A reporter asked me this question:
bq. In the fight between the White House and Congressional Republicans over raising the debt limit, does either side gain advantage from today’s Standard & Poor’s Ratings Service announcement that it downgraded its outlook on U.S. government debt from “stable” to “negative,” citing unprecedented doubts over the ability of Washington to bring the massive federal budget deficits under control?
Here’s the “story”:http://washpost.bloomberg.com/Story?docId=1376-LJUNIC1A1I4H01-75G3S197SRUKS7V58HLP1GVHC1. “Here”:http://www.bloomberg.com/news/2011-04-18/goolsbee-says-negative-outlook-for-u-s-doesn-t-deserve-too-much-weight-.html is more from Austan Goolsbee, Paul Ryan, et al.
My response to the reporter was that neither side gains an advantage. Most everyone agrees that we need to raise the debt ceiling. And the White House and Congressional Republicans are nominally in favor reducing the deficit. Some politicians will argue that the S&P forecast somehow supports their preferred means of reducing the debt, but that’s just spin. The real question is whether S&P’s announcement provides any further impetus to those politicians — such as the “Gang of Six”:http://www.nytimes.com/2011/04/17/us/politics/17fiscal.html?_r=1&ref=politics — who are working on a compromise that the White House is likely to sign on to. For politicians like these, who want to figure out policy details and not just posture, the S&P’s announcement could signal to them that their work is even more important. The consequence of the S&P announcement is not so much about which side gets a boost in the deficit politics horse race, but whether it provides a greater incentive for both sides to compromise.
UPDATE: Via email a correspondent notes that the original title of this post was not correct. The S&P has not “downgraded” the US credit rating. It has revised its outlook. I think my nomenclature is accurate in the rest of the post, but I erroneously used the reporter’s formulation in the title. I have changed it accordingly.