The only thing really surprising about S&P downgrading Italy’s bond rating is that it took them so long.
Italy is basically the country American conservatives seem to think America is. It has a very low economic growth rate as a structural matter. It has an unusually low labor force participation rate by developed world standards. Despite its large debt load, it also has high pre-existing taxes. Entrepreneurship is crushed by regulations. Labor unions are both very powerful and seemingly uninterested in overall economic growth. Simply saying you’re going to plug the hole in the budget deficit by raising taxes to fill the gap doesn’t really answer any of the outstanding questions. Italy needs more productivity, more labor force participation, etc. And yet over and above all those problems, they also now have inadequate aggregate demand since they’re yoked to the insanity of the European Central Bank.
This is worth Americans’ time and attention not only for its intrinsic importance, but also to note the contrast. The United States really isn’t like Italy. We have lots of successful entrepreneurs. We have high labor force participation. We have low taxes by international standards. If faced with a sudden pressing need to reduce the fiscal gap (which we’re not) we can just go get the money.