David R. Henderson  

Greider's Ad Hominem

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Examples of clearcut ad hominems, I've found, are rarer than I thought before I started looking for them. On closer inspection, most ad hominem arguments have a trace of logic or reason, however weak, that accompany them. But William Greider's argument against Standard & Poor's warning on U.S. government debt is about the cleanest case of an ad hominem I've come across in a while.

I have nothing personal against Greider. I sat around a conference table with him for a day in February 2010, a day biiled as one on which left (he's on the left) and right (I'm not on the right, but I'm not on the left either) tried to see if we could work together against the various wars. He seems like a nice man.

In a recent article in which he railed against Standard & Poor's for its recent lowering of U.S. government bonds from "stable" to "negative," Greider uses the whole column to attack Standard & Poor's. Much of his attack is on target. Standard & Poor's did do us a disservice by rating securitized mortgages too high. But Greider doesn't give us a scintilla of evidence that their fear on U.S. government debt is unjustified. Indeed, the standard problem with Standard & Poor's is that they have rated various securities too high. So, given their bias in the direction of ratings that are too high, isn't it striking that they have moved slightly in the opposite direction? Not to Greider.

He also states, "What is required is a serious law that either changes the status of the rating agencies or shuts them down." Is Greider aware that the SEC gave privileged status to Standard & Poor's in 1975, a status that takes away much of their incentive to rate accurately?


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COMMENTS (4 to date)
SkippyMaximus writes:

Doc,

This is a very illuminating topic. I had no idea about S&P's privileged status. Any way we can fit this conversation into a 5 minute?

Hayek said that it is "not a dispute about whether planning is to be done or not...it's a dispute as to whether planning is to be done centrally."

I think this special status, of which I was not aware of, is nothing more than central planning by the government...just delegated to S&P.

It reminds me of playing the game "Jenga". A tower is built, and then players take turns removing blocks from the tower and placing them on top. The tower becomes taller and increasingly unstable as the game progresses.

Our economy seems to be a Jenga tower (providing a little ad hominem myself). Instead of building a strong base (letting the free market rule), we just keep adding blocks to the top.

We're then surprised when we remove a single block on our turn, and the structure collapses.

Ben writes:

Did S&P release its analysis alongside its rating change? If they did, and Greider ignored it, then yes, this is an ad hominem attack. But if they didn't, there's an implicit assumption that S&P is a credible source. The argument reads:

1) We say American debt is risky.
2) Trust us; we're S&P.

If this is the case, it seems legitimate to challenge S&P's credibility.

David R. Henderson writes:

@SkippyMaximus,
Thanks.
@Ben,
Potentially good point, but I think you take it way too far. I challenge S&P's credibility too, but a careful journalist would try to look at some data on whether S&P's judgment is sound on this issue. Seems to me, given the huge government liabilities in our future, that a negative warning is credible. Remember that S&P is known for rosy scenarios on debt, not the opposite. All Greider did was attack their character in an article in which he claimed they were pulling a "hoax."

fred Smith writes:

David:

Glad you met Bill - a nice guy. Hadn't realized he's upset at S&P. They get in trouble often for ratings - there's only two ratings "too" high and "too" low (with criticisms coming from the obvious parties). Their special status (NSCROs) does create some wierd incentives (can't figure out which way they cut) but they've asked that those be removed. Outsourcing regulations allows government to avoid responsibility. The major problem is that these ratings drove bank reserve policies and that encouraged Fannie/Freddie purchases.

Their current warning to the US is wonderful - in my opinion. I've met the S&P CEO but don't know him well - seeking to do so. An early WSJ op ed I wrote suggested that S&P was a better sovereign (political) risk rater than the IMF.

I see Bill from time to time, I'll aak him to clarify. He's certainly no friend of the Fed but is very much a populist.


Fred Smith

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