A balanced budget amendment (BBA) is the blunt-force instrument we need in order to get Congress and the President to do that which they will never do themselves: Confront, debate, and decide our priorities, our resources, and our limits.
Just because the fiscally hypocritical Republicans in the House voted for the BBA this week after passing a disgraceful spending bill last month does not make the BBA a bad idea. And just because the fiscally irresponsible Democrats predictably voted against the BBA likewise does not make the BBA a bad idea.
The BBA is a good and necessary idea. It is a check-and-balance that we must add to the Constitution to protect the dispersed public against the entrenched politicians; to protect ourselves against the growing risk of a debt crisis and financial reckoning; to protect future generations of Americans from the current.
Without the blunt-force instrument of a BBA, and especially with our polarized two-party politics, politicians will inevitably choose to accumulate debt instead of raising taxes or controlling spending. They will do so because it is rational for them to do so when they calculate for their self-preservation and re-election. Why aggravate either this constituency or that one through tax hikes or spending cuts, when instead you can indulge all constituencies by pushing costs onto future taxpayers and generations?
If debt didn’t matter, then this “kick the can down the road” approach to the federal budget and public finances might be acceptable. The problem is, debt matters. This is because of…
- Reduced Economic Growth. The debt stifles economic dynamism and growth due to its negative impact on interest rates.
- Reduced Budget Flexibility. The repayments to lenders (i.e., the debt service) are consuming an ever larger portion of the annual budget, effectively leaving less money for other public priorities, whether social services or defense or otherwise.
- Reduced Macroeconomic Flexibility. The debt is now at such a high level that the opportunity for fiscal stimulus in the event of a future economic downturn is diminished, maybe even extinguished. In other words, as the headline graphic shows, a jolt of spending-and-borrowing such as that under Bush and Obama in response to the 2007 – 2009 recession does not look readily practicable, given that we have not “paid down” the Bush / Obama debt levels to put ourselves back into position to “prime the pump” again, if deemed desirable. (Not that the Keynesian method of fiscal stimulus should be the desired or preferred method. But that’s a different conversation.)
- Increased Risk of Debt Crisis. With debt projected to keep on growing, lenders will at some point begin to question our ability to repay it, in which event the demand for U.S. Treasury bonds will go down, interest rates will go up, and the cost of debt service will increase. The government will become pinched; the economy will suffer. Worse, lenders could become sufficiently spooked that they stop buying our bonds, in which case a debt crisis and financial reckoning could hit the country, with no financiers for a national bailout forthcoming. This risk might not be likely at present, but it is a real and growing risk, because the current rate of debt accumulation is not sustainable. (Also because we are provoking our main foreign lender and debt holder, China, in a trade war. China holds about 5 percent of our public debt; foreigners including China hold about 25 percent.)
Those are the economic reasons for a BBA.
There is also the powerful moral question of whether politicians and voters should be permitted to continue to foist the costs of their current-day spending onto future-year taxpayers and generations who will not enjoy the benefits of this spending; who are not amongst us to vote and bring some accountability to the politicians in upcoming elections.
The arguments against a BBA reduce to three specious arguments:
- “It is complicated.” This is the technocratic argument, which claims that while the BBA might seem like a good idea, it cannot actually be put into practice. Supposedly, the BBA would eliminate the option of deficit spending either to finance a war or to respond to a recession. Supposedly, the BBA would have difficulty with discretionary versus non-discetionary (i.e., entitlements) spending. Supposedly, the BBA would invite or tempt the judiciary to usurp the legislative and executive roles in budgeting. All of which objections need to be rejected. First, because all serious BBA proposals include mechanisms to allow deficit spending, given a broad consensus that the deficits and debt are indeed in the public interest. Second, because the BBA must encompass both discretionary and non-discretionary spending, lest it be rendered irrelevant to the largest part of the budget (roughly 70% of which is the non-discretionary spending). Third, because whatsoever procedural details may eventually need to be worked out, the overwhelming and preeminent need is for the blunt-force instrument to force Congress and the President to debate and decide the fundamental question of priorities-vs-resources in a regular and accountable manner. The force will come from either having or not having a budget to pay for the federal government in the coming year. The accountability will come in the next election.
- “It is unnecessary.” This is the economic argument, which claims that the debt does not matter. Supposedly, we can just keep borrowing. Supposedly, the debt represents an investment in ourselves; it is spending that will pay for itself. Don’t worry; be happy. All of which delusion must be recognized for the delusion that it is, given that we are now accumulating debt at $1 trillion per year on top of the already historically high level of debt that we are carrying, which debt is overwhelmingly due to political unwillingness to address the costs of entitlements and transfer payments (which are about 70% of the federal budget). At a certain point, even a rich nation maxes-out its credit card. We are surely getting there. As one think tank observes, “CBO’s budget forecast signals that the country is now very close to the cliff’s edge. Any number of different events — such as a major international conflict — could trigger a debt crisis.”
- “It is not popular.” This is the political argument, which claims that passage of BBA is not likely and will take time. Supposedly, last week’s House vote is evidence that a BBA cannot get through Congress for ratification by the States. Supposedly, the two or three years required for ratification is reason not even to make the effort. All of which objections, again, need to be dismissed. Just because the votes do not exist today does not mean that they will not exist tomorrow, especially in our dynamic political environment. And just because the process for amending the Constitution takes time does not mean that we should not attempt it. The whole reason for an extended ratification process is to make sure that it is an infrequent and deliberate endeavor, resulting in amendments only when they address dire problems with broad consent from across the country.
Our budget deficits and debt loads are indeed a dire problem and threat. To bring the debt back under control, we need the blunt-force impact of a BBA in order to get members of Congress and the President to fulfill their responsibilities; in order to remove the incentive and opportunity for them to kick the fiscal can further down the road.
Let the political debate about national priorities proceed. Passionately. Civilly. Informedly. But also under the beneficent constraints of a BBA. Without which, that which is debated and decided will not be sustainable; will not reliably achieve its objectives; will not be morally founded.
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Written by J. David Lashar