We should care about our own little economies

Freshman U.S. Congressman Todd Rokita, of Indiana’s 4th Congressional District, created some waves last week when he said a downgrade of the U.S. bond rating “is not the problem of this nation’s grandchildren.”

He also said, “I don’t know anything more un-American than saying “oh, I’m worried about my own little handout or my own little program or my own little economy, and we’ll kick this can down the road.”

The metaphorical can, of course, is our significant national debt. In an interview with ABC, the congressman essentially suggested he is more concerned with creating a sustainable economy for the future than maintaining our economy in the here and now.

There’s an awful lot to digest in that idea, but I’d first like to delve into what it would mean for the credit rating agency, Moody’s, to downgrade U.S. bonds.

The basic truth of bonds is the higher risk there is associated with purchasing a bond, the higher interest rate that must be offered to the investor to purchase it. 

A downgrade by a ratings agency is an indication of the existence of higher risk of default on repayment of the bond to the potential investor. 

What follows is the higher risk that would result in higher interest, which would in turn mean the seller of the bond — in this case, the U.S. Government — would ultimately have to pay more in the long run for any money it borrows now.

The markets are another place where we could see some of the apparently innocuous effects of a Moody’s downgrade. Though it is impossible to predict the behavior of investors, a downgrade in U.S. bonds would almost assuredly send the skittish men of Wall Street running, potentially leading to a significant drop in the stock market.

As of the beginning of this week, we are already seeing this happen. Without going into excruciating detail, such a drop would lead to a decline in revenue received by the U.S. government.

Let’s check the math here. A downgrade would mean greater costs in the long run and a potentially devastating decrease in revenue available to pay for that greater cost.

In short, the downgrade so blithely dismissed by the enterprising congressman could massively exacerbate the very problem that has so completely attracted his unwavering attention. 

I am concerned about my own little economy, our economy, and I don’t think that makes me un-American.

To suggest that considering a downgrade of our bond rating is not an important issue in the grand scheme of things is either calculated deception aimed solely at achieving political ends, or the product of an utter lack of familiarity with the potential consequences associated with such a downgrade.

Regardless of the congressman’s motivation, it is my sincerest hope that we do everything we can as a nation to prevent such a downgrade.

Realistically, this includes cutting spending, raising taxes and, in the short term, raising the debt ceiling. 

A stable economy in the here and now is vitally important in creating a sustainable future, both for Rokita’s grandchildren as well as my own.

­— jontodd@indiana.edu