08.10.11
The best thing written on the S&P downgrade so far
Matt Stoller writing in Politico, An excuse for slashing entitlements, (Via AmericaBlog).
With all the talk of Standard & Poor’s downgrade, no one mentioned that the ratings agency’s business model is, essentially, lying for money.
Instead, many politicians insist that the S&P downgrade is the reason for the market turmoil — not the banking freeze-ups in the Eurozone or political paralysis here. The credibility accorded to S&P by U.S. political elites shows that the rot is indeed deep — and worrisome.
Let’s note, at the start, that this downgrade was absurd. The credit rating of the United States is not in jeopardy. The U.S. government prints dollars — it can no more run out of dollars than a bowling alley can run out of strikes.
What’s really happening is an attempt by both parties to justify slashing Social Security and Medicare. Republicans have long wanted to roll back the New Deal. What is relatively new is that a Democratic president is now dead set on cutting these programs as well.
President Barack Obama, in his speech Monday about the downgrade, used the market turmoil as an excuse to do just that. After a debt ceiling deal in which the Democrats argued that defense spending cuts — not entitlement cuts — could close the long-term deficit, Obama said Monday that there’s “not much further” he can trim defense. Despite the fact that defense spending has gone up on his watch. Instead, Obama said, we need cuts in social spending, or, as he phrased it, “modest adjustments to health care programs like Medicare.”
In effect, there seems to have been a merger of both parties into a single force advocating for the interests of bondholders and the cutting of Medicare and Social Security. It’s why both Republicans and Democrats are now blaming each other for the downgrade — as though the downgrade were to be taken seriously.
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So S&P is offering these politicians an excuse for a remarkably unpopular action. By treating this downgrade as meaningful, Democrats and Republicans could join in a bipartisan effort to slash entitlements — government social programs that are popular, work well and have relatively strong funding streams.
The reasoning is Orwellian. Medicare is cheaper and better than private health insurance — which is why we cannot afford it. Social Security may run out of money in 27 years— why it’s important to cut the payroll tax that funds it. The Bush tax cuts for the wealthy should be extended indefinitely — but the prospect of Social Security and Medicare for everyone else creates a fiscal emergency.
The rush is on to carve up what’s left of social spending — and everyone’s represented but the public. Sens. Tom Coburn (R-Okla.) and Joe Lieberman (I-Conn.) are now introducing legislation to cut entitlements to fund the defense budget. And Defense Secretary Leon Panettahas urged cuts to Social Security and Medicare rather than the military.
There’s a big problem in destroying these entitlement programs, however. It’s not just the increase in poverty and suffering. These programs, which people have paid for with payroll taxes for their entire lives, give Americans a sense of why it’s useful to support the government as legitimate. To see what happens when a social contract falls apart, look at themassive rioting in London.
Middle-class incomes are down radically in the U.S. since 2007, as much as 15 percent according to new Internal Revenue Service data. Home equity is still falling. If cherished entitlement programs are also savaged by the politicians who destroyed our life savings, citizens might begin to question whether this whole constitutional democracy thing is worth it.
Strange and ominous political eddies are already emerging. Congressional disapproval is higher than 80 percent. This could turn ugly — as it has before in U.S. history. While we’ve airbrushed the legacy of political violence out of U.S. history, it’s there. Labor conducted gun battles with Pinkerton private military forces in the late 19th century. Strikes often turned deadly in the 1930s. If there are serious defense cuts, the prospect of hundreds of thousands of war-weary former soldiers thrown into a terrible economy is not, shall we say, a recipe for social stability.
With proposals on the table to cut defense and social spending in a deflationary economy, maybe U.S. political leaders are just throwing one final, blow-out empire-ending party.
I don’t mean to push the panic button. After all, America has a stable political order that can handle a great deal of stress. This system, though, is rooted in a middle class that believes its interests are aligned with those running the country.
As the wealth, opportunity, social status and economic security of the middle class evaporate, so, too, could this belief.
We don’t not want to find out what happens if we should reach that point. But if politicians keep using S&P to justify bondholder-friendly policies that damage the interests of the middle class — we just might. The S&P downgrade is a joke and any politician that takes it seriously should be ashamed of themselves. Once again the only one’s who are going to pay are poor, working, and middle class Americans.
Further Reading:
Galbraith on Obama: For the rest of his life, the eyes of the old, the poor, the jobless, whose hopes he once raised, will follow him everywhere.
Why the President Doesn’t Present a Bold Plan to Create Jobs and Jumpstart the Economy.