Possible influence of theories in economics on credit ratings?

Discussion in 'Economics' started by Peter H., Dec 2, 2011.

  1. Peter H.

    Peter H.

    Does the relative popularity of the various theories about economics like Classical and Keynesian Economics have any influence on the indicators and ratings used by credit rating agencies like S&P, Moody´s and Fitch? And in case that they do, how much influence do they have?

    I am fairly new to economics, so it is very difficult for me to asses this issue.

    Thanks in advance for any help.
  2. Ed Breen

    Ed Breen

    Everybody who works for the rating agencies is Keynesian trained. All they teach at the most selective universities is Keynesian economics. So, yes it influence their decisions, because they all accept the demand paradigm and veiw economic performance through a demand paradigm with reference to demand metrics that were created by Keynesians. They all believe that money supply and deficit spending can be used to modulate business cycles and they do not consider innovation or entrepreneurship as imporant economic factors. They do not consider fiscal policy, taxation, as a dynamic process with behavioral feedbacks and that obviously impacts their revenue assuptions. So, yes the economic view makes a difference...you won't be able to see the difference unless you go to an economy that is not run by Keynesians....take a look at China and the influence of Bob Mundell on thier economic policies. Look at the difference between the amount of 'investment' in the Chineese GDP compared to the amount of investment in the U.S. GDP. Consider the last time you heard a rating agency call for more 'investment' as a GDP component.