Roger’s Rules

What if the Debt Downgrade Wasn't Enough?

A few weeks ago, before the circus we came to call the Debt Ceiling Show got underway in earnest, I met a California friend who is in the financial biz. “The time has come,” we said, sipping the Chardonnay, “to talk of Maynard Keynes, of cuts, and caps, and income tax, Of Congressman and reigns, of why the debt is boiling hot and spending that’s insane.”

Well, apologies to the Walrus. There was not, in fact, much levity about our chat. America’s finances were in a parlous way, and the future was murky. Friday’s downgrade of U.S. debt seemed to come as a thunderclap to the people whom we pay to look after the country. That’s one of the side-effects of living in the Washington bubble: reality has a hard time breaking through the carapace of self-congratulation. But out there in the business world, people had heard and heeded rumors of a downgrade for months. They were worried. In April, Treasury Secretary Tim “taxes-are-for-little-people” Geithner pooh-poohed the rumors. There was, he said, “no risk” — no risk, Possums! — of a downgrade. My friend, who actually works for a living, knew better. The problem was the entrenched Washington mindset that combined these features:

1. It was anti-growth. I mean, its policies were anti growth. If you asked President Downgrade, “B., are you in favor of growth?” he would say, “Of course.” He says “of course,” but he does “no way.” ObamaCare, Cap-n-Trade (under whatever name), higher fees and taxes everywhere, an increasingly burdensome regulatory environment: no, the administration of Barack “Downgrade” Obama is the opposite of pro-growth.

2. It is pro-entitlement. That is, its policies are pro-entitlement. If you asked President Downgrade, “B., are you pro-entitlement?” what you would get is a parade of equivocations. The bottom line, however, is in the policies he supports. And what are those policies? Just take a look at what the Downgrade administration has done about (e.g.) unemployment benefits, union benefits, welfare benefits, etc. etc. It’ a litany of largess.

3. It is pro-spending. That is, its policies are pro-spending. President Downgrade, back when he was Candidate Downgrade, campaigned on fiscal “responsibility.” But he has added more than 30% to the federal budget. He is running a deficit of more than $1.5 trillion. He has a federal debt of more than $14 trillion (soon to be more than $16 trillion).

Put ’em together and what do you have? Lemon peel + Gin + Vermouth = Martini. Anti-growth polices + culture of entitlement + out-of-control spending = Debt Downgrade.

My friend saw this, as did his colleagues in the financial industry. But he also told me about a colleague who worried less about a downgrade (he thought it more or less inevitable) but about the possibility that a downgrade would not be enough to rouse the progressive culture of Washington from its dogmatic slumbers. “What if,” my friend said, “what if there is a downgrade and Washington just keeps on spending? What if a downgrade, cataclysmic though it will be for the economy, what if it is not sufficient to spark the serious reform that is necessary? What then?”

I guess we’re about to find out. This from the Financial Times: “Fed Forced to consider fresh stimulus.” Look for it in a battered economy near you: news that the Fed is once again on a buying spree, snapping up U.S. debt. Short term relief (maybe), long term misery (a near certitude).

Lewis Carroll should have the last word:

“O Oysters,” said the Carpenter,
“You’ve had a pleasant run!
Shall we be trotting home again?’
But answer came there none–
And this was scarcely odd, because
They’d eaten every one.