A Downgrade Awakening

Editorial do WSJ

During yesterday's market meltdown, an old friend shot us an email: "The Obama adm needs to stop trying to disarm the fire alarm and start trying to put the fire out."

Good advice that, not that President Obama followed it during his midday remarks at the White House. Instead, he poured on some lighter fluid, blaming Republicans and Standard & Poor's for S&P's credit downgrade while remonstrating that both parties nonetheless had to work together. He also repeated his familiar agenda that more spending now and higher taxes later will fire up the economy and restore America's financial standing.

The Dow promptly fell another hundred points before tumbling 5.5% on the day. It was ugly out there. The S&P downgrade was a psychological shock, a slap in the face, and markets are naturally in for a rough ride.

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But we think it's also worth stepping back from the daily turmoil to look at the larger picture. To wit, the current U.S. debt debate isn't a sign of American political "dysfunction," despite what S&P, the Chinese (see below) and various sages are saying. It's a sign that we're finally beginning to comprehend and correct the problem. The process will be messy, as democracy always is, but the brawling is a sign of progress.

Let's recall how we arrived at this crossroads. A credit mania of several years that no one wanted to end suddenly turned into a financial panic in 2008. In their anxiety, and with Republicans holding the White House but having no explanation, the voters turned to the candidate who seemed coolest under fire. Though relatively unknown, Barack Obama was at least promising "hope and change."

Upon taking office, Mr. Obama proceeded to unleash the entire liberal economic and social policy arsenal in the name of ending the panic. Whether or not these were his own convictions, the President allowed the Pelosi Congress to use that rare political opening—and 60 Senate Democrats—to pursue a 40-year wish list.

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And pursue it Democrats did. To an economy recovering from excessive private leverage, they poured on trillions in new public spending and debt. Amid a financial system suffering from a nervous breakdown, they castigated bankers for causing the panic and then added 2,000 pages of new rules. They spent nearly two years redesigning one-sixth of the economy to realize their ambitions for national health care. They unleashed regulators to rewrite the nation's energy and labor laws.

It was, to put it in market terms, one of the most audacious political bets in U.S. history. Blow out the national balance sheet on the assumption that they could cover the bet later with tax increases. But business and consumers didn't take well to the political beating, the economy didn't recover as promised, and the tea party and the 2010 elections rudely interrupted to yank the liberal credit card.

The clamor and tumult of the last year are the sound of Americans slowly figuring out what has happened to them. The country and financial markets are concluding that the policy solutions imposed on them for three years haven't worked. This is inevitably a painful awakening.

Americans are also reaching conclusions about the supposedly cool hand they elected in 2008. Maybe he isn't the leader they had hoped he would be. Voters are always reluctant to reach such a judgment because they want a President to succeed. They identify his success with the country's. This is why they give Presidents a chance to change course even after a midterm election rebuke, as they did with Bill Clinton.

But President Obama has not seemed able to adapt to this shift in his political circumstances and the public mood. He does not admit mistakes easily, if at all.

As his remarks last week and yesterday showed, his economic agenda is more of the same, only less: more jobless benefits in the name of spurring job creation; an extension of the temporary payroll tax cut that has coincided with rising unemployment. Trade bills that he could have, and should have, passed two years ago. Tax increases or no bipartisan debt bargain.

While claiming to stand for a "balanced" debt deal, he allows only tinkering around the edges of Social Security and Medicare, and he refuses even to discuss ObamaCare, which is more unpopular than on the day it passed. For millions of Americans, Mr. Obama's cool has begun to look like ideological stubbornness and political detachment.

Such public recognition is the beginning of the American system correcting its mistakes. Unlike S&P, we welcome the shouting. We'd be far more worried if the country were quiet amid its rising debt burden and accepted Washington's familiar answers, the way the Japanese have tolerated two decades of malaise.

The downgrade uproar and even the market turmoil are signs that Americans aren't about to accept economic decline gracefully. To adapt a famous phrase, a debt crisis is a terrible thing to waste.