There exists one measure we can enact to transform the political culture of Washington, reduce our deficits, and ensure the wiser allocation of tax dollars: a Constitutional Amendment requiring the Federal Government to balance their budget.
Such Amendments have been proposed several times since 1982. In fact, the idea dates back to the founding of our republic. All attempts have failed to pass.
I am a believer in neither pure Keynesian theory nor pure supply-side theory. However, DC political hacks from both parties buy into one common tenet: deficit spending is OK. Not only only do they operate as if it is perfectly alright, but that it is acceptable all the time. This is even contrary to the basic Keynesian theory that deficit spending should be used only to lift the country out of a recession because it will balance itself out after the economy recovers. How can you pay back debt if you never cease deficit spending?
Nearly all local governments and States are required to balance their annual budgets. I'm having a hard time finding exact figures, but I believe at least 49 states must balance them by law. This is why states hit hardest by this recession/depression, such as California and Florida, are having such budget crises. They are cutting services and raising taxes and fees in order to bridge their budget shortfalls. While it is preposterous to say that anyone enjoys a chaotic budget crisis, it is the only way to deal with excessive outlays and stunted tax revenue forecasts. Reconciling with reality is far preferable to augmenting our public debt to unsustainable levels.
The most recent iteration of the proposed Balanced Budget Amendment would require that if Congress did not present a balanced budget bill to the President, he would have line item veto power to strike any appropriations in order to balance it. Raising taxes significantly would create a populist backlash, so the only reasonable solution would be to cut spending. This balanced budget requirement would therefore guarantee that the government reform healthcare, Medicare, Social Security, Defense spending, and any other bloated appropriation or entitlement. I'm not an economist, and I don't pretend to think I have all the answers, but this seems like a logical place to start.
One of the best political books I have read was "Running On Empty" by former Commerce Secretary Pete Peterson. This book was published in 2005, well before this recession started. But Peterson focused much deserved attention on the danger of our ballooning deficit. At the time, we were running a real $470 billion deficit simply on entitlements through 2014. This was before the final three years of excessive spending under W, TARP, and the $787 billion ARRA stimulus. If you want a clear picture of how serious our deficit was before the stimulus, read this book. It will scare your pants off.
Common Since: Extreme deficit spending is threatening to bankrupt this nation. Many people talk about it, but few act on it. Passing a Balanced Budget Amendment to the U.S. Constitution should be the first of several measures taken to secure our nation's finances and future.
Here's something extra to think about. From a summary of suggestions from Peterson's book:
ReplyDeleteSocial Security
·Index new benefits to prices instead of wages
·Mandate savings in personal retirement accounts that are invested in a mix of global equity and fixed income index funds
·Fortify Social Security’s safety net for the poor
Medicare
·Curb waste and fraud by moving toward managed competition
·Keep costs down by promoting cost sharing and gate-keeping
·Establish an independent entity to study best medical practices
·Reduce litigation costs by instituting medical malpractice reform
·Promote public health to combat obesity and unhealthy lifestyle choices
·Initiate a national reform agenda on global caps and hard choices
Congressional Budget Process
·Reinstate PayGo
·Issue a comprehensive long term (50 years) budget
·Develop accrual and generational accounting
Politics and Parties
·End the Gerrymandering of House Districts
·Neutralize the campaign funding problem (by requiring broadcasters to provide free air time)
·Educate young people about fiscal realities and about civic responsibilities
I wholeheartedly agree with the idea that we should balance our budget in the long run. I also support cost minimizing and smaller government in the future to reduce our bloated budget. (Based on the recent performance of both parties, may I suggest not electing a Democrat or a Republican?) However, I would not support the proposed amendment. A constitutional amendment that forced each yearly budget to be balanced could be detrimental. Furthermore, it would not be helpful in reducing our current deficit unless it also stipulated that the government must run a surplus. Consider this analogy to personal budgets:
ReplyDeleteI am a student at Temple Medical School that expects to make significantly more money as a doctor than I do now as a student. However, to achieve this goal, I need to pay for tuition and living expenses now. Banks see that I have the potential to make more money in the future, and lend me money to pay for tuition, rent, etc. My annual budget this year is very unbalanced; I am running a large deficit because I have the debt of student loans and little income. This is perfectly reasonable if I plan to make enough money in the future to pay off my debt and cover my living expenses.
Applied to the national budget, it is reasonable to spend more money than we make as a nation during times of war or economic recession. The key is the willingness to pay down the national debt in times of plenty, instead of just merely servicing the interest. Whether you believe in increased government spending (Keynes), tax cuts to promote demand (conservative Keynes?) or tax cuts that promote supply (supply side "Reaganomics") as a model for stimulating the economy, there is a theoretical benefit to running a deficit some of the time. The difficulty is electing politicians or developing legislation that chooses the correct time to run a deficit and the correct time to run a surplus.
It is much easier to project the future income potential of an individual than it is for a national government. Luckily, the world seems to think that we have not overstepped our future income potential because they are still willing to lend us money. However, there could come a time when the United States is not considered credit worthy if our government fails to pay down our debt during strong economic periods. Consider it the difference between loaning money to a medical student and a liberal arts major (Just kidding!).
I hope I made basic sense why I would oppose a constitutional amendment that forced a balanced budget on a yearly basis. I also realize that I have failed to provide a viable alternative. Perhaps legislation that forced the government to maintain a surplus when the GDP or some other index of economic performance was above a threshold to recognize a "time of plenty" and that allowed deficit spending when the index signalled a recession? The real difficulty is that there is no one clear indicator of economic performance that such legislation could recognize. Alas, I think we must put our faith in the election of some economically minded politicians that can understand this fairly basic idea. That being said, good luck America!
- Carl Beyer