservatives abandoned HW Bush because he was trying to deal with the long term outlook in a constructive way?

Why didn’t it matter in 1993 when Republicans jeered “bye bye” at a freshman Representative casting the decisive vote to deal with the long term outlook in a constructive way, knowing she would be attacked for making an unpopular vote for a better long term outlook? (She was defeated, but still believes she made the right decision for the nation’s long term fiscal future.)

Why didn’t it matter when Clinton was attacked and defeated on health reform to deal with the long term outlook?

Why didn’t it matter in 1996 when Clinton was in a standoff with the Republican Congress to force them to address the long term outlook?

Why didn’t it matter in 2001 when Bush called for tax cuts and increased spending, and a war with no plan and no plan to pay for it?

Why didn’t it matter in 2003 when Bush called for more tax cuts after the 2001 and 2002 tax cuts failed to create jobs, the cost of war were soaring, and he was calling for a second war with no plan and no plan to pay for it, and entitlements were increased without paying for them?

Why didn’t it matter in 2004 when the costs of war was soaring out of control, the tax cuts had failed to deliver the promised jobs, while ensuring ever increasing deficits for the long term, except for the budget rule that required counting the Bush permanent tax cuts by policy as temporary emergency measures?

Why hasn’t the fact of Congressional Republicans not voting for any tax hike in two decades matter for the long term outlook, but everyone has voted for both increased spending and tax cuts, or who call for increased spending and tax cuts? (They all voted to increase unfunded health care costs and cut taxes with no “replace” to match the “repeal”. we know the Medicare/Medicaid status quo for the past three decades has been getting worse and worse for the long term outlook – in 1980, health care was 8% of GDP while the OECD average was 6% (range 5-9%), by 2006-8, it was 16% of GDP and 8% (range 7-13%))

Why didn’t it matter when Republicans tried desperately in 2009 to again maintain the health care spending monster status quo in opposition to a Republican health reform plan to deal with the long term outlook?

Why didn’t it matter when Republicans voted for the Ryan plan that increases the debt and deficit more than Obama’s policies for the next two to three decades when thinking about the long term outlook?

Does anyone believe the debt and deficits and the long term outlook will matter Jan 21, 2013 any more than they did Jan 21, 2001 if the Republicans repeat 2000 and win the Congress and the White House?

Republicans have only gained and held power only advocating destructive policies and by working to make the long term outlook much worse. The only time the debt burden has decreased in the past three decades is when Republicans were blocked from making it higher by Clinton.

Let’s be real: this battle has zero to do with the long term outlook, not even the Tea Party folk care about the long term outlook. Especially the Tea Party people who plan on abandoning Congress as soon as they’ve blown up the long term outlook.

64 a July 28, 2011 at 6:35 am

Why? Because the Republicans had and have a winning strategy. Mucking things up is a lot easier than trying to make things run well. If you think government is the problem, then get into government and muck things up, make these work badly. This way you’ve proved your point.

65 Eric Rasmusen August 1, 2011 at 11:53 am

I haven’t read the previous comments, but I’ll put my big question here, and perhaps elsewhere.

Why do people think that if the US bond rating is in trouble because of its high debt leve,l and then it stops borrowing, its bond rating should fall, instead of rise?

Sure, bad things might happen if we stop borrowing— government furloughs, Medicaid ceasing, etc.— but why should the bondholders care, so long as the tax revenue is high enough to keep paying the interest on the existing debt?

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