AAA Ratings and Regime Types

by Joshua Tucker on August 12, 2011 · 17 comments

in Comparative Politics,Political Economy

About four weeks ago—in the midst of the negotiations over extending the US debt ceiling—I was talking with a British friend of mine, and he asked me what President Obama meant when said he was going to take the argument to the people. I explained that this meant he was going to give a speech, and make his arguments directly to the people. My friend listened to my answer, and then told me how when he heard this he wondered if Obama was going to call on early election.

I thought back to this conversation in view of the explanations given in the aftermath of the S&P downgrade of the US’s AAA debt rating. As the S&P noted in its report, the downgrade was as much political* as economic. Here’s an exerpt from the report:

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently (emphasis added).

In a nutshell, the S&P is concerned that even if either party has a plan to fix the US’s long term fiscal future, it is not going to get implemented because of conflict between the two parties. Why is the case? Because the executive (the Presidency) and the legislature (the Congress) are not controlled by the same party. This in turn got me thinking about the possible relationship between regime types—as one of the primary characteristics of parliamentary regimes is that the same party(ies) controls the executive and the legislature by definition—and AAA ratings. So here’s the breakdown of regime type for the 13 countries remaining in the world with AAA ratings from Moody’s (actually Aaa), Fitch, and S&P:

Now a couple caveats are in order. First, 11 of these countries are also West European democracies, so there clearly may be other important similarities besides parliamentary systems of government. Second, Singapore is included in this list as a parliamentary system, so take that as you may. That being said, the data are what they are, and the fact remains that not a single country with a presidential system of government currently has a AAA rating from all three ratings agencies. Of course there is one country with a semi-presidential system (France) left on the list, but, interestingly enough, France is also the country this week’s rumor mill suggested may be the next to lose its AAA rating. Coincidence?

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*I am curious to know—given the fact that the S&P downgrade decision was as much political as economic—exactly how many political scientists S&P had working on the ratings decision. Must have been substantial, right? I mean, the agency would want to have people who are trained in studying politics making ratings decisions about political systems, wouldn’t they? [h/t to others who have previously made this same point…]

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