Before you study the analyst’s report, study the analyst

8 08 2011

Yesterday I posted some questions about Nikola Swann, the S&P analyst who downgraded the US debt. I complained that we know almost nothing about Swann or the other individuals responsible for the downgrade. A helpful reader has provided some information that remedies the situation.

Nikola Swann is a Director, having joined the Toronto office in 2002. Nikola is primary analyst for the United States of America, Canada and Bermuda, as well as several public sector entities, including the International Bank for Reconstruction and Development, the International Finance Corporation, and la Caisse de dépôt et placement du Québec.

Prior to joining Standard & Poor’s, Nikola worked as an Economist in the Canadian Federal Government’s Department of Finance. Previously, he worked in the Monetary and Financial Analysis Department of the Bank of Canada.

So it appears that Swann was working in the Canadian government in the 1990s, when Finance Minister Paul Martin was battling to eliminate Canada’s the large fiscal deficit. Martin famously said that he would eliminate the deficit “come hell or high water” and would use any means necessary.  Martin managed to eliminate the deficit by a mixture of spending cuts and revenue increases. I’ve put the cover of Martin’s memoir below.

As the chart below shows, the Canadian deficit was mostly eliminated by spending cuts, but there were some tax increases that were part of the mix as well.

This background is critical to understanding why Swann’s report is critical of right-wing US politicians who think that deficit elimination can be achieved solely by cutting spending. The Tea Party movement is adamantly opposed to any tax increases whatsoever, even those that fall on just on the very wealthiest Americans (some of whom run the Tea Party movement).

It is possible to attribute Swann’s belief that deficit reduction take both tax increases and spending cuts to simple common sense. However, I also think that we need to take an individual’s personal and political background into account when evaluating their reasons for arriving at a particular position. In this case, we would look at Swann’s first-hand experience in a government that succeeded in balancing its books through a mixture of tax increases and spending cuts. Moreover, Swann’s perspective can be seen as reflecting the Canadian habit of seeking compromises or balanced approaches to problem, a habit of thought that informs Canadian thinking about the social contract. Most Canadians would shy away from a approach to deficit reduction that relied exclusively on either spending cuts or increased taxes on the rich. Canadians tend to gravitate towards the via media, the middle of the road. As I’ve argued before, the Canadian belief in compromise is something that we inherited from the United Kingdom. (See shameless self-promotion publication reference below).

My point is this: before you study the analyst’s report, study the analyst.

Many historians train their students using document analysis assignments. The students are given a particular document, say a papal bull or one of Napoleon’s decrees, and are then told to write an essay that discusses the document’s creator, the author’s context, and their motives for writing x, y, or z. It’s a great exercise as it imparts a habit of thought that the students can apply in their future careers, which will likely be in a field outside of history, such as business or politics or journalism.

It seems to me that in a future history class, students might be asked to do a document analysis of the S&P’s now famous report.


Andrew Smith, “Canadian Progress and the British Connection: Why Canadian Historians Seeking the Middle Ground Should Give 2½ Cheers for the British Empire” in Contesting Clio’s Craft: New Directions and Debates in Canadian History edited by Christopher Dummitt and Michael Dawson (Washington D.C.: Brookings Institution Press, 2009).