CNN contributor Erick Erickson appears giddy at the chance to blame President Obama for Standard & Poor's decision to downgrade the United States' credit rating.
To back up his claim that Obama and Democrats, not Republicans, are at fault, Erickson has even dashed off a head-scratching blog post:
The S&P has downgraded American credit from AAA to AA+, the first time in history. The left is scrambling to blame the GOP for this and is fixated on one paragraph
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.
The issue here, however, is that while present law presumed the GOP tax cuts would go away, the policy presumption is that they would get extended. Likewise, this is not blaming the GOP. This is a statement of reality that the GOP wasn't going to raise taxes.
Consequently, because the GOP refused to raise taxes, the alternative needed to be more cuts.
And S&P clearly believes that the cuts the debt deal made were not enough. And who opposed big cuts? Why yes, a guy named Barack Obama and the Democrats.
Erickson's argument boils down to this: Republicans and conservatives are intransigent and refuse to compromise on taxes, even though S&P says it would be a good idea. Therefore, progressives should have compromised even more on spending. Since progressives didn't do so, progressives are at fault. To analyze Erickson's argument is to debunk it.
Furthermore, contrary to Erickson's assertion that the S&P only advocates raising taxes in one paragraph, there are several paragraphs of S&P's report that suggest that letting some of the Bush tax cuts expire would be a good idea.
S&P not only downgraded the United States' credit rating from AAA to AA+, but it also said the United States' credit outlook remains negative and potentially subject to future downgrades. S&P describes its “upside scenario” in which the United States retains its AA+ long-term rating as one in which “the 2001 and 2003 tax cuts for high earners lapse from 2003 onwards”:
Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.
In other words, in its scenario in which things go well, the tax cuts are allowed to expire for the richest Americans, “as the Administration is advocating.”
S&P also says:
The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.
This does not mean that S&P was right to downgrade the United States' credit rating. But it does mean that Erickson doesn't know what he's talking about.