08/08/2011 03:27 pm ET | Updated Oct 08, 2011

Upside to the Downgrade

My sister Susan once dubbed me "Dr. Pangloss on steroids" -- hardly a compliment from a serious philosopher. It's true that I have an uncanny and often irritating ability to find silver linings behind even the darkest clouds. It was a personal challenge when she asked me Thursday if I could see an upside to the deficit ceiling deal. Momentarily stumped, a New York Times poll Friday morning and a downgrade for US debt from Standard & Poor's that evening came to my rescue.

Normally, after four years a president owns the economy, however badly broken it may have been when he came into office. The immediate and visible wreckage resulting from the recent hostage taking crisis ("throw granny under a bus or the global economy gets it!") places the better half of the blame clearly in the Republican corner, again. On Thursday, when the Dow lost 500 points, the 49.5% of US households that own stock took a direct hit. They noticed. Not three full years after the market collapse of 2008, the Tea Party Congress has reminded Americans just what greedy and irresponsible stewards of the national economy Republicans tend to be. Suddenly, avoiding a double-dip recession becomes a significant achievement and even if Obama fails, the Republicans just took most of the rap! It was clearly so pleasurable for them that we can be reasonably certain they will continue to do so at every opportunity right through the election. But not beyond.

Many progressives, myself included, thought Obama should have refused to negotiate with these blackmailers and used the 14th amendment to unilaterally raise the debt ceiling. Standard and Poor's downgrade on Friday demonstrates how that decision would have put us in the worst of all possible worlds. Invoking the 14th amendment could only exacerbate the short term uncertainty factor, not eliminate it. The Tea Party would have sued the administration and the markets would have had to wait for resolution by a Republican-dominated Supreme Court sometime next year. And that's the least bad of the near certain consequences of going down that road.

The ratings agencies made it perfectly clear that raising the ceiling without lowering the debt wouldn't do. Hopefully, having a triple-A rating from Moody's and Fitch, two out of the three major agencies, will prevent the S&P downgrade from precipitating a financial meltdown. Had all three downgraded the debt that is the cornerstone of the global financial system it would certainly have been a devastating wrecking ball to the fragile edifice the formerly industrialized nations have built on cheap Chinese credit. As European Central Bank president Jean-Claude Trichet observed this May, "Our democracies would not be ready to provide again the financial commitments to avoid a great depression in case of a new crisis of the same nature." The People's Republic of China probably wouldn't be ready to pick up our democracies again, either. If Obama had done the ballsy thing and taken the 14th, all this and everything else that did or didn't happen to the world economy between now and November 6th, 2012 would have been 100% his fault. If you think things are scary now, think Tea Party control of both chambers of Congress, the Supreme Court and the White House.

As it is, we all have a decent chance of muddling through. Not very satisfying considering our expectations for change we could believe in. But in light of how truly rotten underlying conditions turned out to be, it could easily and always get worse. Much worse. After eight years of Bush governing from his kishkas, we wanted a president who would govern with more brains than balls. Well, we got that. We can be grateful and even proud of ourselves for having elected a man who could make the very best of a very bad hand.

Maybe there was a magic moment in the spring of 2009 when it all could have been different. At the time, I thought the banks could be nationalized and consumer debt restructured, a grand jubilee to follow the rapture of Obama's inauguration. Now I have my doubts. Decades of poorly applied Keynesian economics have developed a disastrous dependence on debt at all levels of government. Back in the 1930s, when a colleague pointed out this long term likelihood, John Maynard Keynes famously replied, "In the long run we'll all be dead." He didn't have children but I do. We're all now living in Keynes's long run. As long as the People's Republic and their conservative banker lackeys have us over a barrel, Western democracies are certain to keep getting it up the yin-yang. This is why progressives have to start thinking that deficits matter. We cannot depend on bankers to fulfill our dreams of social democracy.

It pains me to no end to see Obama have his bloody testicles handed to him over and over, to see him take it without outrage, to even meekly blame this on "Warshington." But to that tiny but critical sliver of Americans who vote and swing, Obama's steady mantra of mutual responsibility validates their position precisely. And it rings true. Always a good thing when one is fighting for truth and justice.

I wish I could still believe in fairy tales with good guys and bad guys instead of this messy, ethically challenging political reality of bad and worse. We all had a significant hand in this fiasco, including craven politicians and union leaders, not to mention disengaged voters and rank and file union members. There were way too many wimpy deals, too many promises to pay tomorrow for a hamburger today, too many under funded pension commitments instead of wage increases. All that added up to too many trillions of dollars in pension funds looking for triple-A rated bonds that performed like junk. How could the Wall Street wizards resist conjuring them up out of thin air and derivatives? How could the governments of the West resist looking the other way as they did?

Because we're all guilty, we'll all suffer. But the folks who made all the money from making this mess are going to have to pay to help clean it up. The Tea Party's utter intransigence on this issue has handed Obama and the entire Democratic ticket the opportunity to deliver that punch like a pile driver next October.

The wondrous thing about losing metaphorical body parts like hearts or testicles is you can always grow them back, bigger, stronger and wiser than before, providing you're prepared to risk the pain of losing them again.