A Fitch Credit Downgrade Tightens the Economic Vise Gripping America

Amidst the Tower of Babel-like cacophony that passes for civic discourse in today’s polarized America, there is widespread disagreement about what poses the greatest threat to our national security.

Among those who strongly support the funneling of money and weapons to Ukraine are many who insist the greatest threat is Russia, against whom we are waging a potentially escalating proxy war along with our NATO allies. Others assert that the greatest threat can only be China, the economic and military behemoth now menacing not just Taiwan but all of America’s allies in the Pacific region. Still others, including President Biden and his chief advisers, have declared that our gravest danger comes from certain American citizens (e.g., white supremacists and “domestic terrorists”) who constitute an existential threat to our democracy.

Other voices, not as numerous or as loud, would suggest that the correct answer is none of the above but, instead, the chronic fiscal crisis that has tightened its vise-like grip on our economy over decades, gravely imperiling America’s future. These voices recently have been amplified by the “shock and dismay” emanating from Wall Street following Fitch’s downgrading of America’s credit rating, owing to the “expected fiscal deterioration over the next three years, high and growing general government debt burden, and the erosion of governance.”

The Wall Street Journal editorialized that the Fitch verdict captures the “unseriousness of America’s economic decision making.” The newspaper suggested that the best indicator of economic health over time is the national debt measured as a percentage of gross domestic product (GDP). That number — 65.5% in 2011 and 98.2% in 2023 — absent dramatic entitlement reform, is expected to explode soon, when baby boomers reach retirement age with the attendant ballooning of Social Security and Medicare expenditures. 

If America’s fiscal crisis is so dire, it is fair to ask why no one saw it coming. In truth, many people warned of this crisis, but invariably they were viewed as Cassandras and brushed aside by political leaders who believed that America’s wealth and power were so immense that the country could dig itself out of any fiscal hole it might fall into. However, two critics of America’s high-risk economic policies — whose analyses have proved prophetic and deserving of renewed attention — are British historians Paul Kennedy and Niall Ferguson.

In his 1987 classic, The Rise and Fall of the Great Powers, Kennedy introduced the now-familiar concept of “imperial overstretch” and demonstrated how ruinously expensive wars have paved the way for economic collapse and/or revolutions, citing the examples over three centuries of Spain, France, Tsarist Russia and Imperial Germany.

Ferguson, who gained prominence through an earlier book, The Cash Nexus: Money and Power in the Modern World 1700-2000, in 2004 wrote Colossus: The Rise and Fall of the American Empire, in which he demonstrated that the greatest threat to America was not its debilitating foreign wars but, rather, its “chronically unbalanced domestic finances.” He asserted, somewhat prophetically, that the “true feet of clay of the American Colossus are the impending crises of the systems of Medicare and Social Security.” 

Ferguson stated that, their country having been founded through a revolution, Americans see themselves part of an “anti-imperial” power, even though its profile in the world has all the hallmarks of an empire. He asserts that it is conceivable their anti-imperial empire “could unravel as swiftly as the equally ‘anti-imperial’ empire that was the Soviet Union.”

In the nearly 20 years since Ferguson’s Colossus appeared, America’s perilous negative fiscal indicators have worsened dramatically — as the Fitch downgrade and the Wall Street Journal data on the debt-to-GDP ratio illustrate. What has not changed is the stubborn unwillingness of our two major political parties to undertake the serious fiscal reform that is imperative if we are to defuse the ticking economic time bomb of Medicare and Social Security entitlements. 

The chaotic state of our polarized national politics and the seeming indifference of the two leading presidential candidates to this issue suggest that the traditional strategy of “kick the can down the road” is all but certain to continue. The American people need and deserve better leadership, but where are we to find it? 

William Moloney, Ph.D., is a senior fellow at Colorado Christian University’s Centennial Institute who studied history and politics at Oxford and the University of London and received his doctorate at Harvard University.