Now that the world has finished reeling from the news that the United States' credit rating was downgraded for the first time in history, the real debate has begun. Who is to blame for the downgrade? Certainly, many including Paul Krugman and Warren Buffett dismissed the S&P's downgrade outright. The Treasury itself pointed out the infamous math error the ratings agency made that caused its calculations to be off by trillions. But leaving criticisms of the S&P and the flawed credit ratings system aside, once it was accepted that the downgrade is here to stay, we can go back to the really compelling battle between Republicans and Democrats. The idea seems to be that one party is clearly to blame for the debt downgrade. But which party could it be?
For evidence, we have the S&P press release and its statements that accompanied the downgrade. Problem is that it's sort of vague with regard to pinpointing a villain. For example, the release says:
The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics... More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
The Republicans point to the press release's language on spending -- and declare that their position for spending cuts during the debt ceiling debate was right all along -- and if anything, the downgrade is the result of their demands were not met enough. John Boehner responded to the press release:
"Republicans have listened to the voices of the American people and worked to bring the spending binge to a halt...Unfortunately, decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground."
And Michele Bachman similarly reacted that "I call on the President to seek the immediate resignation of Treasury Secretary Timothy Geithner and to submit a plan with a list of cuts to balance the budget this year, turn our economy around and put Americans back to work."
But to others this a massive misinterpretation. As written in the Economist:
Not surprisingly, Republicans seized on this as evidence that their strategy and views have been vindicated...But this interpretation is incomplete and misleading. As S&P’s announcement makes clear, the inadequacy of the deal was only one motivation. As important (to me, even more important) was the the reckless and divisive battle that preceded it...
The New York Times likewise suggests that the S&P's underlying motivation was the acrimonious political situation: "In its announcement Friday night, S.& P. cited the political gridlock in Washington during the debate as a main reason for its decision." Daniel Politi at Slate adds that "that’s why a $2 trillion mistake was ultimately meaningless." And Reuters reports that David Beers, the head of sovereign ratings at S&P, "acknowledged that the agency's decision was highly influenced by a change in Washington's 'political dynamics' that hampered members of Congress from reaching a more comprehensive plan to cut the deficit."
The S&P's placing the blame on Washington's political dynamics to many is equivalent to their placing the blame on the Republicans, and specifically the Tea Party. In a highly tweeted article from National Journal, Edmund L. Andrews wrote that it's "tempting to describe it as a broad criticism of the whole political system, a pox-on-both-your-houses curse at the intransigence of both Republicans and Democrats." But this conclusion would be a mistake:
S&P didn’t base its downgrade on a change in the U.S. fiscal and economic outlook. It based it on the political game of chicken over the debt ceiling, a game that Republicans initiated and pushed to the limit, and on a growing gloom about the partisan deadlock...To be sure, S&P didn’t specifically single out Republicans...But it’s hard to read the S&P analysis as anything other than a blast at Republicans.
Or as Democratic Senator John Kerry told NBC's Meet the Press, "It's a partial wake up call. I think this is without question, a Tea Party downgrade."
That seems to be the emerging divide: if the S&P blamed the economy, specifically the debt, it's the Democrats at fault for wanting spending. If they blamed the political situation, it's the Republicans. But regardless of who the S&P intended to blame, one thing is clear: the acrimony only seems to be increasing with our financial troubles. S&P's managing director John Chambers said on ABC's "This Week" that there is a "one in three chance" of a further downgrade for the U.S, and that they had "a negative outlook ... from six months to 24 months." As to why, he said: "if the fiscal position of the United States deteriorates further or if the political gridlock becomes more entrenched."
Unfortunately, he didn't just cite one factor. That really might have simplified things.