Tuesday, April 19, 2011

La la la

I can't hear you.

The Obama administration moved swiftly to downplay ratings agency Standard & Poor's downgrade of its U.S. credit outlook, calling the decision a political judgment that should not be taken too seriously.
The truth hurts, I suppose. Let's stipulate a few things at the outset, since this our current financial travails are subject to all manner of tu quoque argument.
  • What we face has been a long time coming
  • We've been kicking the can down the road for a long time
  • Most of what we've tried to do in recent years (TARP, stimulus, etc.) hasn't worked very well and much of it has made the situation worse
  • While it can be fun to question the motives of those who passed these programs, it's not especially useful when we are trying to move forward, because
  • You can blame both sides of the political aisle for the problem and be correct
The question is this:  what do we do about it now? We are running out of time to make a palatable decision.

One last thing -- S&P really doesn't have an incentive to be political. In fact, as a ratings agency if they are overtly political in their judgments, they will lose credibility. They have strong reason to be as neutral as possible.


Bike Bubba said...

Dear Leader's response reminds me of the dictum "if all you have is a hammer, everything looks like a nail."

Or, put differently, Dear Leader's response comes from looking in the mirror and telling the reporters what he saw.

Anonymous said...


I think you are right, except that he should be referred to as "Deer in the Headlights" Leader.

Anonymous said...

I am quite happy that Standard and Poors has decided to throw down on this. though I am not so sure I agree with you that this isn't a political action. I think it's non-partisan, but hardly apolitical. They are trying to force our political leadership to compromise. And as far as I am concerned, anybody who can hold our elected officials collective feet to the fire is OK by me. And S&P is in a unique position to do just that.

Also, I have recently been informed that I can't read a Pareto chart, which came as a surprise to me since creating them is something I do on a routine basis to earn a paycheck. FWIW, two people can look at a Pareto chart, have similar intepretations of what it visualizes and still come to very different conclusions about how to address those interpretations. In fact, I see this all the time at work. You may look at a Pareto chart depicting the sources of our national debt and interpret it to mean the best way to curtail and ultimatel reduce the Federal debt would be to cut the most expensive costing programs. Thinking only about the left side of the chart would almost certainly lead to that conclusion: Gut Social Security, Medicaid and Medicare and the problem is solved. But doing so ignores the fact that those programs are highly stimulative to the economy as a whole. Social Security money, in particular, is almost entitirely and directly redistributed to the economy as people spend those funds buying goods and services. Medicare and Medicaid, too, to a lesser degree.

I keep saying this: Three-pronged approach. I visualize that Pareto Chart and see a bloated military budget, runaway entitlement spending and dimnished tax revenues. Do we need to reform entitlements? Absolutely. Do we need to continue ramping up the insanely high cost of our military expenditures? Absolutely not. Do we need to approach debt reduction with the issue of tax raises completely off the table? Especially in light of the fact that effective Federal tax rates have been dropping, across the board, for 12 straight years? I don't think so. And I think that any one who says we should isn't dealing in good faith. Yes, we certainly need to make cuts to the left side of the Pareto chart. But we need to raise revenues as well. And I don't think we need to abandon our social safety net for the poor and the elderly, while FURTHER cutting taxes. Especially for the wealthiest among us who are already paying historically low rates. Quite the opposite, actually. It is high time we actually increase the effective tax rates, and we should do so across the board.


Mr. D said...

I take your various points, Rich. I'll let Bubba respond to the Pareto chart thing, since if I remember correctly, he's the one who brought that up.

Here's the question -- is the larger problem that the rich are paying a smaller relative share of their income, or that nearly half of the citizenry has an effective federal tax rate of zero? Which of these two things has more implications for public policy? Okay, that's two questions. :)

Anonymous said...

I don't view that as an either/or question. I think that both points are true. That is why I said across the board. The amount of tax credits out there now are ridiculous. And I blame both parties for this. Republicans have introduced virtually all of these credits, and then complain that 40% or more of the populace effectively don't pay any federal taxes (which is true of income taxes, but not payroll taxes). So when they complain about this, it's like the old joke about the kid who is convicted of killing his parents pleading for leniency because he is an orphan. And the Dems share some of the blame because they are too feckless to stand up to the middle class and common sense and vote down some of these credits. The greatest beneficiaries of Medicare and SS will ultimately be the Middle Class, so I would like to see everyone contributing. Maybe have a minimum level of income tax of 3 to 5% that we all pay, regardless of the credits we qualify for. The middle class has the greatest stake in this, so they should be prepared to take a hit too.