The Staggers

The New Statesman’s rolling politics blog

Paul Krugman reacts to the S&P downgrade of the United States

The Nobel-prize-winning economist castigates the credit rating agency on his blog.

By Staff blogger Published 06 August 2011 13:36

Writing on his New York Times blog last last night, Nobel laureate, Obama critic, Princeton economist and card-carrying Keynesian Paul Krugman reacted angrily to the controversial decision by Standard and Poor's (S&P) to downgrade the United States' top-notch triple-A credit rating for the first time in history.

Professor Krugman wrote:

On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it's hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point -- then went ahead with the downgrade.

. . . In short, S&P is just making stuff up -- and after the mortgage debacle, they really don't have that right.

You can read the full blogpost here.

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Tags: US debt crisis John Maynard Keynes America

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11 comments

Sat, 2011-08-06 18:49 — Tom (not verified)

If he thinks that the ratings agencies are such a joke, why did it take him so long to say that?

Does he also think that China's rating agency that downgraded the States is a joke as well? If he does, maybe a smart move not to publically say that (thereby not pissing off your biggest creditor)?

Sat, 2011-08-06 20:36 — Hugh Markey (not verified)

Buddy, can you spare a dime?
Financially, the USA has been supported by Europe and many allies in Asia, Africa and Latin America since the Second World War. And especially the MId-East!
Quite a few Euro business people have complained over the years about having to hand over money to a deadbeat nation such as the USA.
But where else, with any safety, can other countries and wealthy people deposit their money.
And who is the world's policeman? Who has kept the mobs and revolutionaries at bay?
Libya is a perfect example of sending boys to do a man's work. NATO minus the US - zilch!
Unfortunately, the USA is the engine which pulls all the coaches and wagons in the free enterprise train.
Of course China has good reason to complain but where else can it put its money? Their is only one global bank and its controlled by Washington DC.

Deserving Case

Sat, 2011-08-06 21:50 — C Baker

I'm sure this bloke is a great guy and I agree with what he is saying in this blog/article.

But i fear it is these 'award winning' economists that are the problem. They, together with the bankers, have taken basic supply and demand economics and created a world of text book jargon, mumbo jumbo financial products, graphs, statistics(often massaged, or simply mathematically wrong) and and left us all broke.

How exactly have any of these economists, financiers and bankers contributed to the world's well being? Apart from sounding self important and able to regurgitate an a-z of economic terms, created to take money more readily off the poor.

Take an old age pensioner, living off the basic state pension and find out how they manage to pay their ever increasing bills- now that deserves an award!

Mon, 2011-08-08 15:01 — Mr Danger

Thank goodness Krugman has never been wrong about anything, unlike the ratings agencies!

Sun, 2011-08-07 12:00 — blindboy (not verified)

.....and we thought the Tea Party referred to was the Boston Tea Party, now we know it was The Mad Hatter's

Sun, 2011-08-07 13:23 — mike cobley (not verified)

There aint no mystery here - the rating agencies (aka commercial operations out to make a profit) can scarcely be regarded as any kind of reliable source of financial guidance. They're in the tank for the global financial elite, just another transnational instrument for disciplining recalcitrant governments and injecting fear into populations spoiled by too many years of indulgence and regulation. Suck it up and do as you're told - its the S&P way.

Sun, 2011-08-07 22:06 — Eddy S (not verified)

ah what a shame, i almost feel sorry for the US, i mean they just want to enjoy cheap debt and as long as the chinese mugs were willing to hand it - they had no problems - the writing has been on the wall for awhile - the chinese are no longer mugs - the rating agencies have finally got there act together and have realised what most of the world has realised along time ago - the US should have been downgraded along time ago.

Sun, 2011-08-07 22:41 — Neil (not verified)

If the rating agencies and 'the markets' want the US to get it's debt under control Obama should close offshore tax havens under his control to improve the supply of revenue. It's so often the same people calling for governments to balance their budgets who are hiding profits from taxation. He should call their bluff.

@C Baker
If you read enough Krugman you will see he is no neo-liberal apologist for the 'feral elite' of the financial world. He is often a lone voice in the roar of the 'business as usual' cretins who will lead the rest of us to serfdom.