Standard & Poor’s math may have been a bit fuzzy, but its explanation about “political brinkmanship” in Washington driving its decision to cut the nation’s credit rating last Friday seemed entirely reasonable.
The problem wasn’t nearly so much our ability to pay — or to bring our massive borrowing more in line with our massive spending — as our willingness to do so in a responsible, predictable manner.
And now Republicans’ refusal to meet Democrats half or even quarter of the way on a compromise over taxes is costing people around the world — particularly the wealthy Americans the tea party faction of the Republican Party was trying to protect — far more in stock market losses: Including yesterday’s rout, the Dow Jones Industrial Average had dropped roughly 19 percent — about $2.6 trillion — from its late-spring highs. By contrast, the tax hikes Obama wanted to impose on the richest 2 percent to 3 percent of all Americans would have cost about $400 billion.
There certainly may have been other factors behind the stock market’s recent implosion — the feeble economic recovery at home, as well as debt concerns in several European countries, for example — but it seems fairly obvious that the drama over the U.S. debt ceiling, which after months didn’t get resolved very conclusively, was the biggest culprit.
And while some mainstream Republicans — Sen. Mitch McConnell, for example — tried forging a deal with President Obama that would have left the door open for modest tax hikes, those in the tea-party wing refused to go along.
So, could those hardliners be viewed as economic “terrorists,” as Vice President Joe Biden and other Democrats declared last week? It doesn’t seem like too much of an exaggeration, given how the first-week’s impact on the Dow from the 9/11 terrorist attacks was just 14.3 percent.
The right, which was far more tolerant of President George W. Bush’s borrow-and-spend policies, has made its point about the need for fiscal restraint. But it should have compromised with the president when he promised trillions in spending cuts, cuts so deep that they outraged his party’s left wing. By pushing the situation to the brink, it undermined the confidence that S&P — as well as big buyers of U.S. debt, like Japan and China — has always had in our ability and willingness to pay what we owe. That confidence needs to be restored before the damage to our economy can be repaired.