Credibility, Chutzpah and Debt
By PAUL KRUGMAN
August 7, 2011
Standard & Poor’s, the rating agency, is the last place anyone should turn for judgments about our nation’s prospects.
America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S. & P. played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.
Nor did the bad judgment stop there. Notoriously, S.& P. gave Lehman Brothers, whose collapse triggered a global panic, an A rating right up to the month of its demise.
Wait, it gets better. Before downgrading U.S. debt, S. & P. sent a preliminary draft of its press release to the U.S. Treasury. Officials there quickly spotted a $2 trillion error in S. & P.’s calculations. And the error was the kind of thing any budget expert should have gotten right.
The episode hardly inspires confidence in S.& P.’s judgment.
And yet America does have big problems.
These problems have very little to do with short-term or even medium-term budget arithmetic. What makes America look unreliable isn’t math, it’s politics. And please, let’s not have the usual declarations that both sides are at fault. Our problems are almost entirely one-sided — specifically, they’re caused by the rise of an extremist right that is prepared to create repeated crises rather than give an inch on its demands.
The truth is that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.
So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.
The real question facing America, is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.