Over-Reaction to Eric Cantor’s Electoral Defeat?

The big U.S. political news this week was the defeat of Eric Cantor in Tuesday’s Republican primary in his U.S. House district in Virginia. Pundits and politicians say it means increased power for Tea Party/Republicans. The Republican Party will become more conservative and even less willing to negotiate with President Obama and congressional Democrats. Etc. Etc.

I have not read all of the newspaper articles about this election and have no desire to do so. But I was surprised by a column by New York Times’ columnist Charles Blow that emphasized the very small size of the vote in this election. Here are the key facts:

 

District population 760,000
Total votes in District: 2012 general election 381,000
Total votes in District: 2012 GOP primary   47,719
Total votes in District: 2014 GOP primary   65,008
Total votes in District: 2014 GOP primary– David Brat   36,110
Total votes in District: 2014 GOP primary– Eric Cantor   28,898

Ezra Klein of the Vox Conversations website believes that Cantor lost because of the low turnout in this week’s primary; Cantor failed to get his supporters to the polls.   Philip Bump in the Washington Post disagrees; he asserts that the GOP primary turnout in 2014 was larger than in 2012 and that the increased turnout was to vote against Cantor.

I am sure there are other interpretations of the result of this primary election, and I certainly am not able to wade in with my own opinion on the subject. Nor do I want to.

I merely point out that only 7,212 (36,110-28,898) more people voted for Brat than for Cantor. Are the many grandiose interpretations of this election merely over-reactions?

 

 

 

 

 

 

 

 

 

 

 

Downgrading the U.S. Credit Rating

On Friday, August 5th, after the close of the U.S. securities markets, Standard & Poor’s (S&P) reduced its rating of the U.S. Government’s debt from S&P’s highest rating of “AAA” to its second highest rating of “AA+.” [1]

S&P’s announcement of this action was headlined: “United States of America Long-Term Rating Lowered To ‘AA+’ Due To Political Risks, Rising Debt Burden; Outlook Negative.” The key reasons for this downgrade were the following:

  • “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
  • “More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”
  • “Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.” [2]

In short, this objective outsider concluded, properly I think, that the U.S. “policymaking and political institutions” are not working. As S&P further stated, the U.S. recently has seen “political brinksmanship,” and “the statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.” In addition, S&P noted that “new revenues have dropped down on the menu of policy options.”[3]

While these observations are appropriately phrased in terms of the “U.S. policymaking and political institutions,” they really are a negative assessment of the political objectives, strategy and tactics of the Tea Party contingent of the Republicans in the House of Representatives and to a lesser extent in the Senate.[4]

Moreover, according to S&P, “the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging.”[5] This comment raises the important need for the U.S. to reduce unemployment and achieve higher economic growth, which is made more difficult by the austerity measures promised in the debt ceiling compromise that became law on Tuesday, August 2nd.[6]

If the above were not enough criticism of the U.S. federal government, S&P made the following two ominous statements about its future actions:

  • First, S&P signaled that on Monday, August 8th, it will be downgrading its credit ratings of “the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.”
  • Second, S&P said, “The outlook on the long-term rating [of the U.S.] is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”[7] This warning stemmed from S&P’s “downward scenario.” There were two key facts for this scenario. The “recent [U.S.] recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher.” The U.S. is experiencing “sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions.”[8]

Although two other independent credit-rating entities did not change their top ratings of the U.S. government, S&P’s downgrade, the rationale for its downgrade and its ominous warnings of further negative assessments of the U.S. undoubtedly will create next week another turbulent period in U.S. and world security markets.


[1] S&P, United States of America Long-Term Debt Rating Lowered to ‘AA+’ Due To Political Risks, Rising Debt Burden; Outlook Negative (Aug. 5, 2011), http://www.standardandpoors.com.

[2]  Id.

[3]  Id.

[4]  See Post: Disgusting U.S. Political Scene (July 23, 2011); Post: The Founder of Modern Conservatism’s Perspective on the Current U.S. Political Turmoil (July 28, 2011); Post: A Message for Speaker Boehner (July 29, 2011); Post: Dysfunctional U.S. Congress Careens Toward U.S. Default (July 30, 2011); Post: Dysfunctional U.S. Congress Averts Default (Aug. 2, 2011); Editorial, Political Roots in U.S. Economic Crisis, N.Y. Times (Aug. 5, 2011).

[5]  See n.1 supra.

[6]  See n.3 supra.

[7]  See n.1 supra.

[8]  Id.

 

Dysfunctional U.S. Congress Averts Default

The good news: the U.S. Congress and the President, at the last moment, were able to come to an agreement on increasing the U.S. Government’s debt limit and thereby avert a default on the government’s securities.

More good news: military spending is specifically included for possible reduction, rather than leaving all the cuts to discretionary spending for the benefits of our citizens.

The bad news: the Congress demonstrated its functionality in reaching this agreement. The rest of the world has looked in disbelief at the congressional spectacle and has less confidence in our political system and leaders.[1]

More bad news: the agreement calls for cuts in discretionary government spending when our economy is sputtering. Keynesian economics suggests the need for the federal government to run deficits during economic recessions.[2]

More bad news: the agreement means that much attention will continue to be spent on deficit reduction, rather than improving our deteriorated infrastructure and frayed social safety net.

The public is disgusted at the recent spectacle in the Congress and eager to blame all who were involved. Democrats, in my opinion, although not blameless, need to focus attention on the destructive role played by the Tea Party in the House of Representatives and to seek their defeat in the 2012 election.[3]


[1] See Post: Disgusting U.S. Political Scene (July 23, 2011); Post: The Founder of Modern Conservatism’s Perspective on the Current U.S. Political Turmoil (July 28, 2011); Post: Dysfunctional U.S. Congress Careens Towards U.S. Default (July 30, 2011).

[2] Krugman, The President Surrenders, N.Y. Times (July 31, 2011).

[3] Krugman, The Centrist Cop-Out, N.Y. Times (July 28, 2011).