Revolutionary Moderation

While the markets crash this morning....

I watched a little of the Sunday talkies this weekend, and it seemed like almost no one was willing to talk about what S&P actually said in their report when they downgraded the US debt. I only heard John Kerry describe it as "The Tea Party downgrade", which is rhetorically clever but should have been directly backed up. To most people, it sounded like the downgrade was accompanied with a declaration of "a plague on both your houses."

But here's what it actually said:

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. (page 4)

I argued on Thursday, and will argue on forums around the net again today, that the biggest risk the markets see in the US right now is the fact that sixty members of its House of Representatives are willing to put a gun to the head of the entire economy for the sake of ideology. Worse, the rest of the government capitulated to their demands. Worst, they rejected the deal anyway.

The upside? This may have been their moment in the sun. Between primaries which will put Michelle Bachman's simplemindedness on full display, and a wider realization that taxation has to be part of the United States' long term debt solution (as higher-taxed parts of the world flourish comparatively), their fidelity to Grover Norquist's no tax oath, and their general resistance to government as a possible force of good will look much less attractive to voters in 2012.