The government ain’t us. Failure to grasp this reality explains why the normally quite sensible Larry Summers mistakenly thinks that, because “the economy looks stronger than expected,” Fitch’s downgrading of U.S. government debt is “bizarre and inept.” Fitch did not downgrade the U.S. economy; it downgraded the debt issued by a particular organization – the U.S. government.
August 4, 2023
Editor, Wall Street Journal
1211 6th Ave.
New York, NY 10036
You rightly argue that Fitch Ratings’s downgrade on Tuesday of debt issued by the U.S. government is justified, but in doing so you use language that subtly but surely sows confusion (“Fitch Downgrades America,” August 3). In reality, Fitch decided to downgrade neither “America” nor “U.S. debt”; instead, Fitch decided to downgrade debt issued by the U.S. government.
This point isn’t, as some will say, “merely semantic.” (Because words matter, semantics are never “mere.”) The U.S. government is an organization with a constitutionally defined role in American society. That this role is unique, large, and expanding is true, but none of this makes the government synonymous with America. My credit rating wasn’t downgraded on Tuesday, and nor was that of countless other American citizens and businesses.
As you explain – and as does David Malpass today in “Fitch Tells the Federal Reserve to Wake Up” – Fitch’s decision is motivated by its understanding that fiscally reckless decisions are being made by U.S. government officials. These officials are perversely motivated to spend, to borrow, and to inflate the money supply in ways that do indeed raise the likelihood that holders of U.S. government debt will, at some time in the foreseeable future, not be repaid in full and on time.
The core problem flagged by Fitch isn’t with America or America’s economy; it’s with the U.S. government. Failure to keep this distinction in mind runs many risks, not the least of which is being blinded to the need to create incentives that better encourage people in particular government roles – in Congress and at the White House and the Fed – to act with more fiscal prudence.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030