Negative Outlook, but Still Able to Confiscate
Like a lot of conservatives, I’m sure, I find the prospect of our nation’s credit begin downgraded, or at least given a negative outlook, as Fitch Ratings just applied to the United States, a somewhat hopeful sign that the game of government taxing, borrowing, and spending cannot go on in perpetuity. But as I watch the dance, my sense that the agencies are really grading the government’s ability to confiscate resources through taxation only grows stronger.
We’d like to think that the ratings reflect how well a government is doing its job of being a government and how strong its underlying economy is, and those are surely factors. But the core criterion for grading the debt that a government sells is the likelihood that it will be able to take money from the people under its control and hand it over to its lenders. Sadly, the U.S. government sits atop a large nation of people who desire to forge a (taxable) living and who thus far have proven unable to elect a government that’s willing to restrain itself.
In that context, a “negative outlook” is little more than a whisper of a hint that the government needs to change its ways. For it to bear the fruit of a lower rating, the prospects would have to be bleak for the government paying back its debt at all. The imagination reels at what a world in which that’s a real possibility would look like; it’s one thing for Greece to appear unable to pay its bills, but the U.S.? Yet, experience shows that reasonable adjustments will not be made when entrenched interests have so much motivation to fight against them. Only crisis will serve, and few wish to foster crisis when it remains possible to pretend there’s no long-term threat.
Part of the problem, it seems to me, is that there’s no up from AAA. Selling less debt would make it more likely that the government can and will pay back what it already owes, but with the might of the U.S. bureaucracy as a collection agency, such a shift would be a mere shading of likelihood.