August 8, 2011 11:12AM # What Are the Consequences of the Downgrade? By [Daniel J. Mitchell](https://www.cato.org/people/daniel-mitchell) --- SHARE Even though [I predicted it had to happen](http://danieljmitchell.wordpress.com/2011/07/28/does-the-boehner-plan-include-a-tax-increase-trap/) at some point because of [the Bush-Obama spending binge](http://danieljmitchell.wordpress.com/2011/02/21/compared-to-the-reagan-era-the-bush-obama-years-have-been-a-fiscal-nightmare/) and [America’s giant long-run entitlement crisis](https://www.cato.org/my-big-fat-greek-budget/), I confess that I’m somewhat surprised that the United States has [suffered a debt downgrade ](http://www.bbc.co.uk/news/world-us-canada-14428930)for the first time. That being said, I don’t think the downgrade will matter. Everyone knew the U.S. was heading in the wrong direction before the announcement by Standard & Poor. Moreover, big investors have very few attractive options for where to place their money – thanks to a weak global economy. As such, I suspect the federal government will still be able to borrow money at very low rates. What does matter, however, is that the American economy is [burdened with a bloated public sector](http://danieljmitchell.wordpress.com/2010/06/29/we-all-know-government-is-too-big-but-heres-the-evidence/) that is sapping the nation’s economic vitality. And this problem will get worse every year because of a toxic combination of poorly designed entitlement programs and demographic change. As the government gets bigger, this [hinders growth by diverting resources from the productive sector of the economy](https://www.cato.org/new-video-reviews-evidence-against-big-government/). The damage is then compounded by the fact that the two main ways of financing the public sector – taxes and borrowing – both have additional adverse economic consequences. In other words, the United States has fiscal cancer. Yet rather than try to cure the disease, politicians are – at best – kicking the can down the road. Here is my dour assessment on Bloomberg. The only glimmer of hope, as [I wrote yesterday](http://danieljmitchell.wordpress.com/2011/08/05/2-8-cheers-for-house-republicans/), is that House Republicans have made serious efforts to restrain the burden of federal spending. ##### Related Tags [Government and Politics](https://www.cato.org/government-politics), [Tax and Budget Policy](https://www.cato.org/tax-budget-policy) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).