On Friday, Standard & Poor’s lowered its rating of the U.S. government from AAA, the top level, to AA+, the next level down. (The remaining rating agencies continue to value the United States as triple-A.) The fallout was predictable. Wall Street and financial markets around the globe reacted negatively.
Grant the credit-raters some latitude, however. Washington politicians have done very little in 2011 to instill confidence in the hearts and minds of potential investors.
Starting with Barack Obama’s inauguration in 2009, the nation has been in turmoil, seemingly more than the sort that roiled the presidencies of his immediate predecessors, George W. Bush and Bill Clinton.
An economic hole
Obama inherited an economy in despair, worse in many ways than since the Depression of the 1930s. His administration’s fix was economic stimulus. The final package, which was almost completely opposed by Republicans, totaled $819 billion. Though it’s rarely mentioned, approximately one-third of that stimulus came in the form of tax cuts.
Opposition to the stimulus became a rallying cry for Americans who oppose Obama’s politics. The Tea Party movement arose, propped up by wealthy benefactors happy to see angry citizens hit the streets on behalf of the fortunate few. Elected Republicans aligned themselves with the movement.
At the same time, congressional Republicans made their way to ribbon-cuttings courtesy of the stimulus they opposed. It’s quite a feat — oppose spending to curry favor of one group and champion its recipients to appease constituents.
Obama did very little to provide an effective counter-narrative. He never found the voice to loudly champion the stimulus. He never called to serious account the big-money speculators who crashed our economy in 2008.
Into this void, Republicans marshaled their forces to take back majority status in the U.S. House of Representatives. Assuming power at the start of this year, the House’s Republican majority faced the same quandary seen in the opposition of the stimulus and embrace of its dollars spent back home. Increasing the nation’s debt ceiling, for instance, was something the GOP would have to eventually do. However, it decided to have an extended fight over the particulars rather than quietly raise it as has become standard practice. This Tea Party-fueled fight owns a large share of the credit-rating downgrade.
Picking a fight
Republicans would surely defend that fight as following the requests of the Tea Partiers who send them to Washington to shrink government. Of course, those who say they want small government will eventually want more than a symbolic fight; they’ll want to see results in the form of giant cuts in spending.
Here, though, is the narrow passage the GOP must navigate. When the mad-as-hell types call for less government spending, they usually mean the spending that goes to someone else. For example, one frequently mentioned target is U.S. foreign aid. The problem is that those outlays account for about 1 percent of the federal budget.
OK, they say, but 1 percent of a bloated budget is still a lot of money. No argument, but consider where the money goes. Let’s examine the $2.4 billion given to Israel in 2008. Almost every penny is spent on defense. Guess which country sells Israel three-quarters of its weapons? It’s the United States.
Imagine a scenario where the fed-up Tea Partier lives in an area dependent on a local defense plant. If foreign aid is eliminated, the blowback in the form of lost jobs will be awful for his hometown.
That’s a vicious circle, one that creates victims at the lower end of the economic spectrum. It would be about as welcome as seeing the government play less of a role in food-safety inspection, the protection of our air and water, the construction of roads and bridges or the funding of job-creating research.
What’s at play in Washington is the persistence of a fantasy where the federal government is reduced by half or more without massive negative consequences. That’s the sorry state of U.S. politics, and it should be rated far, far below triple-A.