Saturday, November 10, 2012

If You Want a Balanced Budget....

At a bare minimum, you need to vote for politicians who are serious about balancing the budget. How do you know if balancing the budget is a priority to a politician? Ask him to produce his plan. A weak plan might sound like "We'll cut spending, and raise taxes if we have to." A stronger plan would identify some, most or all of the spending cuts and tax increases necessary to balance the budget. And if you hear something like this,
First, we cut taxes....
You can pretty much take for granted that you're being played for a fool. If the rest of the plan never gets more specific than "tax reform", "cut funding for PBS", and the like, but you choose to believe that the politician at issue is serious about balancing the budget, it's all on you. And if you hear that politician add, "The budget will be balanced in ten years," that is, two years into the next President's term, he's not actually promising to balance the budget.

At The American Conservative, Jordan Bloom expresses desire for a balanced budget amendment - and he's so eager to get it that he proposes what he describes as a "nuclear option", an Article V constitutional convention - to get one. I've commented on balanced budget amendments before - most of them... actually , all the examples I've seen... are weak, politically driven, full of loopholes.... The most sensible comment I've heard on the matter remains that of Warren Buffett - if you want a balanced budget, pass a law that sets a maximum threshold for a deficit and then bar any Member of Congress who votes for spending above that threshold from being reelected. Problem solved.

If you include loopholes in your balanced budget amendment, they will be exploited to the point that the amendment becomes meaningless and can be expected to distort the budgetary process. If you don't include loopholes, you tie the government's hands when deficit spending is necessary, you encourage the sort of budgetary shenanigans you see in state to pretend that a budget is balanced, such as balancing the current budget by shifting the debt into future budgets, and creating a context in which budgetary disputes could end up being litigated - do you seriously want a single federal judge to review and potentially revise the federal budget? Even if it were practically feasible, and could be completed in a timely manner, judicial review would intrude upon what is intended to be a legislative process. You could also inspire the government to expand the money supply - to balance the budget through tools that would trigger inflation.

Proponents of a balanced budget amendment often embrace the notion that the federal government's budget is analogous to a household budget, and that you should not spend more than you "earn". Lots of problems with that... not the least of which are that taxes are not analogous to income, there are times at which running a deficit can be necessary and others when it's good policy (ideally the two will mostly overlap), and the big picture is clouded by the deficit nobody likes to talk about - the trade deficit.

In the biggest picture sense, the concept that you cannot deficit spend forever - that you cannot indefinitely expand the debt burden at a rate that exceeds inflation, has merit. Yes, it would make sense for the government to work on the long-term fiscal health of the nation when the economy is robust, not to spend irresponsibly - or cut taxes irresponsibly - when they have the opportunity to move the budget toward balance or keep it there.
There are two main objections to the plan. The first is that one can never be quite sure what’s going to come out of a constitutional convention. The second is that a balanced budget amendment would probably mean in the near-term rapid austerity and arbitrary spending cuts. You know, like the fiscal cliff–a net deficit ameliorant–but bigger.
On the first front, not only could you end up with a constitution that's unrecognizable by historic measures, it might not even include a balanced budget amendment. On the second front, Bloom basically concedes the policy argument - a balanced budget amendment could put us into a cycle of a worsening recession followed by tax cuts necessary to counterbalance reduced government revenues and the right-wing horror story becomes reality - we become Greece.
It’s worth pointing out that had Romney won last night, this option would likely be closed – conservatives would be expected to believe that he would work to restore fiscal discipline (while increasing spending on wars and “preserving” Medicare).
Romney talked about balancing the budget, his actual promises did not encompass much more than cutting taxes (and PBS). If you believe his confused comments at the debates, the tax cuts were going to somehow be revenue-neutral, but he was unwilling to offer specifics. I do believe that he would have delivered his tax cuts, just as G.W. delivered the cuts he promised, as that's what his financial backers wanted him to do. The rest? Snake oil.

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